Article from Council Leader Cllr Claire Kober on the Haringey Development Vehicle
The case for growth and the Haringey Development Vehicle
When Labour was re-elected to lead Haringey Council in 2014, our commitment to residents had growth at its heart. Why? Because only by creating new jobs and new homes can we tackle inequality, create opportunity and ensure that those who work in London have a chance to live here too.
We promised growth in the number of new homes. New homes to meet the massive demand which has made decent housing hard for more and more families to afford. New homes to help the 3,000 families currently homeless in Haringey, for an increasing number of whom the only answer – I’m sorry to say – is a move away from London. New homes to rent, new homes to buy, new affordable homes to rent or part-buy, all of which Haringey and its residents desperately need.
And we promised growth in new jobs. Jobs to put money in the pockets of Haringey families. Jobs with good prospects in growing industries that allow Haringey’s young people to plan for their future. Jobs that will breathe new life into our high streets, town centres and industrial estates.
We have the amazing good fortune to be part of London, one of the great world cities and an economic powerhouse. Our plans for growth need to help more Haringey people take advantage of that. But London needs us too: places like Haringey help it grow and change and maintain its place at the world’s top table. Our ambitions for new homes and jobs will give Haringey’s residents and businesses a lead role in defining the future of London.
New homes and jobs are essential for the future of Haringey’s people, but let’s be clear: they are also essential for the future of Haringey Council. Austerity has hit local government disproportionately hard, and with government grants soon to be a fond memory councils will depend on growth in council tax and now also business rates for their future financial stability. Without growth in homes and jobs, council services like social care, libraries and street cleaning face inevitable decline. Growth is the only option for a council like Haringey that’s determined to control its own destiny.
Growth on council land
Like many councils, Haringey owns a lot of land – much of which is unused or underused and can take a lot of the growth we need. This is a massive opportunity, allowing us control over the use of this land that goes well beyond our standard role in planning. And, to get anywhere close to our growth targets, it’s an opportunity we must take.
But it’s also a challenge. Government grants to support public sector house building are at an all-time low. The eye-watering borrowing needed to close that gap isn’t affordable or sustainable. And councils are hopelessly ill-equipped to compete with the private sector for talent in the development sector. Despite controlling the land, we frustratingly can’t deliver growth on our own.
This gives us two options. We can sell the land, and leave a private developer to dictate the pace, scale and quality of development and reap all the profits. This has been the traditional approach for councils across the country, many of whom – especially in London – now kick themselves when they see the profits going into shareholders’ pockets or the land sitting vacant while a developer waits for the ‘right time’.
The other option is to bring together our land with private cash and expertise in a joint venture. This gives the council a 50% stake in deciding what happens, making sure the homes and jobs created are the ones people need. And it gives the council 50% of the returns, to reinvest as it chooses, whether in services, in more affordable housing or other priorities. Building on the work of our councillor-led ‘Future of Housing’ review in 2015, this is the option we have chosen in our proposal for the Haringey Development Vehicle.
That 50% stake is crucial. A 49% stake for the Council would cede majority control to our private partner, removing our power to veto any proposals that don’t deliver on our ambitions. A 51% stake for the Council would put the private partner in the same position, and we’d never be able to attract the private investment and talent that we need.
What’s also important is the length of this relationship. Some private developers are only really interested in quick profits: buy some land, build some houses, and sell them as quick as possible to get their return on investment. A company like that has no real interest in the long-term factors that matter to us, like the quality of public space, the provision of health and education facilities or the durability of the homes themselves. But by creating a partnership that lasts 15-20 years (for starters at least), we make those things just as important to our partner: the success of their investment depends on the long-term quality and reputation of the places they are shaping.
Where will the development happen?
So where will those places be? The Council owns lots of land that could have potential for development, and over time the vehicle may have a role in developing much of it. But to begin with we’ve carefully chosen a first phase of sites which, taken together, reflect the diversity both of what Haringey has to offer, and of what the vehicle can do to unlock some of our borough’s untapped potential.
