Council puts brakes on "risky" and "rushed" housing proposal

The proposed joint venture with Hyde Housing Association for 1,000 affordable homes in Brighton and Hove would see the local authority borrow £52.7 million.

Concerns have been raised that as the loan is being held against the local authority's revenue which could mean services being cut if the scheme runs into financial difficulties.

There has also been criticism of the speed at which the joint project with Hyde Housing has been progressed.

Critics have raised also concerns of the close relationship between the council and Hyde with others calling for the council to put the project out to tender to ensure it is getting best value for money.

Councillors voted to put the put the project on hold on Wednesday night while they seek reassurances over financial risks it may pose.

But council leader Warren Morgan accused Green and Tory councillors of seeking to “block, frustrate, delay” his administration’s "positive" proposals.

The joint venture would build 500 homes available at 40 per cent of the new National Living Wage.

A further 500 shared ownership homes will be made affordable to buy for residents on “average incomes” on council-owned sites or land bought by the joint venture.

It had been hoped the project could be formed by the end of the year and the first homes delivered by the end of next year.

But after councillors called for reassurances, the proposals will have to come back to November's housing and new homes committee.

Cllr Mary Mears said plans to borrow money against the council's general fund rather than the housing revenue account could hit council services if the costs of the scheme rise.

She also called for the proposal to be opened up to other housing associations to submit bids on the proposition.

The Conservative housing spokeswoman said: “We need assurances on value for money, it could be somebody out there who could provide this for less money.

“It should go through a procurement process, we can’t be reassured at the moment that this is the best deal because council officers don’t know."

Cllr David Gibson, Green spokesman for housing, raised a number of concerns including the "low" level of management and maintenance proposed by Hyde, which is lower than current council levels.

He added: “We need to get all the parties signed up to this which is why we want full council to vote on this so that everybody can make this big, big decision.

“It is a good idea but if it takes that bit longer to get everybody on board, then that will be worth it.”

Cllr Morgan said: "We’ve shown real innovation and have collaborated with Hyde to produce a scheme which will create housing opportunities for local residents including the key workers our economy needs.

"It’s disappointing then that this decision has now been stalled until November, meaning hundreds of people in the city desperately in need of an affordable home will have to wait even longer.”

HOW DID WE GET HERE? A GUIDE TO THE PROPOSALS

What is being proposed?

The council is looking to set up a joint venture with Hyde Housing Association to build 1,000 affordable homes over five years.

It is proposed that 500 homes will be made available at 40 per cent of the new National Living Wage.

A further 500 homes with between 25 and 75 per cent shared ownership will be made affordable to buy for residents on “average incomes”.

The joint venture could build on council sites or buy additional land with a separate venture also proposed to regenerate and expand council estates.

The council is also looking to develop its own housing company to purchase new homes off-plan at a discount.

Why is it looking to do that?

For many reasons but the main reason because one is because there is a chronic shortage of homes that are truly affordable to low-income working families in the city.

Even “affordable homes” are often beyond the reach of many residents because their rates are linked to the housing market which is rising far quicker than wages.

The council is also being forced to look at new ways to finance house building in part because it is reaching its housing revenue account borrowing limits.

Both partners claim that by pooling skills and resources, more quality homes can be delivered more quickly.

What are the risks?

That many homes do not come cheap. The council will need to borrow about £52.7 million, with the majority of that expected to come from the Public Works Loan. This is the same body which has loaned the money for the i360.

The cash will be borrowed at below market rates loaned against the general fund (the annual revenue the local authority receives to run services from council tax, central Government etc).

There are concerns this will create a financial risk for the council because unlike the housing revenue account (money from council housing), the general fund is not asset rich.

Councillor Mary Mears said: “The risk to the general fund is if anything happens, if costs increase or there are delays that will create pressure on the general fund and will result on other services taking the impact.”

Conservative councillors are calling for the council to wait until the Autumn Statement to see whether Chancellor Philip Hammond the Chancellor will raise the housing revenue account cap.

Is the council taking a bit of a risk here?

No, says the council. Council leader Warren Morgan said that comprehensive financial and legal due diligence had been carried out testing the strategic financial model for the joint venture against a wide range of potential scenarios including construction costs, inflation and house prices dropping.

He said these exercises demonstrated that the financial model is robust and potential risks to the council are minimal.

When do we have to pay it back? What if we can’t?

The conditions attached to the cash are not yet known as the council has not yet applied for the money.

What are the benefits?

As well as 1,000 new affordable homes, the council claims it is set to receive a surplus of £221 million over 64 years of the scheme.

Council bosses also claim there will be income from £6.7 million in new council tax receipts, £5.7 million in new homes bonus and £7 million direct investment in community infrastructure.

