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Partnerships push
Housebuilder – February 2008

Mark Smulian looks at the potential of local housing companies

If the government's latest wheeze to encourage housebuilding in urban areas sounds familiar, that is perhaps because ministers have run out of names for their endless initiatives and are recycling them.

"Local housing companies" last appeared in the mid- 1990s as a sort of glorified stock transfer, but the term became forgotten until former housing minister Yvette Cooper resurrected it to describe a very different concept.

asset-backed regeneration The new incarnation of local housing companies builds on the idea of asset-backed regeneration, which some big city councils are exploring to secure the redevelopment of large areas of derelict land.

There is a simple basic concept. A council that owns tracts of brownfield land would contribute these to a joint venture with a housebuilder or, as appropriate, a commercial developer, while the developer contributes expertise and money. Housing associations could also be involved and councils could also build their own homes for rent if they chose.

The theory goes that both partners get a better deal than they would were the council to simply sell a builder a site. For the builder, the anticipated benefits are that the company would control a substantial amount of land - not necessarily all adjacent sites - and so would offer a lengthy pipeline of developable land. What is more, because the council would have a stake in the increase in the land's value as it was developed, it would have an interest in making sure that the local environment was appropriate to attract residents and investors.

The council would also, as a development partner, have a strong incentive to use its planning powers to assist new building, though it would also have more influence over the project - for example over the proportion of affordable homes to be included - that it could have simply by using the planning system. One obvious objection is that the company would be a monopoly developer on the land it owned, and any builder not chosen as a partner would be frozen out of these opportunities.

This though could be overcome, since there is nothing to stop a council concluding a joint venture with more than one partner, and there could also be multiple local housing companies in one council area.

Duncan Innes is heading the local housing companies programme for English Partnerships, in addition to his day job as regional director for London and the Thames Gateway. He says: "As a rule local authorities will invest land, with the private sector matching it with cash equity.

"There are advantages for all concerned. For the private sector, it gives the certainty of a pipeline of developable sites going forward that the local authority will wish to see developed.

"It also means the local authority is much more in charge by being at the centre of the development process. The local housing company is the master developer, and the council is at the heart of that."

Innes expects that the companies will bring forward sites or development that might otherwise not have been used, because councils will be tempted by the money they can raise from the increase in value in their stake.

Councils could also help their builder partners by risk sharing in lean times, Innes suggests. "I think housing market fundamentals are still pretty sound, even if there is some unease at the moment, but with a local housing company a council can take a longer view of its land assets," he says.

English Partnerships' role is to give seedcorn funding to the 14 pilot companies announced by Cooper, and then to produce guidance from their experience to help companies set up elsewhere. "The intention is that these will spread across the country," explains Innes.

"It should mean that additional housing land is brought forward."

Some of the most advanced plans are at Newcastle-upon-Tyne, where city council housing development manager George Mansbridge says the company concept has "been very much part of our response to the challenge of growing the local economy"

Elsewhere, plans are generally at the embryonic stage - indeed Peterborough council, for example, sounded mildly surprised to have been awarded pilot status. Barking and Dagenham council hopes to use the LHC route to build council houses on the giant Barking Riverside development. It will set up a company with housing association Southern Housing Group to own and manage social housing, which will comprise some 40% of the 4,500 homes planned, and hopes to apply this model to the rest of the borough.

Leeds council already has a strategic affordable housing partnership in place, in which it will work with the Housing Corporation, English Partnerships, Yorkshire Forward and central government to develop 77 acres of council land around the city, on which it intends to provide 2,250 new affordable homes over six years. This could become a local housing company, though no decisions have yet been taken.

A Plymouth council spokesperson said the council was developing ideas for a company. "Affordable housing is a growing priority in Plymouth and we want to see how we can work with the private sector to help people who want to rent as well as those who want to get on the housing ladder," she said.

Abi Davies, policy officer at the Chartered Institute of Housing, predicts the companies will ultimately be "limited to certain areas that have a lot of land, and there they will be quite useful.

"This provides a way in which land that councils have not been able to do anything with can be used without the council losing ownership of it."

The government has so far said little about the details of how the companies would work, preferring, it would appear, to see how the pilots go and adapt best practice from those. In theory, local housing companies are a win-win for builders and councils. Perhaps the biggest winners will be the builders that get in early.