The largest number of sites is in Wood Green. Wood Green has always been the municipal heart of Haringey, where the Council has rightly placed its most vital functions – its office HQ, its Civic Centre, and one of Britain’s busiest libraries – in its most bustling and important town centre. And I’m committed to keeping all those things in Wood Green. But the buildings that house them – the library, the Civic Centre and the offices on Station Road – are no longer up to the job. They are falling apart, expensive to run and (in the case of the offices) larger than a modern council needs.
That’s why we are now making plans, as part of our ambitious vision for the future of Wood Green, to move all those Council functions to a new building in the town centre. This will release the three existing sites to provide a mixture of homes, offices, shops, restaurants and other facilities which will inject new vitality and prosperity into the area, taking full advantage of other improvements like Crossrail 2 and the bright future of Alexandra Palace.
In Muswell Hill, the Cranwood care home has sat empty for several years following its closure as a result of government cuts. With affordable rented homes in particularly short supply in the west of the borough, we will give the vehicle the task of bringing this crucial historic site back into proper use. We will prioritise the maximum possible number of affordable rented homes, while protecting the much-loved Parkland Walk and improving connections to Highgate Wood for local people.
Not all the vehicle’s work will be about development. On the day it is set up, we will transfer to the vehicle the Council’s commercial property portfolio – a mixture of shops, offices, industrial estates and other buildings which the Council has historically maintained as a source of income. I’m quite upfront about the fact that the Council has not done this job especially well in recent years: not only is the portfolio not providing as much as income as it could, but it could and should be working harder to support the kinds of business and job creation which we have prioritised in our economic development strategy. We also need to provide a better service to the tenants running their businesses from these properties. These will be our demands of the vehicle when it takes over management of the portfolio, in return for which the vehicle will get the benefit of working capital from day one and the opportunity to build a profile in the borough while the development projects are getting underway.
The largest and most complicated project of the first batch will undoubtedly be the regeneration of the Northumberland Park estate. Like any housing estate in the country, Northumberland Park boasts a proud community and a strong sense of identity. But we cannot pretend all is well. I cannot accept the levels of unemployment, poor health and crime which we currently see there. And while I am committed to tackling the social causes of this deprivation through the people-based elements of our Tottenham regeneration programme, I am equally clear that we can only transform the lives of Northumberland Park’s residents by changing the shape of Northumberland Park itself.
Northumberland Park has fantastic potential. Immediately next door, the transformational investment in the Spurs stadium and the arrival of NFL will change the way people perceive the area. Crossrail 2 will turn a criminally under-served station into a high-speed connection to central London. And while you wouldn’t currently know it, the vast green spaces of the Lea Valley Park are only a stone’s throw away.
But to unlock this potential will be complex, difficult work. Any project to redevelop a large housing estate has to be done in several stages, and takes many years to complete. The plans have to earn the confidence of existing residents, while honestly tackling the stubborn shortcomings of the existing homes and layout. This will be the vehicle’s biggest challenge. But I couldn’t be clearer that this challenge can be ducked no longer.
Facing the challenge of housing estate renewal
Lots of people are nervous about the idea of the vehicle – or outright hostile to it – because of its proposed role in housing estate renewal. Phrases like ‘social cleansing’ and ‘privatising our homes’ get used a lot. And people are right to be emotive about housing – it is people’s homes and people’s lives.
No Labour council has any interest in knocking down council homes for the sake of it. No one is pretending this is an easy thing for anyone, least of all the affected residents. But sometimes the difficult thing is also the right thing to do. Some housing estates have a large number of homes and blocks which are no longer good enough to live in, and impossible or prohibitively expensive to improve. No Haringey resident should have raise their family in such a home. Because of the way social housing is now – unavoidably – allocated, some housing estates have high concentrations of the most vulnerable people, creating appalling levels of deprivation, crime and poor prospects. No one should have to live in a neighbourhood like that. And some estates make such poor use of the land they’re on that – in the teeth of a London-wide housing crisis – the waste of space cannot be justified. In Northumberland Park, all these things are true.
