Agenda item

4.1      Dave Baldock (Head of Strategic Finance, London Borough of Newham), gave a presentation to the meeting. The key points to note were:

·         LB Newham’s housing sector is set in context of:

o   Newham having a large private rented sector (40,000)

o   The private rented sector is increasing at a rapid rate (was 30,000 only 5 years ago)

o   Standard  of management of properties is “variable”

o   Landlords can be problematic

o   Length of stay is typically 6 months – so there is a transient population

·         The national context of an increasing use of private rented sector property, with a fall in owner-occupation is also prevalent in LB Newham.

·         There has been political support to intervene into the housing sector in LB Newham.

o   Private rented sector growing

o   Landlords of variable quality

o   HMO issues significant in Newham

o   Desire to intervene

o   LB Newham already has a Private Sector Licensing scheme

o   Council  to develop a private rented sector offer

o   Previously  created Local Space – an Registered Social Landlord providing Temporary Accommodation

·         In terms of land, the Council has considerable land holdings in the borough. There is also the London Development Agency land in the borough, as well as the London Legacy Development Corporation has land at the Queen Elizabeth Olympic Park.

·         LB Newham are able to access a lot of land, including their own, which makes it more feasible to build its own housing than other London Boroughs.

·         LB Newham proposed in December 2012 setting up a wholly owned company – Red Door Ventures -with the objective of operating a business to let homes for market rent which would purchase land and develop/purchase housing for rent from which the Council would receive a return on its investment as well as re-payment on any loans over a set period.

·         LB Newham would initially be the sole shareholder and funder. Legal advice received to the Council allowed for the Company to trade and allows for ownership outside of the Housing Revenue Account. It also stated that rent levels need not be restricted, and could be of market and ‘affordable’ (80% of market rate).

·         Red Door Ventures would look to target young professionals, families, and those caught in the difficulties of high rent in London, but still unable to afford their own home.

·         13% of the homes in the first development would be1-bedroom, 43% would be 2-bedroom, and 44% would be 3-bedroom.

·         For the delivery of Red Door Ventures, it will subcontract a range of functions like management and rent collection.  Staff for Red Door Ventures would initially be seconded or recruited direct.

·         The business model for Red Door Ventures is for the company to act just like any other commercial developer, and would also comply with the Council’s planning obligations like any other developer.

·         The Red Door Venture’s business plan is to build 3158 properties over 30 years, and acquire 518 street properties. It is projected that 39% of these properties will be family units of three bedrooms. There are no plans to build outside the borough, but there is potential to do so in the future.

·         The financial returns to LB Newham for setting up this company are:

o   Council Tax up to 2028 of approximately £18.1m

o   Community Infrastructure Levy funds of £17.5m

o   Borough Wide Property Licensing Fee of £96,000

o   Planning fees of £570,000

o   Returns from developments and sales of units

o   Shareholder dividends

o   Income from payments for any possible services

4.2      In response to questions from the Committee, the following was noted:

·         Red Door Ventures will look to plough the dividends back into the company, once it gets profitable in 5-10 years’ time, to allow the company to build more properties.

·         Maintenance services is better provided by a subcontracted company, until there is a ‘critical mass’ of properties that means economies of scale allow you to  employ your own staff.

·         Red Door Ventures can vary its capital programme, so they can increase their borrowing requirements where necessary.

·         The modelling done for Red Door Ventures has provided estimates such as rent of approximately £2,000 a month for a 2-bedroom property.

·         Red Door Ventures will set its own lettings policy. There will be an affordable rent element, which will be 80% of market rent.

·         Red Door Ventures will look to ‘front-load’ the properties – of approximately 1,800 – to garner the returns to the company quickly. The prime location of the properties – with great transport links across London, with continuing improvement with the upcoming Crossrail – will make this viable.

·         The first development will need about £8m start-up costs.

·         Red Door Ventures will act as any other commercial developer, so that will determine how many ‘affordable rent’ properties are provided.

·         There may be issues of political influence with LB Newham being the sole shareholder, but it should not affect its role as a commercial developer.

·         LB Newham will look to see how Government legislative changes will affect the development of Red Door Ventures.

·         If there is an economic downturn any time in the future, Red Door Ventures will take a balanced approach to ensure it can slow down/increase its developments where necessary.

·         Red Door Ventures will look to go into partnership with developers only if they want to provide properties for tenants not just build and leave unoccupied to accumulate wealth.

4.3      RESOLVED: That the Committee noted the presentation.