Agenda item

(The Director of Housing) To consider the attached report (CHB-002-2013/14).

(1)        That the following sources of funding be utilised, in addition to the loan provisions received from the Public Works Loan Board, to provide the required subsidies for the Council’s Housebuilding Programme:

(a)        capital receipts from additional Right to Buy (RTB) sales, that must be utilised for new housebuilding (in accordance with the Council’s agreement with the Department of Communities and Local Government (DCLG)); 

(b)        all current and future financial contributions received by the Council from developers to fund affordable housing, through Section 106 Agreements, in lieu of the on-site provision of affordable housing;

(c)        capital receipts from the sale of HRA land or buildings, where the Cabinet has specifically agreed that they should be used to help fund the Council Housebuilding Programme (including the capital receipts already allocated by the Cabinet to the Housebuilding Programme from the sale of Leader Lodge, North Weald and land at Millfield, High Ongar);

(d)        any grant received from the Homes and Communities Agency (HCA) in the future, to fund the Housebuilding Programme; and

(e)        any other external funding sources (e.g. the Harlow Growth Area Fund);

(2)        That the use and provisional level of subsidy required for proposed developments be authorised through the signing-off of their financial appraisals, which shall include details of the estimated level of subsidy required;

(3)        That, once the Cabinet Committee has authorised the use and provisional level of subsidy required for individual developments and/or development packages, the Director of Housing be authorised to allocate funding from the sources listed in (1) above to individual developments and/or development packages – utilising the most appropriate source of funding for the development(s), having regard to the time limits within which they must be utilised - up to and in excess of the provisional level approved by the Cabinet Committee, once tenders to undertake the works have been received from contractors, subject to:

(a)        the amount allocated being no more than 15% of the level provisionally approved by the Cabinet Committee;

(b)        sufficient funds being available at the time of allocation; and

(c)        the Cabinet Committee receiving a report to its next meeting on the amount of subsidy allocated, and its source of funding;

(4)        That a standard report be received by the Cabinet Committee at each meeting, setting out the current position with regard to funding from the sources listed in (1) above, showing the availability, use and commitments to date; and

(5)        That, if the sources of funding listed in (1) above have been exhausted during the course of the Housebuilding Programme, a report be submitted to a future meeting of the Cabinet on the possible sale of some of the potential development sites earmarked for the Programme, with or without planning permission, to generate capital receipts to provide a form of cross-subsidy to continue with the Housebuilding Programme.

The Director of Housing presented a report regarding the funding of the Council Housebuilding Programme.

The Director reported that, through its Terms of Reference, the Cabinet Committee had delegated authority to use various sources of funding (detailed in the report) in order to develop individual sites within the Council’s Housebuilding Programme. The total potential amount of funding available from these sources to subsidise the proposed developments in order to make them viable was around £3.3m (although it was noted that some of this funding may not come to fruition), of which around £995,000 was currently available.

The Cabinet Committee considered the general approach to be taken to the utilisation of these sources of funding, in order to have sufficient capital resources available to meet the cost of works and fees for the construction of the properties.

The Director reported that the approach proposed for the Council’s Housebuilding Programme was that the loan costs should be repayable within a period of 30 years, which was a generally accepted, prudent and common timeframe for affordable housing developments. However, for many of the Council’s developments, this would not be possible, for the following reasons:

(a)        since the rents for affordable rented housing are lower than market rents, the rental income over a 30-year period may not be sufficient to repay the development’s loan costs; and

(b)        all of the Council’s potential development sites are very small, some only comprising one or two properties. Furthermore, since many of the sites are currently garage sites, a number have relatively long access roads and most require demolition works, which would add to the cost. Therefore, the unit costs of construction for the Council’s Housebuilding Programme are relatively high.

Members noted that where the development did not break even within 30 years, one option would be to simply extend the financial appraisal period – i.e. allow the development to take longer to break even. It was accepted however, that this was not a prudent approach to take to the Programme and, in any event, some developments may never break even.

