English Partnerships is now in the driving seat for key worker housing development in the capital. But with tiny returns for developers, who will go along for the ride?
Residential developers bidding for London's redundant office blocks, shops and petrol stations might recently have come across a new player in the market: English Partnerships. The government agency is snapping up sites to accommodate about 3000 homes for the London-Wide Initiative, announced by John Prescott at the Better Buildings Summit last month.

The initiative is focused on delivering the promise of the sustainable communities plan to provide affordable homes for key workers and, above all, do it fast, or at least a whole lot faster than the present development framework allows. It will do that by having EP in the driving seat for key worker housing development: buying land, winning planning approval and retaining an interest in the site. All a developer has to do is build the homes… and take a cut in profits.

"The London-Wide Initiative will create a step-change in housing supply," says John Lewis, strategic joint ventures director with EP. "We'll be carrying the initial cost of the land supply, we'll take on the planning issues and take the risk out of the process. And we'll be guaranteeing occupancy levels. It will work like the pre-sale or let of an office building, so the private sector will need to build for a lesser return – not 20% but, say, 5% or 7%. The challenge is going to market to say what return would you want. If it is not attractive to developers, they won't do it."

The attraction for developers is the scale of the initiative. Instead of selling individual sites, the initiative will release a portfolio of sites to produce the 3000 homes – a mix of affordable, private and a new form of low-cost housing – to a single developer or consortium. The low-cost housing will be marketed to key workers at 50% discount or more on the selling price, the low price being made possible through the economies of scale in the portfolio approach and through the munificence of the housebuilder in taking a lower profit on the homes.

For housing associations, the London-Wide Initiative, and other EP moves to release land for affordable housing in the South-east, could provide opportunities. "It's an industry that is getting more confident. Its time has come," says Lewis. But what of private sector housebuilders, whose business is based on taking risks and getting big rewards in return? "A lot of the development risk will be flattened out which should help them. By the time the private sector is engaged, they'll be able to get on with building. To date, we've seen piecemeal land release and piecemeal development."

By way of example, he cites the development of the neighbouring barracks and hospital sites in Caterham, Surrey, which were sold and developed separately. "The hospital site has fairly bland housing. The barracks has a real integrated approach.

"This is not about EP trying to usurp the private sector," Lewis stresses. "The private sector is vital for delivery, but there has to be the right framework for a site. We are genuinely trying to create comprehensive sustainable development. That might mean that certain market sectors need to be represented. Rather than assuming that a site is suitable for private housing, we are looking at whether it should have more key worker and affordable housing. It is about making sure the delivery is right, not squeezing the last penny out of every opportunity. We're co-investors in projects. That's how we would like to talk to people."

How the London-Wide Initiative works

EP is buying sites that are well served for transport, and that are among existing communities. “But we are trying to identify opportunities that are off-market,” says Lewis. An information notice has been placed in the OJEC to gauge developer interest. “We’ve gone along that route because we think there will be a lot of interest in this from people who are outside mainstream UK housebuilding or are overseas,” says Lewis. Developers are expected to make use of best practice to deliver the housing, applying modern methods of construction and supply chain efficiencies. EP is now engaged in market testing, covering such fundamentals as mortgage lender reaction, which should be complete by Christmas. Key workers will be able to buy a share of their homes, and increase that share, but, unlike the present shared equity system, they will not have to pay rent for the portion of the home they cannot afford to buy. The remaining stake in the home will be retained by EP, which is setting up a special vehicle for the purpose. Speed is of the essence in this initiative. “We would like to be on site in the next 12 months,” says Lewis.

Other ways EP is increasing affordable housing supply in the South-east

Reprofiling and densification
Existing land within EP’s portfolio of 2850 ha in the South-east is being reprofiled to ascertain its most appropriate use, and see whether more key worker and affordable housing needs to be added. Housing density on sites is also being upped in line with PPG3. Central Milton Keynes holds some of the plum high-density sites. Masterplanning is in progress to give the city its first city centre homes: 2400 in the sustainable residential quarter to the west and 1800 in Campbell Park to the east. The two areas, being masterplanned by Rick Mather Architects and EDAW respectively, will have mixed tenure homes at densities averaging 100 units to the hectare. Release of government agency land
EP has prepared a register of government agency land and is now channelling its release. The register identifies just under 1200 ha of government agency land in the South-east, and will allow EP to assemble larger, strategic landholdings. Among the first land to be targeted for release are three Defence Estates sites that could together accommodate 12,000 homes. EP’s John Lewis estimates that about half of the homes on the sites would be dedicated to key workers. EP’s remit could be extended to help to unlock local authority land. Housing Partnership
This joint initiative with the Housing Corporation was EP’s first experience of portfolio site release, offering housing associations the chance to bid through the Corporation’s Challenge Fund to develop 56 EP sites. Two bidders were chosen: Bedfordshire Pilgrims Housing Association and Genesis Housing Group, working with contractors Allenbuild, the Durkan Group, Hill Partnerships and McCann Homes. The initiative has shown EP the cost efficiencies that can be realised through the portfolio approach. “It will create 1600 homes at a public sector subsidy of 50% below standard benchmarks,” says Lewis. Housing gap funding
This will allow developers to access funding, from existing EP, regional development agency and local authority budgets, to make development feasible on sites that would otherwise be considered unviable.