INTERVIEW: Ken Jones, director of housing strategy London Borough of Barking and Dagenham
Wed 30th May 2012, 4:05 pm
How a London borough housing chief won institutional investment into his affordable housing programme.
Ken Jones: Rented housing can work for institutional investors
Developing a business case that persuades institutional investors to fund housing development is one of the few options open to many local authorities during the current public funding drought. Few, as yet, have got close to pulling this off.
But the London Borough of Barking and Dagenham is claiming a first with its recently-concluded housing delivery scheme using institutional funds to fund affordable homes.
In LBBD’s case, the borough has capacity for 20,000 new homes, of which more than 3,000 can be built on council-owned sites. Getting the housing programme moving is integral to LBBD’s regeneration strategy.
According to Jones: “Institutional investors recognise that rented housing can work for them.”
LBBD has put the council-owned land into a special purpose vehicle, SPV, set up by the council and Laing O’Rourke, its development partner.
The lease on the new housing is between the SPV and Long Harbour, the funder whose return comes from the housing rental.
While the council manages and maintains the homes, ownership of the homes remains with the SPV.
The authority had already done much of the groundwork after the then-Government announced its local housing companies proposals in 2007.
Although the council’s plans did not result in the creation of a housing company at the time, the council had found a partner, devised development schemes and negotiated senior debt from banks.
“That process honed our innovative skills and outlook. We were working with partners and looking for opportunities to get things to happen,” said Jones.
“We had set up an education partnership including provision for houses as well as schools in its remit for future development.”
Since the council had already been through the procurement process for its education partnership with Laing O’Rourke, it was decided to extend the partnership to fulfil the current housing scheme.
“Our discussions with Laing O’Rourke looked at ways of improving the viability of the scheme. The plans also included a good proportion of social homes,” said Jones. “The developer had already established relationships with fund providers which was how we then came up with the current deal.”
Importantly, the current state of the housing market in east London meant that there was plenty of demand for homes.
The current scheme envisages 80% of the new homes being made available at affordable rent levels which are lower than market rates with the remaining 20% at close to social rents.
Nonetheless, Jones acknowledged that it is still a competitive market. “But we should have a competitive edge because the deposit will be less, the arrangement fee is less and the tenancy will be on a five-year assured shortholds," he said.
Since LBBD has gone public with its institutionally funded housing scheme, it has a lot of interest from other local authorities. Those conversations have shown that by no means all would be prepared to make a commercial commitment.
“Rental guarantee is the key to finding an institutional investor. That’s where the risks exists for the local authority in making a covenant,” said Jones.
"In London, all the indications are that the housing market will remain buoyant for some time, with demand remaining high. The local private rental sector has doubled in the last five years.
“There’s a lack of supply, particularly affordable housing.”
That, coupled with LBBD’s strategic regeneration ambitions for the borough, provides reason for confidence in the housing scheme’s viability.
While the business case will differ from area to area, Jones believes that the most significant reason why councils seem to balk at this funding model is cultural.
“Local authorities need to wake up to become more commercial in their thinking,” he said.
Ken Jones will be leading a workshop with speakers from Laing O’Rourke and Long Harbour on the funding model underpinning LBBD’s housing programme at SocInvest 12.
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