Interview: Dan Hawthorn, director of housing, Haringey

Dan Hawthorn, Haringey’s director of housing is moving on to pastures new at Kensington & Chelsea. Speaking to Room151, he reflects on the prospects for council housing in the current crisis, implications of recent budget announcements and lessons from the high-profile collapse of Haringey’s public-private partnership.

Room151: How do you see the opportunities for local authorities with ambitious house building and regeneration programmes?

Dan Hawthorn (DH): The landscape is changing as we speak. But let me start by giving the answer I would have given a week ago.

There’s been a bit a bit of a shift, certainly in London, where two very linked things happened. The first is that councils are expressing their ambitions, in terms of additional council homes. And also, linked to that, building up their own development capacity again for the first time in a generation.

Keep in touch – register for Room151 treasury and finance meetings ONLINE

The equally important thing is that no council with a serious house building target can credibly expect that new council homes, or a council’s own house building function, can meet all of the demand.

And that’s for a whole number of reasons; partly because you can’t just build council homes, you’ve got to build homes of all other kinds of tenures; partly because of the immaturity of a lot of our council house building functions–there are some sites which are just too large or too complex, or where the land ownership is so complicated, a council just can’t do things on their own.

There is something really exciting going on in local authorities about playing a new, more direct, muscular role in the development of new homes.

Dan Hawthorn

There is something really exciting going on in local authorities about playing a new, more direct, muscular role in the development of new homes. But no one should be under any illusions that we’re moving into the space and pushing others out of it.

Room151: Will the current crisis affect housing?

DH: It’s really clear that we are now at the start of an economic shock, which is going to be at least as big as 2008, although very different and hard to predict.

And what was really noticeable in the last downturn was that there were some counter cyclical trends which the social housing market was able to take advantage of.

One of the things that we’ll have to watch for is that it’s not going to make the demand for homes in London go away. Therefore, there will be a responsibility for councils, and perhaps other social landlords, to step into a gap that you might imagine opening up in the private development market. And there might be a role for institutional capital to play there as well, although it’s extremely early days.

Room151: Recent government announcements in the budget and more latterly indicate a big change in the policy environment.

DH: For years now, the government has done all sorts of things in good economic times, and bad, to stimulate the building of more houses. But at no point in the cycle since 2008 has the housing industry actually stepped up and done what the government wants it to do.

What that suggests is that there might be an opportunity to try something else. Rather than trying to incentivise the private sector through the planning system or through help-to-buy, or whatever, there might be an option to look at seriously investing in the public sector’s ability to build and invest directly.

That would have to be very carefully done because local authorities are not equipped to take on that responsibility; we don’t have the capacity within our organisations. There would have to be a movement of expertise and skills and so on, from the private sector, from housing association.

Rather than trying to incentivise the private sector through the planning system or through help to buy, or whatever, there might be an option to look at seriously investing in the public sector’s ability to build and invest directly.

Dan Hawthorn

And then the government would probably need to intervene to structurally allow that to happen. That’s not impossible to imagine, but it would be an intervention in the market of a kind not seen within living memory.

But we know, as of the last few days, that’s probably one of the things that has to be on the table.

Institutional money

Room151: There’s a lot of money in the institutional world trying to find a home. Is local authority housing attractive enough for asset managers?

DH: It’s a really good question. If you just put aside social housing for a moment, the fact that there is patient capital looking to invest, because of their models, in predominantly private rented housing, it makes it possible to be much more optimistic about being able to change housing delivery.

One of the reasons that the government stimulus for housing hasn’t really worked is because of the basic rules of market absorption, whereby the big old fashioned house builders will just not build faster, because that will suppress the prices [for sales].

On a building and renting model, all of that is completely different. Capital that enables build to rent development has the potential to massively speed up delivery and to provide a product for which, in London, there is increasingly high demand.

But what role is there for that capital to support social rents? The problem is that no one has yet come up with a model which provides a rent which is genuinely a social rent which doesn’t also require some kind of subsidy.

And that’s the reason why the government lifting the borrowing cap to councils was enormously welcome and, in some ways, reduced the need for councils to look elsewhere for capital.

We can now borrow pretty much as we want, as long as we can show that we can do so prudently. But that doesn’t change the fact that however much you can borrow, you cannot build a single council home unless you are injecting subsidy into that arrangement, in some way or other, and that is a large subsidy.

But what role is there for that capital to support social rents? The problem is that no one has yet come up with a model which provides a rent which is genuinely a social rent which doesn’t also require some kind of subsidy.

Dan Hawthorn

I don’t think the availability of capital is really the primary question, the primary question is the availability of subsidy.

I wonder, therefore, whether institutional capital is probably better placed trying to provide really good quality, private rented housing, or intermediate housing that is sub-market rents; properties that aren’t at social rents.

Subsidy

Room151: How do you resolve that subsidy issue?

DH: Number one is massive injection of public money prioritising affordable social housing as national infrastructure and subsidising it accordingly.

Or, for every social rented home you build, you have to build one, or probably more like two, market sale homes in order to generate a subsidy from within your own programme.

The problem is, that approach is massively exposes the programme to the market. The market was already looking pretty dicey before the virus hit.

