Agenda item - Housing Delivery Options

Report of Acting Executive Director Economy, Environment & Culture (copy attached).

 

(1)       That a decision be deferred to the next meeting of the Housing & New Homes Committee to ensure that members can feel fully supportive of the proposals. 

 

24.1       The Committee considered a report of the Executive Director Economy Environment & Culture which provided an overview of an offer to develop a Joint Venture for the development of new affordable homes and regeneration from Hyde Housing Association and a proposal to establish a wholly owned Special Purpose Vehicle to provide a range of options to increase the supply of homes.  Appendix 1 provided an overview of legal advice to date that has been provided by Bevan Brittan in relation to this opportunity.  Appendix 2 provided an overview of governance considerations.  Appendix 3 provided an overview of legal advice to date on the establishment of a wholly owned Special Purpose Vehicle or Housing Company.  Appendix 4 provided a copy of the high level Heads of Terms document.  Appendix 5 in Part 2 of the report provided a summary of Strategic Financial Viability Model and sensitivity analysis.  The report was presented by the Head of Housing Strategy, Property and Investment, and the Programme Manager, Regeneration.  

 

24.2    The Head of Housing Strategy, Property and Investment stated that representatives of Bevan Brittan and Hyde Housing Association were in attendance at the meeting.  The key aim of these projects was the provision of affordable housing in the city and addressing issues relating to the retention of lower income families in the city.  Bevan Brittan had been appointed as legal advisors. Risks were set out in paragraph 4.1 of the report.    

 

24.3   The Programme Manager – Regeneration spoke about the governance of the joint venture (paragraphs 3.26 to 3.30).  The proposal was for there to be a board of six; three to be appointed by Hyde, and three by the Council.  Meanwhile a detailed business plan would come back to the Committee.  Board members could be councillors or officers but conflict of interests would need to be managed. The council would gain capital receipts for all land in the venture.  Valuations would follow an agreed process.  Consultation would take place with ward councillors and members. 

 

24.4   The Joint Venture had the potential to purchase sites through the open market.  Allocation would take place through the housing register.  The homes would be highly energy efficient.  There would be 500 shared ownership properties with the option to take up a 25% or up to 75% share.  Residents could increase the share at any point.  This could focus on local people.  It was estimated that the proposals would lead to 700 opportunities for apprenticeships.  The proposal would support construction jobs and bring new council tax revenue.  The next steps would be to finalise the heads of terms by the end of the year.  The first scheme would be on site by the end of 2017. 

 

24.5   The Finance Officer informed Members that the Joint Venture proposal required £105.47 million total investment to develop 1000 new homes over a five year period.  The proposal was that Hyde and the council provide 50/50 funding of £52.7 million.  The council’s investment of £52.7 million would be funded through general fund borrowing.  There would be a surplus by year 6.  The financial modelling was set out in Appendix 5 on Part Two of the agenda.  The Finance Officer stated that there will be an overarching business plan to come back to committee for approval with reserved matters and for each site development individual viability testing will be carried out to satisfy that the development is in accordance with the business plans and is viable.

 

24.6   Councillor Atkinson welcomed the initiative which would result in possibly building up to 1000 plus new homes in the city. He considered this to be one of the most significant items the Committee would discuss over the next few years.  He understood that the joint venture approach was one taken by many local authorities. The legal advice appeared robust and the financial modelling appeared sound. Councillor Atkinson stated that the current housing situation was a national scandal, and the proposal would start to deal with this situation on a local basis. 

 

24.7       Councillor Miller welcomed the idea of more homes for low earning working households in the city but had concerns on the impact on the General Fund as result of this borrowing.  In response to a series of questions put by Councillor Miller, the  Head of Housing Strategy, Property & Investment stated that the Council had procured specialist legal advice.  Matthew Waters from Bevan Brittan LLP was in attendance.  The proposal had come out of the council’s Housing Strategy which had undergone extensive consultation over the last 18 months.  The Council’s legal officers were party to the advice given by Bevan Brittan.  Hyde had their own separate legal advice. 

 

24.8   The Senior Council Lawyer stated that the Council had run a full tender process to award the contract to Bevan Brittan.  The council required specialist legal advice on this particular area of very specialist law in terms of setting up a joint venture.  

 

24.9   Matthew Waters from Bevan Brittan answered Councillor Miller’s queries as follows;

 

·       There was a requirement by the tender process to have conflict checks.  Bevan Brittan did check and there were no conflicts.  Bevan Brittan did not act for Hyde on this or any other matter. 