Decision:

(1)        That the following sources of funding be utilised, in addition to the loan provisions received from the Public Works Loan Board, to provide the required subsidies for the Council’s Housebuilding Programme:

(a)        capital receipts from additional Right to Buy (RTB) sales, that must be utilised for new housebuilding (in accordance with the Council’s agreement with the Department of Communities and Local Government (DCLG)); 

(b)        all current and future financial contributions received by the Council from developers to fund affordable housing, through Section 106 Agreements, in lieu of the on-site provision of affordable housing;

(c)        capital receipts from the sale of HRA land or buildings, where the Cabinet has specifically agreed that they should be used to help fund the Council Housebuilding Programme (including the capital receipts already allocated by the Cabinet to the Housebuilding Programme from the sale of Leader Lodge, North Weald and land at Millfield, High Ongar);

(d)        any grant received from the Homes and Communities Agency (HCA) in the future, to fund the Housebuilding Programme; and

(e)        any other external funding sources (e.g. the Harlow Growth Area Fund);

(2)        That the use and provisional level of subsidy required for proposed developments be authorised through the signing-off of their financial appraisals, which shall include details of the estimated level of subsidy required;

(3)        That, once the Cabinet Committee has authorised the use and provisional level of subsidy required for individual developments and/or development packages, the Director of Housing be authorised to allocate funding from the sources listed in (1) above to individual developments and/or development packages – utilising the most appropriate source of funding for the development(s), having regard to the time limits within which they must be utilised - up to and in excess of the provisional level approved by the Cabinet Committee, once tenders to undertake the works have been received from contractors, subject to:

(a)        the amount allocated being no more than 15% of the level provisionally approved by the Cabinet Committee;

(b)        sufficient funds being available at the time of allocation; and

(c)        the Cabinet Committee receiving a report to its next meeting on the amount of subsidy allocated, and its source of funding;

(4)        That a standard report be received by the Cabinet Committee at each meeting, setting out the current position with regard to funding from the sources listed in (1) above, showing the availability, use and commitments to date; and

(5)        That, if the sources of funding listed in (1) above have been exhausted during the course of the Housebuilding Programme, a report be submitted to a future meeting of the Cabinet on the possible sale of some of the potential development sites earmarked for the Programme, with or without planning permission, to generate capital receipts to provide a form of cross-subsidy to continue with the Housebuilding Programme.

Reasons for Decision:

It was important to identify and quantity the potential sources of funding for the Housebuilding Programme, and to have an agreed approach to their utilisation.

Other Options Considered and Rejected:

The main options were:

(a)        Not to utilise all or any of the identified potential sources of funding, or to only use some of the funding available from various sources – however, this could result in insufficient funding being available to provide the required levels of funding.

(b)        Not to authorise the Director of Housing to utilise the most appropriate source of funding for the development(s), and to reserve approval to the Cabinet Committee – however, this could result in delays, which would result in time limits within which the use of the funding must be utilised not being met; furthermore, it was likely that sources of funding for the various developments could subsequently need to be switched, in order to meet all time limits and to ensure the most appropriate utilisation of resources.

(c)        Not to authorise the Director of Housing to allocate funding in excess of the provisional level approved by the Cabinet Committee (and reserve the allocation of an excess funding to the Cabinet Committee), or to amend the maximum amount that can be allocated above the level approved by the Cabinet Committee, or to amend the provisos to the authority given – however, if tenders received were higher than expected, it was likely to take some time to arrange a Cabinet Committee meeting to approve any additional required funding, which could delay the commencement on site. It was felt that the proposed maximum level above the authorised amount was reasonable, bearing in mind the proposed caveats to the use of the authority.

(d)        Not to agree the submission of a report to a future meeting of the Cabinet, if necessary, on the possible sale of some of the potential development sites earmarked for the Programme in order to fund other developments in the Programme – however, the Cabinet had previously recognised that such an approach could be necessary, and it was suggested that if the other identified sources of funding are exhausted, it would be appropriate for the Cabinet to consider this option.