Instead, we aim to provide more homes, of better quality, in a mixed and balanced community. We want the children of Northumberland Park to have the best chance in life, preparing them to succeed in the modern economy, and have put a brand new modern school at the heart of our plans for the area. We want public spaces of which local people are justly proud, and an environment which makes the healthy choice the easy choice every time. We want to make Northumberland Park part of London again, reinstating a proper network of streets and linking residents with the fantastic opportunities the capital has to offer.
But the Council alone cannot decide the future of Northumberland Park. Any estate renewal scheme in Haringey – whether led by the vehicle or not – will be based on end-to-end engagement with the local resident and business community. Existing tenants and leaseholders must have a central voice in shaping the plans, and a clear understanding of the choices and rights they have as those plans are implemented. This process has already started in Northumberland Park.
Despite what some people would have you believe, we have set out very clearly our commitments to existing tenants. We will always aim to rehouse any resident who wants to stay in a new home in the same area. Any tenant moving to a new home, whether in the new development or elsewhere in the borough, does so with the same rent and on the same terms as a secure council tenancy. We are also working on making the best possible offer to resident leaseholders, ensuring that they too can stay in the neighbourhood they’ve helped to build while retaining the value of their investment in their home.
People also understandably wonder who will own and manage the new affordable rented homes once the vehicle has completed its work and people move in. This could in theory be the Council, but with the number of homes we now lose under right-to-buy and the new requirement to sell our most expensive council homes to subsidise housing association right-to-buy, I couldn’t guarantee those homes would be available for the long term. That’s why we start instead from the assumption that the housing will be owned by the vehicle. I realise this is challenging for some people. But the important things won’t change: the way we allocate the homes, the terms of the tenancies (apart from right to buy) and our insistence on the highest management standards will all be as if the home was a Council home.
I know this level of change can feel destabilising and stressful for residents. And I can see why hostility to estate renewal has turned into hostility to our vehicle plans. But while there are obvious links, we should keep these debates separate if we can. I want to be absolutely clear that the Council is committed to estate renewal, vehicle or no vehicle. I welcome a debate on both topics, but they are not the same thing – and confusing them makes it harder to talk about either properly.
So how will the vehicle’s development projects work?
Even if you accept the case for growth and estate renewal, the property development industry can seem murky. Adding the joint venture idea can make it murkier still. So how will a development project led by the vehicle work?
The first step will be for the council and its private partner to agree a plan for the project. This will set out the basics: how many homes (and how many affordable homes), how much employment space and other facilities, how much it will cost, when it will be finished and so on. No project can continue unless the Council has signed off this plan, and once the plan is agreed any significant change must also be agreed by the Council. For the first phase of sites – Northumberland Park, Wood Green, Cranwood and the commercial portfolio – we expect Cabinet will agree these plans when it takes the decision to set up the HDV later this year. Any future site going into the vehicle would be subject to the same process.
But agreeing the plan doesn’t mean the land is immediately transferred. Next, the vehicle will start work on the detailed plans to prepare for development. This will include local consultation, designs and eventually a planning application. If there are existing tenants on the site – for example in Northumberland Park or any other estate renewal project – the council and vehicle will work together both to involve those people in the plans, and to help rehouse them. Only once the site is completely vacated, the planning permission in place, and a funded plan for the development agreed, does the land transfer from the council to the vehicle. This means only the commercial property portfolio will transfer on day one of the HDV – any other site must go through these stages before it is transferred.
