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Unlocking value in local authority capital assets

David Cowans

By David Cowans, Chief Executive of Places for People

An increasing number of councils are thinking creatively about how they can use the value locked up in the assets they own to deliver a much needed revenue return at the same time as delivering new homes for their communities. 

But rather than just focusing on the short-term benefits of selling assets, we are starting to see local authorities shifting towards a more strategic approach that maximises capital assets by turning them into sources of funding for long-term revenue.

That's one of the reasons why we are seeing a rapid growth of Local Asset Backed Vehicles (LABVs) which help pool finance, land, planning powers and expertise, ensuring an acceptable balance of risk and return for all partners and the ability to plan and deliver projects more strategically.

We see huge potential to evolve and develop new partnership models like these.  They could have a major impact on economic growth and generate new revenue streams. This is why we recently partnered with SOLACE (Society of Local Authority Chief Executives) to host a thought-leadership event that discussed how local authorities can use their assets to generate long-term revenue streams, including the challenges, opportunities and best practice. Attended by 28 local authority chief executives and directors, the event explored potential funding, delivery and management opportunities.

That event discussed the benefits of partnering with organisations like ours which have large asset bases and operate not for dividend business models geared towards social good. This can help local councils to fulfil housing aspirations which are not being met by purely commercial developers.

Aberdeen City Council is a case in point. Left with an acute affordable housing shortage after the oil and gas boom, it has now committed to build 2,030 homes by 2017. To meet its objectives, it set up a 50/50 limited liability partnership with Places for People. The partnership will develop council-owned sites with the local authority receiving a 50% share of the development profit, in addition to payment for the land value. The agreement will see an initial 2,000 homes built in Aberdeen of which 1,000 homes are affordable.

When partnering with us Aberdeen City Council leader, Councillor Jenny Laing, said: "The widening gap between supply and demand for affordable housing, not just in Aberdeen but many local authorities, has been a major social challenge in the UK for more than a decade.

"This is due to the heavy reliance on the private sector incorporating 25% affordable housing within their developments, which is not always delivered on site.

"However, this public-private partnership approach will now allow the council to provide thousands of new, purpose-built homes for Aberdeen residents and end this barrier to the continued economic growth in the region."

Wider collaborations involving pension funds can also be effective. For instance, the Manchester Housing Investment fund - a joint partnership between Manchester City Council, Greater Manchester Pension Fund (GMPF) and the Homes and Communities Agency - was set up to boost housebuilding on five separate sites across the city.

Places for People entered into a 20-year operating lease with the new partnership to manage and maintain the new homes. This arrangement offers a number of benefits as it not only reduces operational risk, but offers a guaranteed annual income and future capital growth.

Back in Scotland Falkirk Council Pension Fund has awarded fund manager Hearthstone Investments £30 million to invest in social and affordable housing in Scotland.

For local authorities there are still many challenges ahead, but by working together, aligning our objectives and creating a unified vision, we can make the most of future opportunities and deliver the housing that is so desperately needed across the UK. By developing strategic partnerships and forming joint ventures and other structures with complementary organisations, there is the potential to balance risk and share resources, skills and expertise. The benefits of these collaborations should not be underestimated, so let's find a way to make this work.

 This blog was first published on Solace on 05 July 2016. 

06 July 2016