·        The issue of the casting vote for the chair was not something that had been discussed or finalised with Hyde.  Mr Waters considered that there would not be one on the premise that the board of the joint venture would be tasked with implementing a business plan that had already been agreed by the two parties. 

·         It was confirmed that reserved matters would be set and determined by councillors at the start of the process and later submitted to councillors from the board. 

·         Regeneration and the living wage would be separate and ring fenced. 

·         Council support on a cost incurred basis – If the council provided support then that would be on the same basis which would be people putting things in at cost.

·         Due diligence on the Hyde framework - the supply chain for delivery of this development would go through the Hyde frameworks. 

·         LLP and note in the advice on whether the council could enter into the LLP directly - there were many councils who had entered into LLPs.  If the council had concerns it could enter into it via a company in between the council and the LLP.  

·          Reverse Teckal – There was a gap in legislation on that point, but it was not considered a material concern for the council.  It was agreed that both parties should come to the joint venture pooling resources on an equal basis. 

·          Questions over planning permission had been discussed but not yet finalised.   

·              Board equivalent to director’s question – it was right to view that Board as an equivalent to directors.

·          Wholly owned company and the draw down – That was not a level of detail that had been looked at yet.  It would be expected that the council would approve a business plan both as an owner and as a funder, and there would then be permission for the vehicle to draw down funding within the parameters drawn down by the business plan.

·          Joint Venture – heads of terms and freehold – Those illustrative heads of terms based on discussions to date [freeholders] was not an agreed position.

·          Funding of the first phase was not proposed to be allowed for land banking.

·          Unanimous basis for reserved matters – If there was a reserve matter it did provide the authority for Hyde to have a veto.  

           

24.10  Council officers further answered questions as follows.  It was confirmed that any regeneration projects that involved any of the council’s existing properties would be brought back to the committee as separate projects which would have their own financial model. The Strategic Viability Modelling was the overarching model for this business case.  Officers had reviewed the model and held meetings with Hyde to discuss the assumptions. Officers would look at further detailed analysis when finalising the Business Plan.  The Council would still need to go back to the Policy, Resources & Growth Committee to approve borrowing over coming years. The Council must demonstrate it is following a prudent code and that the scheme is affordable. 

 

24.11   The Executive Director, Economy, Environment & Culture referred to the question of disposal of land under value.  If the undervaluation was less than £2 million there was no need to get the Secretary of State’s express approval.  The council could rely on a general disposal consent.  The Executive Director explained that for each parcel of land, a valuation was made by the Property and Design Team.  Disposal generally happened post planning and valuation was subject to planning.  Decisions were made by Policy, Resources and Growth Committee. 

 

24.12  Councillor Druitt suggested that the make up of the Board should include one councillor and that they should chair the Board.  He asked for reassurance that a new joint venture would uphold the high values of the council with respect to pensions, holidays and sickness.   Mr Matthews stated that it was agreed that the vehicle would not have a substantial workforce.  Staff would be provided by the council or Hyde. 

 

24.13  Councillor Druitt asked about the rules of procurement policy, and specifically matters such as sustainability.  Mr Waters replied that Hyde was a public body in the same way as the council.  The Joint Venture was a public body.  A business plan would need to be brought back to the committee. 

 

24.14  Councillor Bell expressed concern about the land value. He wanted reassurance that the LLP would not cherry pick land they wanted. He considered that the council should choose the land it wanted to dispose of.  Although Councillor Bell welcomed the initiative he had serious concerns about the way it had been presented and stressed that he had not had time to properly review the papers.  He asked how long the company would be kept going.  He had questions about the share of costs.  In the second year there was a deficit in the finances.  Councillor Bell referred to page 121, paragraph 3.22. He would expect to see a full proposal laid out and would expect to see a business plan.  Buildings would have long term costs and there was a need to know the end of life costs. 

 

24.15   Councillor Bell referred to page 122, paragraph 3.30, relating to the Board.  He considered that there was a governance issue with any of the officers involved.  Hyde members would be employed by Hyde and council officers would have other duties.  There were problems over costings and conflicts of interest. He could not be convinced that there should be officers on the Board.    Councillor Bell referred to page 125, paragraph 4.1 relating to risks and opportunities. He asked if legal advice had been received on the issue of State Aid.  There needed to be clarity with regard to Site identification.  Council officers should not be involved in the identification of sites.  

 

24.16  The Executive Director Economy, Environment and Culture referred to the disposal of land.  There was legislation that governed how land was disposed of.  The advice of a valuer was required. Reports on disposal would be submitted to the Committee.  The Council must receive best consideration. The Committee would have a say on which sites will be disposed of. 