That transfer of land constitutes the Council’s 50% equity stake in the development. The private partner then matches that stake with an equal cash equity contribution, cementing the 50/50 nature of the partners’ relationship. The vehicle will then borrow whatever additional funds it needs to pay for development, and do the building work. The proceeds from development are then used first to repay the borrowing, and what’s left over is split 50/50 between the partners.
What are the risks?
In taking 50% of the proceeds of development, the council also takes 50% of the risk. And we should be clear: any property development, even in a buoyant market like London, involves risk. The joint venture model spreads this risk, which – if the council went it alone as a developer – would fall 100% on us. And while I’m clear that the Council is right to accept this share of risk in return for a share of control and a share of the proceeds, we must actively manage it. I’ve made it a top priority for our team to set up the vehicle in a way that anticipates as many as possible of the potential problems and gives us clear, acceptable options were the worst to happen.
First of all, I’m determined that council budgets – and the services which depend on them – are protected. The first principle has to be that we are no worse off. Where the council loses rental income from commercial property transferred into the vehicle on day one, we are absolutely clear that the vehicle will make good the difference. As the vehicle’s work goes on, we will very closely manage both our General Fund and Housing Revenue Account, always ensuring that any impact is manageable. In the long run, our costs will be greatly outweighed by the returns from development and the increases in council tax and business rate income.
If the housing market slows down – as a result of Brexit, say, or another financial crisis – we need to be resilient to the impact. We will want to avoid the house building grinding to a halt or – worse – the vehicle collapsing altogether. And the joint venture allows for that. If house prices drop, things might slow, but we will have the option to switch new homes to the rental rather than sale market and keep building, accepting the delay in profits where a private developer might just wait things out. If our partner runs into financial trouble, we can keep the vehicle going by having them sell their stake to another company – though we’ve protected our right to vet and approve any buyer.
And what if our relationship with the private partner goes sour? Given the investment of time and money we will both have put in, and the advantages of pushing forward, we’re both well incentivised to keep the marriage alive. But if the situation does change for any reason, we will always have the option to wind up the vehicle if it isn’t working. However we’ll again have the option of the private stake being sold on, with our permission, to keep the vehicle and the pipeline of homes and jobs alive.
How have we chosen our partner?
Of course, one way to prevent the relationship going sour is to pick the right partner in the first place. Starting in January 2016, we’ve taken a lot of time and care in finding just the right combination of skills, experience and values to complement what the Council will bring to the table.
In choosing our preferred partner, who will be announced in February this year, we have set a high bar across a range of measures. Each bidder has been challenged to describe its vision for Haringey in general, and for the first phase of sites in particular. Each bidder has been asked to explain how it will deliver that vision, alongside financial returns to the Council, and how it will protect the Council from risk in doing so. And each bidder has had to explain how the vehicle – under our joint stewardship – will transform not only the physical face of the borough, but the social and economic opportunities of its people as well.
With bids scored against all these factors, we are confident that the partner we choose will have what it takes, will be under no illusions about our expectations, and will fully appreciate the risks to its reputation if it falls short of those expectations.
A bold step
I am proud of our ambitions for Haringey: to provide a decent home and the best possible opportunities for everyone who wants to live here, and a secure future for the council and the services it provides.
We need to take bold decisive action to make those ambitions real. I completely understand that embarking on a venture like this is a major decision, a once-in-a-generation step for the Council. I am not blind to the scale of this proposal, or to the risks involved. But nor do I make any apology. This is the right step for Haringey.
Because the most frightening risk to me is the risk of doing nothing. The risk of watching the housing crisis worsen before our eyes, pushing more and more families into financial crisis, poor health and declining prospects. The risk of seeing other boroughs build vibrant new economies while Haringey gets left behind. The risk of slowly winding down the shutters on an ever-shrinking Council that can’t properly serve its community. Doing nothing is an active decision, a decision to forego growth and investment, to accept a failed housing market, to turn our backs on the London economy, to accept a future of decline for council services.
That is not the future I see for Haringey.
Cllr Claire Kober,
Leader of the Council