A new deal for council housing

Councils started building more homes under Labour and now the coalition’s Localism Bill is giving them even more power to return to the heyday of council house building. Stephen Cousins reports. 

Council housing is undergoing a quiet resurgence. While the recent history of affordable housing has been dominated by housing associations (HAs), the number of new developments led directly from the Town Hall is on the rise. To take a small sample of recent press releases, Lovell is building 38 new council homes for Oxford City Council and 15 for the London Borough of Ealing; Loughborough contractor William Davis is building 43 family homes for Mansfield Council in a £5m deal; and Stewart Milne is building 30 new council homes in Aberdeen.

But is this renewed council housebuilding just a last gasp of the Labour government’s fiscal stimulation programme, or are we seeing a longer-term shift in the way affordable housing will be delivered? The answer is probably a bit of both.

Over two bidding rounds, 122 local authorities in England and Wales were given the means and confidence to build via the Labour-instigated £400m Local Authority New Build programme. LANB will eventually deliver 3,930 homes in 2011-12 compared to the total 102,000 housing starts in 2010. This is a significant shift from the mid-2000s when the number of completed homes councils was 130 (see table overleaf). One of the most ambitious councils is Birmingham, whose Municipal Housing Trust has around 300 homes already under way and plans for a further 200.

Although the LANB programme was effectively cut short by last October’s Comprehensive Spending Review, the scheme will have given many councils a taste for development. And from now on, they will start to benefit from the coalition’s strategy of shifting funding and decision-making from Whitehall and its quangos to local level. The Localism Bill, currently before Parliament and due to be implemented in April 2012, gives local authorities the freedom to make planning and investment decisions about their housing assets without first getting permission from Whitehall.

A new deal

The Bill includes a new financial deal for council housing, including an extra £500m a year for councils to spend on their housing stock. It will end the current Housing Revenue Account (HRA) system that requires councils to send rent revenues to Whitehall for redistribution to councils deemed to need the money. Instead, councils will be able to retain rental income and channel it back into housing or other programmes, enabling longer term planning as opposed to the current year-to-year budgeting.

Fundamentally, the shift towards localism will mean a lesser role for the Homes and Communities Agency, which distributes development grants to HAs and ran the LANB programme. The HCA’s budget has been slashed by 50% for
the 2011-14 spending review period, leaving it with just £4.4bn to invest over the next four years.

“Local authorities were previously subservient to bodies like the HCA, which held the purse strings and controlled the way regional development went forward,” says Richard Jones, head of regeneration and renewal at EC Harris. “But now the HCA’s mantra is investment and enabling, and they are only supposed to talk to councils if they are invited to. Councils are now the dominant partner, and they’re going to make the most of it. You get the feeling they want to control everything.”

To make up the HCA’s funding shortfall, HAs and councils alike will have to adopt the new Affordable Rent model from April 2012, which allows them to set rents at up to 80% of the market rental value, using the proceeds to back further development.

In addition, the government’s New Home Bonus scheme launches next month. Designed to encourage councils to plan for housing growth, this will reward councils with funding worth six years’ council tax for each home built in their area, with an extra £2,100 bonus if the home is affordable. More than £900m has been allocated to this scheme over four years, with £200m pledged for 2011-2012.

Historically, councils have sold land or other assets to generate money to build, but selling today — at the bottom of the market — makes less sense. “In the context of localism and councils undertaking longer-term plans, selling off their crown jewels is less attractive,” says John Campion, managing director of housing at Willmott Dixon, which is currently building 114 units for Hackney council on two sites. “Some will prefer to bring in a partner to take a stake in a project, and find a funding arrangement that allows them to retain ownership of the asset. The process will force councils to become more entrepreneurial and a number of them will be delighted about that.”

But smaller building contractors and housebuilders may be squeezed out of contention for work, as councils seek out contractor/developer partners that can front-fund delivery, take open market risks and manage developments.

“You have to bring something more than contracting skills to be successful, mainly funding,” says Paul Nicholls, strategic relations director at social housing contractor United House. “What helped us [on the Queensbridge Quarter scheme for Hackney Council] is having the development arm, we’re able to use developments to cross-subsidise authority schemes. We can also look at maximising land value on a scheme to benefit the council.”

Local authorities returning to housebuilding, often after a 25- to 30-year hiatus, tend to be fairly reliant on consultants’ and contractors’ expertise, particularly as public spending cuts will prevent most from expanding their development teams. On the plus side, this can make them more flexible and open to advice, says Chris King, managing director of affordable housing at Kier. “They are happy to listen and don’t tend to come with very fixed ideas,” he says. “As clients, councils also show positive attitudes towards partnering, value engineering and meeting key performance indicators.”

But the “age of austerity” brings added pressures, says King. “Councils are more savvy about how they spend their money now. Rather than pay a consultant, I have known them to ask contractors to prepare feasibility studies, work up a scheme and outline costs for free, and contractors oblige as a shoo-in for further work.”

Sometimes, their lack of experience is evident in the brief, complains EC Harris’s Jones. “Councils have to procure through OJEU and we’re seeing very ill thought-out briefs you could drive a horse and cart through,” he says. “They have to be careful or they will end up with something they aren’t trying to achieve.”