 

24.17  The Finance Officer reported that with regard to the maintenance of homes over the period, financial modelling does include life cycle costs, which does include works such as the replacement of lifts and structure of the building.  With regard to the deficit, both Hyde and the Council would have to fund construction costs.  Both would show deficits in the early years and the burden was shared equally. 

 

24.18  Mr Waters referred to the conflict of interest for officers.  He stressed that it was perfectly legally possible for councillors or officers to be members of the Board.  Meanwhile there was no concern regarding State Aid. 

 

24.19  Councillor Bell asked about the long term plan for the life of the company.  The Head of Housing Strategy, Property and Investment explained that there was a 60 year business plan.  The Executive Director stressed that within the business plan there were options to exit.   

 

24.20  Councillor Miller asked how costs would be calculated and what they were. The Finance Officer explained that management costs were set out in the Part Two appendix.  Assumptions were based on existing costs on a cost basis. 

 

24.21  Councillor Miller asked why general fund tax payers had not consulted on borrowing from the general fund.  The Finance Officer replied that a report would be submitted to the Policy Resources & Growth Committee in order to have any approval of borrowing within any given year. Consultation would be carried out as part of that process.

 

24.22  Councillor Miller asked what would happen if two parties disagreed and the dispute mechanism did not work.  Mr Waters explained that ultimately, there would be escalating procedures.  If the parties could not agree they would have to agree to exit the arrangements.  

 

24.23  Councillor Miller asked if the joint venture could be funded by HRA borrowing if the cap was lifted at the autumn statement?  The Finance Officer replied that she did not believe it could. She thought that it would have to be ring fenced within the HRA.

 

24.24  Councillor Miller asked about likely impact.  If in a number of years there was disagreement there would be a deficit which would affect the general fund. The Finance Officer explained that cash flows showed a surplus.  Each development needed viability testing.  There would be no loans until viability testing had been carried out.  

 

24.25  Councillor Miller asked why the report had not been presented to the Members Procurement Advisory Board for comment.  The Executive Director replied that he was happy to take the report to the Board.

 

24.26  Councillor Miller asked about Right to Buy.  He asked what would happen if the Government extended the Right to Buy Scheme.  This would have an impact on the general fund.  The Finance Officer replied that no assessment had been carried out with regard to that scenario.

 

24.27  The Chair stressed that it was not possible to predict what future governments would be elected.  She stressed that she did not want to see Right to Buy affecting these delivery options.  The council were trying to protect social housing.

 

24.28  The Finance Officer stated that the proposal was a joint venture with Hyde.  Board members would review the business plan.  If in 20 years time Right to Buy was extended the council would review the business model.

 

24.29   Councillor Miller asked about HRA asset transfer.  The Executive Director explained that there was not a proposal to put HRA properties into the joint venture.  It was about finding land to put into the Joint Venture.  Meanwhile reserve matters were delegated to officers.  A list of reserved matters would be presented to the three council members of the Board. 

 

24.30  Councillor Miller asked about heads of terms and construction costs. He was informed that the Heads of Terms were draft.  There could only be a higher cost with the agreement of members.  Each business plan would be agreed.

 

24.31  Councillor Miller asked about the financial model and potential disputes.  The Finance Officer reported that the council and Hyde would have to bear the costs of disputes.

 

24.32  Councillor Miller asked about the appropriateness of Hyde as a partner.  Had any assessment been carried out?  He was informed that officers had taken legal advice and had not had any other approaches.  Hyde approached the council. 

 

24.33  Councillor Miller stated that Hyde coming forward did not satisfy him that they were the most appropriate partner.  Surely there should be a competitive framework to ensure Hyde were the most appropriate partner. He was informed that there had been a full competitive process for Hyde’s frameworks.  Mr Waters, Bevan Brittan stated that it would be open to the council to appoint its supply chain as it wished.  The proposal to date was to make use of Hyde’s frameworks because they were a means of taking things forward at an accelerated rate.  The manner in which the council market tested the framework would be in both parties’ interest. Hyde was not making any money from using its supply chain.

 

24.34  The Executive Director stated that there was a great deal of data to see if the VFM was better in one framework against another. The Programme Manager, Regeneration confirmed that there would be a project monitor who reported to the council and Hyde at the end of each tender that comes forward. 

 

24.35  Councillor Miller had concerns about the reverse Teckal, and quoted paragraph 4.6 on page 135. Mr Waters stated that there were multiple bodies owning a vehicle.   It was relevant to consider reverse Teckal.  If one or other party was entering into a contract and making a profit from the Joint Venture, then there would be a question mark.  This was mitigated through working on a shared basis.  The use of the competitive procurement route to appoint the developers would mitigate it further. 

