Decision Maker: Cabinet
Decision status: For Determination
Is Key decision?: Yes
Is subject to call in?: No
Sets out next steps in developing Housing
Note – Councillor John Holmes declared a non-pecuniary interest in this item of business by virtue of the fact that he was a Director on the Board of South Lakes Housing. He remained in the meeting during the discussion and voting on the item, although with no voting rights as a Member of the Shadow Cabinet.
The Housing, People and Innovation Portfolio Holder referred to Minute CEX/93 of the Cabinet meeting held on 13 December 2017, when it had been resolved, “to approve in principle and recommend to Council that the Council develop a loan facility, initially of a maximum £6m, to be made available to South Lakes Housing and other housing associations to support proposals delivering new affordable housing with detailed arrangements to be reported to a future Cabinet for approval.”
Cumulative receipts to 2017/18 (in the order of £3m) and future year receipts (dependent on right to buy sales but normally in the order of £600K-£1m) formed part of a £6m loan facility available for housing associations to draw down on a scheme by scheme basis. The scheme would facilitate delivery, generate revenue for the Council through repayments and ensure that resource put into housing enabling could be recycled to promote further delivery.
The December 2017 report stated that, subject to approval in principle, the detail of the scheme’s operation would be developed and reported to Cabinet for approval. At that time, the loans facility had not been specific to any particular housing association. Despite publication of the loans facility, the only housing association or social housing provider that has contacted the Council seeking to enter into discussions regarding the terms for such a loan was South Lakes Housing.
Since December 2017, South Lakes Housing had, in discussion with the Council, been developing a programme for delivering housing in more constrained areas such as the Lake District National Park. The proposed programme had been submitted to the Council for consideration and, in principle, the Council was content that the proposals would assist in boosting the supply of affordable housing in areas where there was an identified need. The Council had also supported the allocation of a number of potential housing sites through the Lake District Local Plan process. It was seeking to promote the delivery of these through its housing enabling role. The loans scheme was an important tool to help to bring this about.
Discussions with South Lakes Housing had included dialogue regarding draft Heads of Terms which provided security and comfort to both parties. Although they had not yet been agreed, discussions were reasonably advanced, and there were just a small number of points where agreement remained outstanding.
The Portfolio Holder outlined the proposal from South Lakes Housing.
To deliver the full programme proposed by South Lakes Housing, the initial facility of £6m would require additional funding of £9m (total of £15m). Further funding would depend on the success of early pilot schemes. If Members wished to support further lending over and above the £6m, this would need to be done either through reserves or through on-lending (the Council is able to access finance through the Public Works Loan Board). Further approvals from Cabinet and Council would be required to proceed with additional lending. At this stage, there was no evidence as to the capacity of any housing provider to deliver the full programme, and it was, therefore, proposed that progress regarding any loan facility above £6m would be subject to further discussions and agreement. It was reasonable to say that any loan facility will be offered to the wider social housing market although, once funds have been committed, such opportunity would no longer exist.
South Lakes Housing had identified a total of 21 sites with a potential capacity to deliver 294 dwellings. Of these sites, 18 had been confirmed as available. All were either allocated or proposed for allocation in the Lake District National Park Local Plan. South Lakes Housing had stated that they were confident that from this list of sites, a programme of 120 new affordable homes, primarily focused on towns and villages in the South Lakeland part of the Lake District National Park, could be delivered. Approximately three quarters of the homes will be for affordable rent and a quarter for shared ownership, however, the tenure split would be refined and agreed as the programme was developed. The aim was to deliver in areas where there were high affordable housing needs and where conventional means of affordable housing delivery – through market housing schemes –might not deliver because of viability and planning policy issues. This effectively meant outside the main urban centres of Kendal and Ulverston.
The Portfolio Holder provided details on the operation of the scheme.
From the information provided by South Lakes Housing, the initial £6m approved in December 2017 would support delivery of approximately 48 new affordable dwellings. In principle approval was already in place for the initial £6m following the Council decision in December 2017. The scheme would be used to support affordable housing delivery outside the main settlements of Kendal and Ulverston and the schemes supported would be expected to supplement the housing provider’s main development programme.
