Q&A: Sean Clark on Thurrock’s housing company
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Develivery: Should housing companies aim for raising revenues or focus on providing homes?
Work is well underway on the first development by Thurrock Council’s new housing company, Gloriana. Room151 catches up with Sean Clark, director of finance and IT at the council about the new venture.
Room151: Why did you set up this company?
Sean Clark: Thurrock is quite a small place but we have 8,500 outstanding planning permissions for new properties which have been granted but are not being developed. We hope to grow the port but need new homes for people who are going to work there. In that sense, the company is more of a regeneration company than just a housebuilding company – it is looking to support the community and council priorities. We are in dire need of specific housing types to meet changing workforce and demographics. The aim is to create a a higher quality of housing being built than has been the case up until now, and to shape the market.
R151: Tell us about the structure of the company and its relationship with the council
SC: The company is very much a skeleton. It doesn’t have any staff and all the board members are directors within the council. The company is starting by building on council owned land.
R151: How does the financing work?
SC: Gloriana borrows money from the council. The council lends it to the company through a split of 86% loan and 14% equity. It also puts in the land once all the approvals in place – that also goes in as equity. Because of state aid, rules the council needs to charge the company a premium on the borrowing.
R151: What type of housing tenures are you providing through Gloriana?
SC: Our first development is for 128 units on a site that the council had been unable to dispose of for a number of years because private developers found it too challenging. It would be good to make a profit but if it proves to be cost neutral, then that would be a success for us because we are providing new housing in areas that the market won’t.
The model has a 17 year life. The first two years are for development work. Then we rent the units out at affordable rents for five years, which is what starts paying back the interest on the loans. Surplus cash balances repay the debt itself. We will then start to sell the properties over the next 10 years – if we can do it quicker we will but if there is a problem with the market we can ride that out.
The structure means that the council will not have to set aside money as part of the minimum revenue provision until year eight of the plan – when disposals are starting to be made. However, we can reduce that debt through the rental income before we have to do that.
R151: What future plans do you have for the company?
SC: I am having conversations with different parties about the financing for future projects. The challenge is that if the council borrows from the Public Works Loan Board it has to draw down the whole amount at once. If I borrow from day one then I have a cost to carry from day one. On the private market, you can draw down the money as and when you need it. I don’t want to go to a bank because they have a high rate. I need to find a different model. We have talked to TradeRisk, the firm which has done a deal with Warrington Borough Council, and a number of institutions.
We have at least one more site going through planning at the moment. We are also taking an investment strategy to the council. We have also identified four or five more sites which we hope could come through in the next three years.
