Between 2010 and 2015 local government faced upwards of £18bn in real terms cuts, losing on average 20% of its spending power. Budgets for running services were cut at twice the rate of UK public spending as a whole. Meanwhile, social housing waiting lists are rising, local authorities are struggling to deliver their 5 year housing land supply and the Right to Buy uptake has overtaken the provision of new social housing.
Faced with these problems, local authorities need to find innovative methods to deliver more housing and generate income. They have increasingly turned to setting up arms-length commercial entities known as Housing Delivery Vehicles ("HDVs"). The form of these entities is dependent on a Council's needs - examples include wholly owned Teckal companies, trading companies, and joint ventures between local authorities, housing associations and developers. Ashfords has advised on the first development project of the Royal Borough of Kensington and Chelsea's HDV, and is currently advising another local authority on the setting up of a HDV.
Why set up a Housing Delivery Vehicle?
Traditionally, Councils have had to choose between taking on the cost and risk of developing public land themselves or selling the land at best value to a private developer and using the section 106 process to require the building of affordable homes.
Large scale direct development is often unsustainable, given the background of cuts to local government budgets. The section 106 process has been controversial, as it has arguably led to dwindling numbers of affordable homes as developers attempt to minimise their affordable housing obligations. These issues have led Councils to consider the "third option" of arms-length local authority development vehicles.
A widely publicised example is Haringey Borough Council's ("Haringey") project, which set up a HDV with a private developer to develop publicly owned land in a 50:50 partnership. This HDV will be used to redevelop Haringey's housing estates, and will raise revenue after the Council's commercial property portfolio is transferred. Haringey will contribute land and other assets as its own equity stake, and the developer will match this with its own funds. Both parties control of the HDV is equal, meaning that neither party should be able to force the other into a position that they are not happy with.
Haringey's policy commits to 40% affordable homes - a significant improvement on the proportions delivered by section 106 agreements. However, concerns have been raised as to how much control Haringey will have in practice. All individual business plans are to be signed off by Haringey before any public land is passed into HDV's ownership. This demonstrates the importance of effective checks and balances when developing such proposals.
Benefits and risks inherent in setting up a HDV
At their best, HDVs can allow public assets to be put to effective use to bring in revenue for struggling Councils and help to mitigate the housing crisis in an environment where there is a huge demand for affordable social housing that far outstrips supply. Given the lack of support for social house building from recent Governments, HDVs have the potential to allow the public sector to return to affordable social housebuilding driven by the needs of the community, helping the thousands of people priced out of the private sector but trapped on the social housing waiting list due to a lack of new council homes.
The Haringey project was criticised in a scathing Guardian article, which claimed that it will "rip apart communities" and "hand democratic control to a massive private entity". Haringey describes their ambition for the project as being "to provide a decent home and the best possible opportunities for everyone who wants to live here, and a secure future for the council and the services it provides". Given that there are over 8,000 families on Haringey's social housing waiting list, this is an important ambition.
Problems inherent in HDVs come from the huge risks entailed when underfunded public authorities work with affluent private developers to deliver such huge, complex projects. When considering the risks of housing delivery vehicles, it is important to consider what the alternatives are in the absence of any forthcoming support from government for public sector housebuilding; to continue to attempt to force private developers to provide their share? Or for local authorities to attempt prohibitively expensive direct development? The situation as it stands is certainly unsustainable. If local authorities ensure from the beginning that comprehensive risk management strategies are in place in the underlying contractual structure - including clear constitutional documents, explicit affordable housing obligations and mechanisms which allow local authorities ultimate control over key aspects of the project - then HDVs may be able to live up to their incredible potential.