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Counties enter housing market with collective investment

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  • by Colin Marrs
  • in Resources · Treasury
  • — 16 Jul, 2015
Bricks and mortar: Housing is now on the agenda of country councils

Bricks and mortar: Housing is now on the agenda of country councils

Two county councils are set to make an unprecedented move into housebuilding through a new collective investment vehicle being created by the Local Government Association.

Historically, non-unitary county councils have had no significant housing responsibilities – but now two are looking to each create a stand alone company to deliver new homes and generate a long-term income stream.

The two unnamed counties are among 14 authorities to sign up to the LG Develop scheme, which aims to help councils group together to access institutional funding for new homes.

Brian Reynolds, programme director of the One Public Estate programme, who is overseeing the project for the LGA, told Room151: “In the past, counties have had responsibilities for providing homes for caretakers at schools or cemeteries, but this is probably the first time that they have gone into being residential landlords in a significant way.”

He said that one of the counties is looking to take only a minority stake in its company, which would allow the authority to remove it from its balance sheet.

“It hasn’t been decided yet, but they could either set up with an institution or a developer who would build the homes,” he said.

The LG Develop scheme will see groups of local authorities put together portfolios of housing schemes for which they will seek institutional borrowing.

The first portfolio, comprising schemes from around five councils, is in September expected to seek £80 million from investors to build around 700-800 homes, Reynolds said.

A second tranche could be launched three to four months later, with overall proposals from the 14 councils requiring around £798m to build more than 6,000 homes.

The first tranche will consist solely of market rented and affordable rented housing, although later phases could become more sophisticated to include housing for sale and for social rent, Reynolds said.

Of the 14 participating councils, five have plans for more than 500 homes while two propose schemes of more than 1,000 units, he added.

“Motivations for getting involved vary,” Reynolds said. “Some are looking at it purely as a commercial enterprise in order to supplement their normal income. For others there is an issue about meeting housing need. Some of the larger ones are doing it in order to diversify their pool of lenders.”

The scheme will also allow smaller authorities to access institutional lending which they would otherwise not be able to do because the smaller scale of their borrowing needs, he said.

In addition, legal and administration fees will be split between participants on each portfolio, creating economies of scale.

Room151 first reported on moves to create the collective housing vehicle last year.

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  • 151 BRIEFS – WHAT’s NEW?

    • Homes England agrees strategic partnership with two authorities
    • Soaring inflation and pay pressures to add £3.6bn to council budgets
    • Underfunded social care reforms could ‘exacerbate workforce pressures’
    • Nottingham City Council leader labels proposed intervention as ‘disappointing’
    • Government preparing to intervene in Nottingham City Council
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