In order to reduce the risk to the Council, it was intended that the £6m would not be advanced in one lump sum but, rather, would be advanced in smaller sums following receipt of a drawdown request from a housing association. Such drawdown request would only be approved in relation to any completed schemes (effectively freeing up other funding for the housing provider to invest in other schemes) where a practical completion certificate had been issued. In addition, the Council would seek security by way of a charge over those properties to which the loan related.
The intention was that the loan would be repaid on an annuity basis with semi-annual payments (6 monthly). In addition, it was intended that further repayments would be made using any capital receipts received by the housing provider from the schemes delivered/partially delivered by the loan facility. For example, if any shared ownership properties were “staircased”, then the capital receipts will be applied to repay some of the loan. Likewise, if any properties delivered by the loan facility were sold subject to the Right to Acquire, the capital receipts would be used to repay part of the loan. The loan term was anticipated to be 30 years, with any outstanding balance being repaid by no later than the end of that term.
Drawdowns would be for a minimum of £250,000 per scheme. It was currently proposed that the interest rate applying to the loan would be at the fixed rate of 2% per annum and would be paid semi-annually in arrears. This applied to the initial £6m loan which was anticipated to be expended within two years from the date of first draw down. The tenure mix of each scheme would be agreed on a scheme by scheme basis, with each scheme being scrutinised for viability, deliverability (including timetable of securing appropriate consents) and value for money (including funding from other sources such as Homes England). Each drawdown would be made subject to a legal agreement.
Any loan sum over and above the in principle approval given in December 2017 would be subject to further Member approval. Should the scheme be successful, a report would be presented to Members to consider increasing the loan facility to £15m to further increase delivery of affordable housing.
The Housing, People and Innovation Portfolio Holder, in closing, thanked officers and Members for their involvement with officers from South Lakes Housing in constructing such a positive deal. The Leader, in response, thanked the Portfolio Holder for his work.
In response to queries raised, the Housing, People and Innovation Portfolio Holder acknowledged the fact that the money, if provided as grant funding, may have enabled South Lakes Housing to build houses, however, stressed the fact that the loan would be recycled and would deliver housing into the future. He also advised of the proactive steps being taken to ensure the delivery of sites allocated within the Yorkshire Dales National Park area.
Members welcomed the scheme which would make a generous contribution towards mitigating the housing pressures within the area.
RESOLVED - That
(1) approval in principle be given for the commencement of the South Lakeland Affordable Housing Loan facility in accordance with the principles set out in the report for the sum of up to £6m previously agreed by Cabinet in December 2017;
(2) approval be given for the Council to indicate its willingness to increase the amount of the available loan facility from £6m to £15m, subject to delivery of the £6m programme, the submission of satisfactory and robust evidence of the potential to significantly increase the scale and pace of delivery of new affordable housing through the scheme, and further approval from Cabinet and Council;
(3) the Director People and Places be authorised, in consultation with the Assistant Director Resources (Section 151 Officer) and Portfolio Holders for Housing, People and Innovation and Finance, to approve drawdowns from the £6m facility in accordance with the agreement between the parties; and
(4) officers be requested to provide Cabinet with regular progress reports on the scheme and associated delivery.
Reasons for Decision
To assist in the delivery of the key element in the Council Plan of delivering 1,000 affordable homes for rent target.
Alternative Options Considered and Rejected
The option exists to commit to a full programme of £15m of support for a programme delivering approximately 120 houses without a requirement for scheme by scheme drawdown. This would give greater certainty for the housing provider(s) but would result in less control over delivery and pose a greater risk to the Council.
The option exists to not proceed with the loans facility. This would free up the £6m to be spent on other priorities. However it would impact significantly on affordable housing delivery, particularly in rural parts of the District with high affordable needs and limited opportunities to address these through conventional means of affordable housing delivery.
Report author: Dan Hudson
Publication date: 30/11/2018
Date of decision: 28/11/2018
Decided at meeting: 28/11/2018 - Cabinet