Therefore, that if you want councils to make a sustainable contribution to the provision of housing, and particularly social rented housing, which can survive the ups and downs of the cycle, then large-scale subsidy from national government is the only answer.

Private sector

Room151: Is it necessary to work with private sector partners?

DH: I don’t see how, certainly in the kind of short to medium term future, a local authority with ambitions and with land ownership, can expect to do everything itself.

The minute you’re get into either serious town centre mixed use development, where councils are very, very ill-equipped, or you’re into really large-scale housing estate renewal—where the levels of risk, again, are very high, particularly with large-scale leasehold buybacks—I don’t see how you can avoid contemplating roles for the private sector.

We, obviously, had a high-profile situation with the Haringey Development Vehicle. One of the reasons that people felt very uncomfortable about it was that it was partly about scale. And it was partly about the balance of both risk and return and control between the public and private sector.

Dan Hawthorn

There are different ways to do that. You might be buying in development management services, but still taking on the developer role yourself and taking the development risk; or you can do it through a joint venture, or you can do it through a development agreement.

And similarly, you can think of a pretty broad interpretation of “private sector”. For example, in some places, those relationships are between local authorities and housing associations where the housing associations come in with expertise and a slightly different risk appetite, and partner with the council.

But you’ve got to have a relationship where each side respects the objectives, the drivers and the values of the other and agree the territory on which any disagreements and differences will be resolved.

We, obviously, had a high-profile situation with the Haringey Development Vehicle. One of the reasons that people felt very uncomfortable about it was that it was partly about scale. And it was partly about the balance of both risk and return and control between the public and private sector.

The larger what you’re trying to do is, the larger the challenge in convincing people that it’s the right thing to do.

HRA or private company

Room151: What the factors in choosing between HRA or private company for development?

DH: We [Haringey] were going for one of these options and then changed our mind half way through. When we first initiated our council house building programme after the election that changed administration in 2018 [1,000 new homes by 2022], we favoured a company, for a range of factors, the largest of which was that the HRA borrowing cap wouldn’t allow us to build at the scale that we wanted to target.

So, the inflection point was when the borrowing cap was lifted, and we realised that we could do it all within the HRA. For us, that was the decisive factor.

Other authorities have taken the view borrowing cap or, no borrowing cap, they, they would prefer to have something that was arm’s length from the council that had a slightly nimbler, more entrepreneurial way of making decisions that is not subject to political decision making in the same way.

…the inflection point was when the borrowing cap was lifted, and we realised that we could do it all within the HRA. For us, that was the decisive factor.

Dan Hawthorn

In Haringey, we were really clear we did want it to be held closely within the council. And that we wanted to avoid the administrative friction that you get from having a separate entity, the time it would have taken to set it up, appoint a board, get it staffed up.

Team building

Room151: How do you combine housing, regeneration and finance teams to succeed?

DH: In setting up the council housing development programme, you need land, you need money, and you need the people to do it.

The people to do it has been the biggest challenge. We’ve been recruiting a core development team through a mixture of bringing people in from outside, largely from the housing association sector.

We’ve also been recruiting people internally from within the council because unlike other areas of local government, like planning or social work, you don’t need a professional qualification to work in housing development.

We’ve also realised you can have the best development team in London, but if you haven’t got legal, finance, procurement, planning, property, HR, IT, etc, etc, all pulling in the same direction, then you’re only as strong as the weakest link in that chain.

In the end, it doesn’t matter how you do it, in terms of management structure, what really matters is the working culture and collaboration.

Dan Hawthorn

After the lifting of the borrowing cap and the decision that we were going to do this [1,000 homes by 2022] in the HRA, we basically had to start again with our HRA business plan, because it changed the profile of what the HRA is doing and what it’s for and how you build it up from the bottom.

That places an enormous demand on the housing and finance teams to work really closely together. But what you also need in your finance team is understanding of development finance.

You either have those skills in the finance team, but effectively embedded in housing, or you have those skills in the housing team effectively embedded in finance.

In the end, it doesn’t matter how you do it, in terms of management structure, what really matters is the working culture and collaboration.

Politics & pride

Room151: Is housing always destined to be a political football?

DH: I think so. I used to work at the GLA before Haringey under the first two mayors and housing was never very near the top of the list of issues in their elections. For Sadiq Khan, housing was much nearer the top of the agenda in terms of priorities and that’s got to be really welcome.

Room151: What are you most proud of at Haringey?

DH: I’m certainly proud of what we’ve done the last two years on building council homes. I’m really proud of the team we built. One of the hardest parts of my decision to leave Haringey was to leave them behind.

I’ve been proud to have been part of a team which has weathered some pretty difficult circumstances.

We just recently published our climate change action plan. I was responsible for the carbon management team all the way through my years at Haringey.

When I arrived, it was pretty much at the margin of the organisation’s thinking. The plan that we’ve just published, which is a response to the council declaring a climate emergency, puts it absolutely at the heart of pretty much every decision that the council is going to take from now on. And I’m really proud of that.

I’m particularly proud that we’ve allocated £100m in the HRA business plan for improving the performance of the council stock which, of course, is an enormous contribution because buildings are the largest carbon emitters in Haringey.

But it also has a direct impact on the bills that our tenants pay. Given those households are among those who don’t have enormous amounts of money to spare, that feels like a particular win.

Subscribe to our free newsletters