The council estimates the scheme has the potential to deliver £3 of economic output for every £1 of public investment.

The project is designed to create 700 opportunities for education, training and apprenticeships along with 400 full-time construction jobs.

Why Hyde?

In short, because it was its idea and it approached the council.

But the council also views it as a good partner as a charitable housing association with a core purpose to provide low cost homes.

Hyde is one of the biggest housing associations in the country and part of the Hyde Group which is a leading homes provider.

Has Hyde built in the city before?

The Hyde Group is a major builder in the city. Among its projects are One Hove Park flats, the conversion of the London Road Co-op into student accommodation and shops, the New England Quarter and the Open Market.

It is in partnership with First Base to build 12-storey plus towers to replace Anston House and proposed a 17-storey building for the Sackville Hotel site.

Shouldn’t the council put this out to tender?

Councillors have been told that the scheme was first proposed by Hyde and that the authority was open to offers from other housing associations to develop similar proposals.

While the local authority has assured councillors that there is no issue with putting the entire scheme out to tender, it did concede there could be issues around the procurement of services with Hyde providing the council with development, sales and marketing and letting and the council supplying financial and corporate services.

Legal experts from Bevan Brittan told the meeting there was a “gap in the legislation” which had caused issues with similar projects elsewhere in the country but there was little “cause for concern” with the city council’s proposals as services were being exchanged at cost and not for profit.

Opposition councillors are arguing that regardless of the legal advice, the council should put this out to tender to see whether another partner offering the council a better offer might be found.

Is anybody else running partnerships likes this?

Councils across the country are increasingly looking at alternative ways to deliver affordable housing.

Birmingham City Council has teamed up with property and leisure management firm Places For People and the Canal and River Trust in a similar joint venture, Slough Council and Morgan Sindall Investments are involved in such a scheme as are Sheffield City Council with housebuilder Keepmoat and Great Places Housing Group.

When will all this happen?

When council leader Warren Morgan first unveiled the plans almost a year ago, he had hoped to deliver 1,000 homes in two years with construction work beginning at the start of 2016.

Those deadlines were revised to establishing the joint venture company by the end of the year, first sites to be identified early in the New Year, planning sought in the spring and the first homes delivered at the end of next year.

Now those timescales will have to be revised again after opposition councillors deferred a decision on the proposals for a further two months.

Why else are councillors unhappy?

A big question remains over the governance of the board overlooking the joint venture.

The initial model being proposed would see three council officers and three Hyde employees but no councillors.

Cllr Mears is among those councillors raising concerns about the make-up of the board pointing to similar issues that arose over the management of the Open Market where traders were outvoted on the board and felt it did not represent their best interests.

CONTROVERSIAL SCHEME HIGHLIGHTS THE DANGERS

THE dangers of such a deal have been laid bare in a report into the collapse of a partnership to build up to 750 homes.

The controversial 49 sites project for Lewes district, which was four years in the making, was pulled in February because of concerns about its financial viability.

The New Homes Working Group report published this week said the collapse was down to over-ambitious and unrealistic aims, secrecy and poor communication, a new report has found.

The report said the two partners, Lewes District Council and Karis Developments, had differing views on the scale of development with planners having greater regard for environment and infrastructure concerns while developers wished to be “unencumbered by a conventional wisdom and assume anything is possible”.

Councillors were placed in a difficult position by being given commercially sensitive information they could not share with the wider public which severely limited discussion, the working group found.

Group leaders also failed to keep other councillors informed of developments while “little attention” was given to the technical advice of council officers.

Leadership in the council was also accused of showing “a blatant disregard” for the feelings of residents, who opposed the plans in their thousands.

Developer Karis was also criticised for failing to deliver a contingency plan when it emerged that covenants on two key sites restricted the scale of development.

Council directors told the working group that in the desire to conclude a commercial deal, more detailed covenant work was not carried out early enough and the eventual commercial agreement was described as “unnecessarily complex and unhelpful”.

Josh Arghiros, Karis managing director, said the scheme was the victim of “parochial politics”.

He added: “The problem with working with a local authority is that everything can change with a new leader.

“If we were to work with a local authority again, we would look to ensure that the timeframe would be smaller and to try and reach an agreement that all that work could not be stopped by a new leader coming in.”

Councillor Sarah Osborne, leader of Lewes Liberal Democrat group, said: “It has been a very expensive mistake, not just in terms of taxpayers’ money but because after four years we still don’t have any affordable housing.

“I don’t think these problems are inevitable [for every council development project] but it should be flagged up as a risk and the terms of transparency need to be there right from the start.”