Q&A: Regeneration and housing in Ealing

Reduced support from central government means many councils are looking to property development and investment to generate revenue. Room151 spoke to Pat Hayes, executive director of regeneration and housing at  Ealing council to discuss his initiatives.

Room151: As the man responsible for regeneration in Ealing, how do you persuade finance officers to buy into your vision?
Pat Hayes:  Traditionally as a regen outfit we have looked to do things via third parties – encouraging companies and landowners to sell and bring developments forward. That works well. With our housing assets we have tended to get a development partner and off they go.

What has happened over the past couple of years is we have started to realise that we can borrow cheaply and have been given new powers. Finance directors are not an entrepreneurial breed – they wouldn’t go into local government finance if that was the case. But they are starting to realise that if you build then you get a commercial return plus council tax or business rates. As more councils begin to dip their toes in the water, finance directors are realising they can make money from developing their sites rather than auctioning them off.

Room151: How are you using council investment to boost regeneration initiatives?
PH: We have created a housing company, which was started by borrowing some money from the Public Loan Works Board. The council gets a share in the company and a debenture back, which provides a revenue stream. We have 150 units in the pipeline, all at market or at slight discounts to the market rate. We started doing it as a way of boosting the rental market. We were fed up with private investors saying they would invest in this market but not doing it. The homes are built on council-owned sites. The intention is to grow the scheme to 500 homes over coming years.

Room151: Is it easy for the council to compete against the private sector in buying land?
PH: In London it is difficult, but we do have a couple of edges on the private sector in that we are the planning authority. That makes investment more of a managed risk for us. However, we are also looking outside London to buy schemes that might be consented but not yet built.

Room151: How does that work?
PH: We are buying units outside of London. I don’t want to buy a greenfield site outside of London and have to get planning for it from a small district council. They could take it the wrong way and we would have to go through a long, tortuous planning process.

There are lots of sites where developers have consent but they are unsure the housing market is strong enough. There are lots of towns outside the M25 which are not in traditionally affluent areas where the market is improving but not quite there yet.

We say to the developer: ‘Give us a discount and we will take them’. It’s similar to how the old social housing grant used to work; the money goes in at the early stage and allows building to start. We are essentially buying them off plan for a discount.

We have also bought nearly 100 individual units dotted round the place outside of the borough. You can get good value by taking on distressed properties or ones that have impediments on a mortgage that individuals would not be able to buy. However, we will never reach the number we need to get without looking at buying whole schemes from developers.

Room151: There must be some potential downside? What are the risks of land development for a council?
PH: The reality is that investing in bricks and mortar will continue to be very low risk in the South East of England. Anyone buying land anywhere south of Cambridge hasn’t lost money since the 19th century. If there is a price dip then you hold it and don’t sell it. Your rental income will help act as a hedge against declining prices. We really would need deflation for 20 years to lose money.

Also, when we are appraising a project we are appraising the length of loan. We are concerned about the asset to debt ratio – we always want the value of the assets to remain above the level so that we are not as exposed to interest rate risk.

Room151: Does the new approach to regeneration finance mean that finance officers have to change their approach?
PH: There is a real opportunity here, but everyone has to think a bit differently. If we are trying to buy sites then we have to be agile. The old way would involve writing a report and pouring over the figures for weeks. It is not just a problem affecting the public sector. More democratic private firms like John Lewis also struggled against operators like Tesco.

But it doesn’t mean removing democratic oversight. You just have to get more decisions in principle and set up funds. Politicians can agree an envelope and give you funding to be agile within that. They don’t have to agree every time you want to sell Mrs Miggins’ flat. Finance officers do have to make quicker decisions on risk, however.

Room151: Does all this mean that you don’t need to work with housing associations as much?
PH: It is actually the opposite. We are looking at how we can work with associations to spread development risk and use their expertise.

There are some streams from central government, such as the Build to Rent initiative, where associations can bid but we can’t. But we can work with them.

In addition, we have created a facility where we can borrow and on-lend to housing associations. We haven’t used it yet but it is another option. There are lots of opportunities for collaboration which can benefit both sides.

Pat Hayes will be speaking at the Room151 FD’s Summit, part of the Local Authority Treasurers Investment Forum, September 15th, London. Register for further info. 

Photo (cropped): Patrick Ijzendoorn, Flickr