Contractors that offer innovative construction methods and technologies could win favour. United House recently used prefabricated structural insulated panels (SIPS) on a development of council houses for Barking & Dagenham Council after recommending it to speed up the build and improve thermal performance. At the Bridport House scheme for Hackney, Willmott Dixon is using Austrian-produced cross-laminated timber panels for a multi-storey 41-unit scheme.

With their community-wide perspective, councils are likely to be more receptive to neighbourhood-wide energy saving technologies, such as combined heat and power (CHP) and district heating, than speculative developers or even HAs. Willmott Dixon is currently building the zero carbon Ashmount School in Islington, using a CHP where spare capacity will be used to heat and power nearby council housing. “The housing energy demand is greater in the morning and evening and the school’s is greater during the day, so you get a nice balance from an energy perspective,” says Campion.

Under the LANB, there were signs that councils would aim higher than HAs in sustainability terms too. In December, 105 homes completed in Southampton, Wiltshire and Oxford under the LANB programme met level 4 of the Code for Sustainable Homes, one higher than the statutory minimum of level 3. However, there is less enthusiasm for maximising Code delivery now that grant funding
has fallen away, says Kier’s King: ‘Now there’s no benefit for aiming for higher levels of the code unless you have someone to pay for it.”

Economies of scale

Contractors with experience in affordable housing for HAs will find the budget and specification and design aspirations of council housing very similar. However, because many HAs have built up large portfolios and development pipelines to go with them — London & Quadrant has a £360m programme over the next four years — they are generally able to achieve greater economies of scale, and lower out-turn costs compared to councils.

If council building programmes expand in future, they will benefit from gaining access to more competitive supply chains, says EC Harris’s Richard Jones. “We’ve been doing some work setting up partnerships between housing associations and housebuilders to give the HAs access to their supply chains,” he says. “A typical HA design & build procurement might achieve £1,200 per square metre, but Barratts or Taylor Wimpey can build for, say, £900 a square metre. It’s all about getting access to that cost base and setting up strategic partnerships.”

Although unformed and untested, the coalition’s Affordable Rent Model, New Homes Bonus, and new “localist” planning powers do at least offer the potential for a new era in Town Hall-driven affordable housebuilding. While grants will be few and far between, there is scope for councils to partner with the private sector and housing associations in land- and risk-sharing deals. But against the background of funding constraints, local authorities will need maximum support from innovative deal-makers in construction. cm

BIM arrives in council housing

A project to build 203 new council homes in the Gorton district of north Manchester — the first in the city in 20 years — is currently on site and serving as a pathfinder for the city council’s adoption of BIM throughout the design, construction and afterlife of its projects.

The homes are designed by local architect Bowker Sadler and constructed under design & build contracts by a joint venture between Cruden Group and Bramall Construction. The combined team’s information forms the basis of a BIM model built by external consultant 3DS.

“The model is contributing in terms of the clients’ choices, and illustrating the residents’ options,” explains Bowker Sadler director Colin Leith. “We’re also plugging in all the as-built data and referencing all the components. The end result will be an extremely useful facilities management tool for the client.”

Due to the project’s relatively straightforward timber-framed design, Leith says that BIM’s clash detection advantages have not been fully realised. And as the project is D&B, many specification choices have only been added to the model recently. “There might be additional efficiencies on offer in a traditional contract when you [the architect] are in charge of the specification,” he comments.

The bulk of the project has been facilitated by the Local Authority New Build programme and includes 32 two-bedroom bungalows for older residents.

The houses will include low-maintenance floor and wall finishes and a moveable partition wall to allow the space to be used as an extended lounge, a dining room or a bedroom.

The scheme includes 32 two-bedroom bungalows

Scotland puts its Trust in new funding method

A unique new model for social housing development is helping councils in Scotland kick-start work on mothballed sites and build over a thousand new homes.

The National Housing Trust (NHT) was launched last September in response to the squeeze on public finances and is expected to result in £130m of extra housing investment.

Under the NHT, local authorities will acquire houses built by developers, using their own funds and borrowing underwritten by the Scottish government and the Scottish Futures Trust, a quango set up to broker private-public development deals.

The homes will be let for around 80% of market rent on tenancies of five to 10 years. Interested developers had to respond to an OJEU advert by October 2010.

A total of 11 authorities are signed up: Aberdeen, Dumfries and Galloway, Dundee, East Lothian, Falkirk, Glasgow, The Highland Council, Midlothian, Scottish Borders, Stirling, and Edinburgh.

Speaking at the launch, Scotland’s housing minister Alex Neil said: “Scotland is spearheading the drive in the UK for alternative sources of funding and innovative housing delivery models. The NHT has potential to significantly increase the supply of affordable homes in many parts of the country.”

The NHT’s innovative funding model could be described as “corporate shared ownership”. Once a developer’s bid has been accepted, it will complete the scheme to agreed standards and timescales. Special purpose vehicles (SPV), run by a management board drawn from the council, the SFT and the housebuilder, will be set up to oversee progress. When the homes are completed, the SPV will buy them at 65-70% of an agreed valuation with 30-35% remaining with the developer as loan funding and equity investment.

The developer, or its managing agent, will also manage the homes and carry out maintenance and repairs.

The managing agent will also allocate homes to tenants based on criteria agreed with the council.

In future, Scottish council housing, such as Stewart Milne’s 30-house scheme in Aberdeen, could be funded under the NHT model.