Council feels financial squeeze on housing company pledge

The London Borough of Newham is set to approve a £113.1m funding package to support the latest phase of homes being developed by its wholly-owned housing company- but has admitted it will not meet affordability targets set last year.

A report to a meeting of the east London borough’s cabinet next week accepts that the 294-unit second tranche of homes being delivered by Red Door Ventures will only deliver 112 affordable properties – 35 short of the “50% affordable” target set by new mayor Rokhsana Fiaz.

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March 25th, 2020, Manchester
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Red Door Ventures was set up in 2014 to deliver new homes for affordable and market-rate rent across Newham in a way that gave the council greater say over the development process and allowed it to use borough-owned sites to both shape and subsidise regeneration.

The company also uses high-profile architects for its schemes.

Last year Fiaz repositioned the Red Door offer to deliver a greater number of affordable homes, targeting 50% of the company’s units to be made available at London Affordable Rent levels – described as approximately half of local market-rate rent – or other “affordable” tenures.

An October 2018 cabinet decision endorsed the move, which had been one of the Labour mayor’s manifesto pledges ahead of her election the previous May, “subject to viability”. 

A report to cabinet next week pulls the “viability” trigger for the second phase of the Red Door Ventures’ programme because of “costs associated” with delivering a new community hub at one of the six sites involved in the package.

It says providing the new hub – which could house a new library, subject to consultation, and which is to be leased back to Newham at no rent  – “limits the ability” of Red Door Ventures to deliver more than 38% affordable homes at the site.

“Notwithstanding this, RDV remains committed to delivering an average of 50% across their overall programme, in line with the mayor’s manifesto commitment,” the report said.

The report calls on cabinet members to endorse the £113.1m funding package for the second phase of Red Door development and delegate the approval of variances up to 5% to corporate director of resources – and section 151 officer – Conrad Hall.

According to the document, the funding brings together equity and loan cash from the council of £96m for the development phase and a further £6.2m for the investment phase; a Greater London Authority grant of £10.7m and “scheme-specific” working capital of £160,000.

The GLA grant covers the second phase’s 104 London Affordable Rent and eight shared-ownership homes, which make up the package’s “affordable” component.

A section in the report dealing with financial risks to the scheme noted that October’s unexpected 1% increase in Public Works Loan Board interest rates had resulted in an “adverse impact on the profitability of the project for the council”.

It said that long-term annuity rates were still lower than the level modelled in the viability assessment used for the project, meaning the component projects were “still affordable” for the council.

Nevertheless, the report accepted: “Further increases in the PWLB rate would leave little margin for increase, and should such an increase occur, the council would need to consider the approach for subsequent projects.”

As part of her manifesto last year, Fiaz pledged to build 1,000 new council-owned homes to be let at social-rent levels by 2022, and ensure that half of developer-built homes were let at social rent levels and owned by the council.

The latter pledge was described as a “challenging but achievable target”.

The report to next week’s cabinet meeting describes Red Door as “an integral part” of the delivery of the 1,000 social-rent homes.

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