Housing Development Companies
Recent changes to the rules on funding have allowed local authorities to provide new housing for sale or rent by means of developments carried out by housing development companies.
Typically a housing development company is a private company limited by shares, where all the shares are held by the local authority, ie. the company is a wholly-owned subsidiary of the local authority. Sometimes the arrangements are more complex, perhaps taking the form of a joint venture with another local authority or a private sector developer.
Developments are often small-scale. A site already owned by the local authority is transferred to the housing development company which, if it is a wholly-owned subsidiary, will usually contract the building work to one or more private construction companies. The work may be funded through borrowing up to the permitted amounts. Once built, the houses are either sold or rented out. Capital receipts are often used to fund a rolling programme, with receipts from one project used to finance the next project and so on.
Housing development companies can be used to provide affordable housing and/or to unlock value from an unused site by selling or renting the houses that are built at market value. The funds generated in this way can be used to support other, unrelated projects. Where used to provide affordable housing, an important feature is that local authority owned housing development companies can grant shorthold assured tenancies which are not subject to the right-to-buy.
Four of our local authority clients currently use housing development companies for the provision of new housing, and nplaw advises them throughout such projects. The first step is to ascertain whether the provisions of our client’s constitution permit it to create a housing development company. Provided that our client has the necessary power, we will then:
- set up the housing development company;
- deal with the transfer of the proposed site to the housing development company;
- advise on building contracts, procurement issues and, where applicable, state aid issues;
- advise on planning issues;
- in some cases, set up a property management company to manage amenity areas;
- deal with the sale of individual houses and/or the grant of individual tenancy agreements; and
- provide advice and assistance where purchasers wish to take advantage of the helptobuy initiative.
The first such project on which we were instructed is fairly typical of those that followed. We acted for The Great Yarmouth Development Company Limited, a joint venture between Norfolk County Council and Great Yarmouth Borough Council. The company built Royal Britannia Terrace, a development of nineteen houses in Great Yarmouth, three of which are social homes. Money invested in the project by The Great Yarmouth Development Company was repaid through house sales and reinvested in a fresh regeneration project.