Is Thurrock a model council house-builder?

http://www.theguardian.com/society/2015/jun/23/thurrock-model-council-housebuilder

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In a borough where it’s more profitable to put a lorry park on your land than to sell it for housing, how does a council meet its target of building 20,000 new homes by 2021?

Where developers bank land because it’s not profitable to build and sell houses, or landowners hold on to land waiting for London prices to arrive, Thurrock council needed a response. It designed Gloriana Thurrock Ltd, an entrepreneurial solution to build where commercial developers simply wouldn’t go.

Other options we considered included joint ventures with developers, partnerships with housing associations and private sector leasing deals. While not ruled out, there are commercial and strategic drawbacks to them all – the need for very large sites, the requirement to donate free land, or to guarantee the rental income for up to 50 years. None appealed immediately.

Gloriana is a wholly owned company of the council. It is funded by a mix of equity and debt, like most companies in the UK. Council land is sold to the company at a commercially valued rate and Gloriana borrows prudentially against the council general fund (income from the council tax) to fund the housing development. Gloriana repays the interest on the loan through its rental income and the debt can be repaid when homes are sold.

The company will not undercut the market but it is able to start development projects without having to consider making the sort of swift and significant profit (typically around 25%) that developers seek.

Gloriana will provide a range of housing to meet the needs of residents in Thurrock, including affordable rent, low-cost home ownership and private sales.

The company directors are council officers, and housing staff provide a complete package of development, management and maintenance services at benchmarked commercial rates. The landlord is Gloriana Thurrock Ltd.

Work is due to start at the first site, St Chad’s, this month with 128 beautifully designed family homes built on a site that the council could not sell despite trying for a number of years. These homes will be ready for local residents to buy or rent in 18 months and the council is now putting together an equity sale package so that young people in a low-income borough can afford to enter a very difficult housing market. A second site is being designed and will be submitted for planning permission in the autumn.

The initial business plan for Gloriana is predicated on building a few hundred homes. In addition, the council has started building around 500 new council houses for the first time in a generation, funded by borrowing against council housing rents.

Together, these programmes will form only a small proportion of the additional, well-built houses needed in the borough. But Thurrock council knew it had to intervene in the market in this small but radical way because it saw that house-building had stalled. Thousands of homes have been granted planning permission, but few were being built – and some half-built sites had been stalled for years.

By making a strategic intervention, and creating a few high-quality homes in the borough the council hopes to raise house prices in order to encourage further house-building in the borough by private developers.

The name Gloriana draws on the borough’s rich history: it was at Tilbury, in Thurrock, that Elizabeth I’s troops greeted her with cries of “Gloriana” after the defeat of the Spanish Armada. The council wants to give a lead on the quality and range of housing that local people need, and refuses to be defeated by a broken housing market. It has committed its own land, established its own housing company, and prudentially borrowed to build where the market is nervous to go.

Other councils could follow our lead. All that’s required is for the company to be able to buy land and repay interest on the loan from rent and sales. However, the company takes the risk that the private sector would take in more expensive private sector leasing deals. So the risk appetite of councillors is a major factor in deciding whether or not the Thurrock model would work.