Borough Housing Companies – the recipe for success
21 May 2019
Council housing looked like it had been consigned to the history books after tenants were given the legal Right to Buy their homes in 1980. Having been a significant driver of new affordable housing stock since the war and already reducing, the Housing Act1980 hastened the decline of council house building.
Fast-forward forty years and it is firmly back on the agenda. London needs to build 65,000 homes a year and nearly half of these need to be affordable homes. With the capital’s affordability crisis showing no signs of abating, boroughs are now looking at how they can, once again, directly deliver new homes.
We ran a series of discussions with the new wave of borough housebuilding companies to hear about their ambitions. A common set of challenges and opportunities emerged, pointing to a five-step recipe for success which, if followed, can help boroughs already building, and those thinking about taking the plunge.
It might sound obvious but having a clear set of objectives upfront makes the biggest difference. Boroughs want to provide affordable housing but may also want to generate income through shared ownership and market rent. Making early decisions about the balance between affordable and private housing, capital and revenue income, cashflow, peak debt, design quality, and contribution to place are vital to success. Embedding those decisions in the governance process then provides a clear mandate for programme and project delivery.
Ensuring the right skills are in place at both operational and board levels at the outset is essential to success, along with making time to develop the skills required before projects commence. Too often the pressure to move into delivery compromises proper resource and programme planning – spending time on the mobilisation phase is essential.
From the outset, boroughs need to consider how the scale of ambition sits against the maturity of the company. Start-ups need to deliver at a scale which is realistic to their experience. Large, ambitious programmes come with a risk profile which may not sit comfortably with other public sector objectives. Authorities with successful development programmes are increasing building at scale over time using lessons and experience learnt on the ground.
At the start of the programme, asset ownership may seem a long way off. Getting early advice on the future long-term ownership options, for example, whether the asset is retained in the company, transferred back to the council or disposed of to a third party, makes a huge difference to long-term success. This extends to thinking about how to brand and operate any long-term rental portfolio.
Finally, a challenge for new development companies is that they don’t necessarily have experience of efficient design and contract supply chains compared to established housing developers, who have grown these over several years. The results can lead to development costs which are higher than those incurred elsewhere, impacting on viability and profit. Looking at ways of keeping design and product consistent across programmes will help generate efficiencies and deliver more commercially successful projects.
There are real opportunities for boroughs to return to building new homes and several steps they can take to set off on the right foot. While it isn’t easy, working with the private sector and capitalising on the knowledge and experience that it can bring will help fill skills gaps, and enable boroughs to remain in control of the development process. Boroughs are rightly ambitious and can make a valuable contribution to solving London’s housing crisis.
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