What next for local housing companies?
It is now over 15 years since the phrase Local Housing Companies (LHCs) appeared in the Housing Green Paper ‘Homes for the future: more affordable, more sustainable‘. Since then, the approach has been almost universally adopted with some estimating that close to 80% of local authorities now have some form of housing development or management subsidiary.
Originally envisaged as partnerships between local authorities and the private sector created to develop council-owned land, there has in fact been a proliferation of different models pursuing a wide range of objectives and strategies as local needs and political priorities have led to bespoke structures and delivery approaches.
Notwithstanding the different models, most LHCs are pursuing one or both of two strategic objectives:
- To meet local housing needs; and/or
- To generate revenue to support their shareholder council’s funding challenges
In addition, individual councils may be seeking to tackle homelessness, increase the amount of affordable housing, regenerate estates, stimulate private sector development, and deal with strategic or difficult sites that might otherwise not be developed. LHCs can develop, buy or manage properties.
The LHC landscape is varied as the degree to which they have succeeded. Many have made valuable contributions to local housing development but equally many have also struggled to get development off the ground. In part, this may have been down to the lifting of the HRA borrowing cap in 2018, which made direct in-house development more viable. But other factors have included the shortage of in-house skills and experience, occasionally an inability by the LA to provide the necessary freedoms for the LHC to trade effectively, funding challenges and, more recently, the deteriorating economic environment.
What should local housing companies do next?
Review the strategy and operating model
The changing macroeconomic conditions, including increasing costs, are likely to slow development while at the same time exacerbating the very problems that prompted LAs to create their LHCs. Therefore, strategies and plans need to be reviewed and updated to ensure they remain relevant, viable and fit for purpose. In addition, councils may take the opportunity to review and restructure their shareholder/subsidiary relationship and refine the governance arrangements and operating models. Getting these right can significantly improve the performance and efficiency of LHCs.
We help our clients navigate through these processes.
Business planning and investment viability appraisal
LHCs should ensure that the individual scheme appraisals, as well as the long-term financial plan model, are based on current, realistic and evidence-based assumptions. Altair is a leader in business plan modelling for the social housing sector so we can build or review your long-term financial plan, and validate your plan and assumptions based on our wide sector experience. We can also work with you on stress testing and mitigations. In our own Podplan, we have built a practical and reliable development appraisal toolkit, used by over 30 developing organisations across the country including LHCs to assess development viability and form programmes of development.
Strengthen development management
We provide development management services to LAs and LHCs, working within teams on an interim basis or through consultancy support to drive programmes forward at all stages of the development lifecycle; from site identification through to handover. Our development procedures help clients govern and manage projects and their inherent risks through our tried and tested gateway process, ensuring that they are ‘audit ready’. We also offer a site-finding service for clients.
Secure the right funding
LHCs are not subject to the local government housing finance rules that govern the Housing Revenue Account nor are they covered by social housing regulations – unless registered provider status is proactively sought. LHCs also sit outside the Housing Act requirement, including tenancy terms. Our team understands the sector and are specialists in Corporate Finance and Treasury, as well as financial planning and options appraisal. Operating across the UK and internationally. Covering growth & investment strategies, mergers & acquisitions, joint venture structures, treasury and funding strategy, interest rate management, and ESG finance. We can assist you in formulating and presenting your business plan in the best light for external funders, and identifying and negotiating funding options for your LHC.
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