Between the late 1940s and the early 1980s, over a 100,000 social housing units were built each year in England, with the vast majority being built by local authorities. In recent years, English local authorities have built around 1,500-2,000 dwellings per year.
Although this is not a like-for-like comparison (social housing vs all dwellings), the figures paint a clear picture of local authorities’ withdrawal from the business of house building.
A number of initiatives suggest that this might be about to change, and one model for local authority housing delivery may be particularly attractive to local authorities looking to get back into house building without the rigmarole of OJEU procurement.
Councils as housing developers
The Government’s One Public Estate programme (delivered in partnership with the Local Government Association) has the ambition of delivering collaborative property focussed projects involving local and central government. The ambitions go beyond simply enabling house building, and extend to rationalising Council’s land holdings and improving local government efficiency and promoting jobs. However it is one of the house building projects which will be of particular interest to local government (and perhaps of concern to the local house builders).
Croydon Council, as part of the One Public Estate programme, has created a wholly-owned development company, called Brick-by-Brick. It will benefit from a pipeline of potential sites currently owned by either the NHS or the Council, and has the objective of delivering 1,200 homes by 2018.
Legal issues: OJEU Exit?
It has some innovative legal features too.
It has been reported that the Council considers that the local housing company will not be subject to the EU procurement rules – and thus will be able to engage suppliers without having to comply with the Public Contracts Regulations 2015 – a major advantage.
From a procurement law standpoint, this is completely correct, provided that the company has a commercial character, and is not predominantly a vehicle to deliver public policy objectives. To maintain this position it will also need to operate as an independent commercial undertaking (albeit one that is owned and control by the Council). However certain features, such as a Council guarantee for the liabilities of the company would fatally undermine this independence, and call into question its status as an entity outside of the reach of the public procurement rules.
Certainly the information that is currently available about Brick-by-Brick suggests that it will be a commercial entity – it is aiming to provide a return on the Council’s investment in order to fund wider council services (amongst other things).
Councils looking to establish similar companies will also have had to take advice on issues such as local government trading powers and the General Power of Competence under the Localism Act.
A further consideration is the price that such companies obtain land from the public sector. EU State aid rules mean that, if the entity is to be genuinely financially independent, it would need to pay a market price for the land it receives from the public sector. Noting the premiums paid for residential sites in London, this could require considerable upfront capital within the company.
Despite the challenges (none of which are insurmountable) the Brick-by-Brick model will be of great interest to many Councils who are keen to deliver new housing (and to be seen to be doing all they can to achieve this objective) within their areas.
Local house builders may have concerns about perceived advantages enjoyed by development companies established, particularly around valuations for the purchase of public sector land – time will tell whether they are well founded.