Borough buildersThe role of councils in estate regeneration

When it comes to council housebuilding, the UK went from feast to famine very quickly. From the late 1940s through until the late 1970s, local authorities built homes on a truly industrial scale, first to replace homes lost in the war and latterly to house a booming population. Then came the Iron Lady.

“It was curtailed in 1979 by Margaret Thatcher and then for years very little was done,” says Paul Karakusevic, partner, Karakusevic Carson Architects. “There was no investment in new build, which gave us some of the problems we have today.”

The new wave of Borough Builders

In recent years, however, some councils have started to build again. The new wave of borough builders started in 2007, when then prime minister Gordon Brown allowed councils once again to invest in their housing stocks. Karakusevic won a competition to work on a pilot project with Barking and Dagenham council, which received additional funding to build up its housing and regeneration department.

According to Karakusevic, several projects followed and as a result his practice picked up work with Hackney. At that time, Hackney’s housing and regeneration team constituted just three people, but Karakusevic says the borough’s ambitions quickly grew and it soon saw sense in investing in more talent. “With us they transformed the Hackney estates programme,” he says. “Today, I think Hackney is probably the leader.

The council is acting as a developer in its own right and has won praise for some of its schemes, not least the £80m, award winning regeneration of the King’s Crescent estate. However, its ambitions were limited by its housing revenue account (HRA) debt cap, which limited borrowing to around £140m. The cap was lifted in the autumn (if not taken off entirely, as was reported) meaning the borough can now accelerate its plans.

Flexibility in tenures

That doesn’t mean a return to mono-tenure estates, though, even if it were desirable to do so. The Hackney model still requires a level of cross-subsidy from the sale of homes on the open market, despite the fact that the council can borrow at very low rates through the Public Works Loan Board (PWLB). “They’re borrowing at around 1.5% but they still need to structure it in a sensible way,” says Karakusevic. “I think there will always be a degree of cross-subsidy needed – [social] rents are so low that otherwise you would never be able to pay the money back. They have to borrow and build responsibly. That’s why something like King’s Crescent will have 45-50% market sale.”

A similar strategy is being deployed, albeit in a more limited way, in Bristol.

“We’re building around 60 a year at the moment, but with the cap coming off we will be accelerating that number,”

says Councillor Paul Smith. “At the moment, none of what we’re doing would be classified as estate regeneration, it’s new build on open sites. But we are evaluating at the moment places where housing is unpopular, expensive to maintain, difficult to heat and where it is low density for regeneration. Most of that is likely to be low-rise flats.”

“It’s about meeting local housing need. We have a big need for housing. Our HRA is reducing at 180 units a year through right to buy so we do need to replace the units. In Bristol, we’ve got more than 500 families in temporary accommodation and 11,000 households on the waiting list, so we need a lot more social housing than we have at the moment.”

Private development companies and joint ventures

The council as developer model isn’t the only one available. In Croydon, for instance, the council has established Brick by Brick, a private development company of which the sole shareholder is the local authority. The benefits of its legal status include the ability to negotiate land deals directly and the fact that it isn’t subject to OJEU procurement rules.

“It’s about addressing housing delivery issues locally,” says Brick by Brick chief executive Colm Lacey. “Essentially, the council wasn’t getting the quality of development that it wanted, whether in terms of affordable supply or design quality. We also had an issue with PDR [permitted development rights] in Croydon. The council was against it and we put in place an article 4 direction, but not before we lost around 1.5m sq ft of stock to permitted development. Some of it is alright; some of it is awful.”

An article 4 direction allows a local planning authority to restrict the scope of PDRs.

The idea is to use council-owned land and assets to increase the pace and quality of housing delivery, as well as to increase the volume of affordable housing coming forward. Under the model, Brick by Brick buys the assets at market value and then borrows the development finance required from the council at commercial rates. For its part, the authority borrows the money from the PWLB. “A big part of the revenue generated for the council at the moment is in the form of interest on loans because it can borrow at PWLB rates,” says Lacey, adding that all profits from his company are also ultimately returned to the authority.

A different model again can be found in the London Borough of Havering, where the council has set up a joint venture (JV) with Wates Residential following an OJEU compliant procurement process. The JV was formally established in April last year, following a cabinet decision in January, and is 100% funded by the authority’s HRA.

The ambition is that the JV will redevelop 12 council estates, which currently total 900 units, and replace them with thousands of new homes. The council will retain the freehold and ownership of the social units and has a 50% stake in the JV.

“Through intensification and redevelopment we thought we would get in the region of 2,700 new homes on those sites,”

says Neil Stubbings, director of regeneration at Havering council.

“However, part of the procurement exercise was about asking the market to use its expertise on whether that number was about right or whether we could get more out of it. The bid from Wates identified, after conversations with our planning team, that we could get 3,112 units and within that we could double the affordable housing. We would get something in the region of 1,000 units of affordable housing and also deliver around 2,000 open market sale units.”

So why are councils rolling up their sleeves and starting to build again? Partly it’s the housing crisis, it is simply the right thing to do, but done well it is also a way creating new income streams after years of austerity. “There is pressure on council finances and a recognition among the more entrepreneurial councils that they can’t rely on central government grants,” says Finn Williams, co-founder of Public Practice, who works with authorities

across London and the South East.

“They need to find new ways of generating income simply to survive. That means taking a more proactive approach to their own assets.

It’s isn’t good enough to simply sell off bits of land and get capital receipts. They need to think about how they can create a blend of income across their properties and housing estates are obviously a part of that.”