 

24.36Councillor Miller stated that the proposals were hugely risky for the council and there were many unanswered questions.  He felt that the proposal had been rushed and was not ready.  There was no member oversight and the Conservative Group wished to make an amendment to defer the report. 

 

24.37Councillor Mears stated that she fully supported companies and had led on the LDV that brought forward Seaside Homes.  She considered that the proposal was contrary to the allocations policy and that there was an issue about shared ownership.  These were the reasons that her Group were asking for a deferment. 

 

24.38  Councillor Gibson welcomed both initiatives to address different housing situations.  He considered that the council should go ahead with the wholly owned special purpose vehicle proposal.  The joint venture was really welcome and was moving to the principle of providing living rent homes. It was a potentially exciting model and could be a rolling project and go beyond 1000 homes. He considered that building for assets was a good deal for council tax payers.  Councillor Gibson stated that he considered the proposal a bit rushed and considered that some of the assumptions were wrong.  It relied on property value inflation and lacked building cost inflation. 

 

24.39  Councillor Gibson presented the following amendment as follows:   

                     

“To add sub-sections 1-5 to recommendation 2.2 ii (a), as follows:

 

          a. develop and negotiate the deal with Hyde; in which

1)100% nominations for Living wage rented housing are provided for households from the BHCC waiting list, for whom the market rent for housing which would meet their needs in the private sector would cost more than 50% of their income (estimated as £36K for 3 bed, 31K for 2 bed, 22.5K for 1 bed and 16K for a studio).

2)100% nominations are achieved for shared ownership properties for residents with a local connection to Brighton and Hove as defined in the Housing Allocations Policy

3) Hyde commit not to convert vacant social rented properties in Brighton and Hove to affordable rents for the duration of the Limited Liability Partnership

4)  A “first refusal” option is agreed to buy Hyde out should they become bankrupt

 

5) There is an agreement that should Hyde dispose of their stake separately from a mutually agreed joint disposal it is sold either to the council or to a charitable housing association with charitable objectives.”

 

24.40  Councillor Gibson presented a second amendment as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

 

“To remove subsections (b) and (c) from recommendation 2.2 ii) and replace with a new sub-section (b) as follows:

 

(b) That the final terms of the agreement be agreed by a full meeting of Council prior to completion of the deal.”

 

24.41  Councillor Gibson presented a third amendment as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

 

“To add subsection v) to recommendation 2.2 as follows:            

 

v) That reserved matters for the Joint Venture should include:

(a)   An option to veto any future rents increases that exceed increases in the National Living wage

(b)   An option to veto any future rents increases that raise rents over the Local Housing Allowance.”

 

24.42  Councillor Druitt seconded all three amendments. 

 

24.43  The Executive Director stated that he was concerned about an amendment which asked to develop and negotiate a deal which considered points 1 to 5 (first amendment). It would be difficult for the council to require that a deal was negotiated that required actual points.  The implications of these points were not known and they required action from a third party. If the second amendment was carried then the final papers would come back to council anyway.  The Committee Lawyer suggested that the amendments be modified and say that these points are taken into account in the negotiations. 

 

24.44  Councillor Gibson suggested that amendment 1 be changed to read “a. to develop and negotiate the deal with Hyde; in which the following are sought”.

 

24.45  At this point of the proceedings there was a 10 minute adjournment.

 

24.46  Following the adjournment Councillor Hill stated that there had been very good questions and that opposition councillors had been right to scrutinise the proposals.  Councillor Hill stated that it should be recognised that this was not a procurement process; it was an offer of a joint venture from a particular organisation.  This needed to be scrutinised but had there been other offers the Committee would have been informed of them.  The Council could not model what might happen if there were changes in government legislation.  There needed to be ways of exiting and ways of adapting the model.  The Council could not avoid risk but it needed to know what the risks were in order to take things forward.  She stressed that there were huge benefits to the proposal and the Committee should not lose sight of what might be gained. 

 

24.47  Councillor Mears requested a deferral to the next Housing and New Homes Committee so that everybody in the three political groups could be satisfied with the proposals. 

 

24.48  The Chair asked for a vote on the proposal to defer the report.  The vote was agreed by 6 votes.  

 

24.49  RESOLVED:-

 

(1)            That a decision be deferred to the next meeting of the Housing & New Homes Committee to ensure that members can feel fully supportive of the proposals.