The housing crisis: Should local authorities become developers?

There are many distinctive things about Croydon. The lack of homes to suit local housing need is not one of them.

Our housing supply issue is replicated in towns and cities across the UK, and is also now achieving an unfashionable internationalism, with economies such as Ireland now suffering a very similar crisis of their own. As the problem multiplies and metastasizes, the voices of unmet demand inevitably rise to national outcry level. And so, a political issue of epic proportions is born.

The typical governmental response is to turn to the biggest tool in the box – the housebuilders. However, increasing productivity within a settled economic system means creating housing supply where it hasn’t existed before. The housebuilder industry, like many others, has a finite and consistent production capacity. Existing suppliers may be able to tune up a little, but without major changes to their hard and soft corporate infrastructure this is unlikely to be transformational. Perhaps more importantly, it won’t be quick.

For this reason, many forward thinking authorities have sought to delegate the responsibility for supply by enabling new development actors of different shapes and sizes. And what better place to start than the local authorities themselves, the great sleeping beast of housing supply.

Most councils already have the attributes of a serious development actor. They are major land owners with enormous potential for new homes to be delivered on their land. They are trusted financial entities, with considerable short and long term borrowing capacity. They are staffed by people who have been involved in steering the various processes of urban change through a range of economic conditions.

For contractors especially, local authorities represent a known quantity as a client, often the partner in a long standing relationship which has endured trials and tribulations. Here lies clienting knowledge and experience; for example around infrastructure delivery, maintenance, repairs and stakeholder engagement; which is rarely matched by the major housebuilders. Crucially, they pay, whatever the economic weather.

In Croydon, we established our own development company (Brick by Brick) last year to help address our own chronic need for new homes. This is an independent company (the council is sole shareholder), placing it on an equivalent commercial footing to other developers. It seeks development finance from the council, paying a market rate for those funds which is significantly greater than that at which the council borrows. It uses these funds to purchase land from the council, prepare planning applications and commission the construction of new multi-tenure homes. Any profit which arises from development activity is returned in full to the council as sole shareholder, to be invested in further development activity or used to patch the ever growing funding gap in frontline council services.

The basic intention here is to create a sealed economic system which prevents value leakage from the borough, thereby maximising benefit to local residents. Funding value, which would traditionally be paid to a bank, is returned to the council as primary lender. Development and land related value, traditionally accruing to an external developer, is returned to the council in the form of dividend. Equally, there are potential economies of scale when delivering on multiple sites, countering the kind of problems councils face when engaging with the contractor market for one off projects.

We now have planning consent for 30 sites, providing around 900 new residential units. Our smaller sites in particular have provided a fascinating narrative on development in outer London and beyond and despite our comparatively low value context, we have been able to afford around 50% affordable housing. This is almost three times what Croydon has been able to achieve over the last five years.

There are also indirect benefits. Local authority development companies can address, in a commercial way, the failure of the market to engage with certain development activity. For example, Brick by Brick seeks to enable housing delivery on sites which would not otherwise come forward for development. Our sites can be constrained and complicated, certainly not the type of plots which would pass muster with your average housebuilder. 

Similarly, council companies can set a quality benchmark commensurate with the aspirations of the authority. In Croydon, a place which has suffered greatly from issues of perception, Brick by Brick only commissions architecture practices which are both design led and construction minded. A crucial part of their brief is the ability to work successfully with a variety of contractors to build the kinds of places which will define expectations for generations to come.

The potential impact of considered design in a borough like ours is vast. These are small, inherently local schemes, delivered manifold in different locations throughout the borough. The daily impact of these projects on streetscape and local identity could be highly significant. Obviously, there is commercial benefit to the company too, as good design sells.

Like many equivalent companies, Brick by Brick remains in it’s infancy, and if local authorities are to become genuine development actors, we should be under no illusions about the scale of the challenge ahead. However, if successful, the potential impact on supply could be truly transformational.

Colm Lacey is managing director and CEO of Brick by Brick and director of development for Croydon Council