A vehicle for change?

There has been acrimony over Haringey Council’s £2bn partnership with developer Lendlease, but what does it mean for the future of Haringey’s housing stock? And has the council taken on too much risk or does this mark a new era for public-private partnerships as budgets grow more constrained?

Shared powers

One of the main concerns from local MPs and residents is what they see as a lack of transparency from the council. “This is the most controversial and contentious political issue that I have seen in Tottenham since I was first elected to parliament 17 years ago,” says local MP David Lammy. “The council has failed to take the community with it, and I suspect that the courts will have their say in due course.”

The HDV – if it is established – will be a private company, half-owned by Haringey Council, half-owned by private developer Lendlease, and controlled by a board split between representatives from both organisations. Haringey intends to transfer more than half its commercial portfolio into the HDV and hand exclusive construction rights to Lendlease on 60% of the land, along with the responsibility for managing the vehicle.

The first time plans were floated to establish a vehicle to develop on the council’s land was in 2013, when Haringey commissioned a report by Price Waterhouse Cooper (PWC) which was broadly supportive of the idea of setting up a company wholly owned by the council, as this would allow more control over development.

Turnberry Real Estate was commissioned to write another report in 2014, which strongly recommended a partnership with a private developer.

After the Turnberry report, the council compared different options before deciding on the 50:50 development vehicle. The reasoning behind the decision is unclear because the “bespoke financial model” they used to make the decision has been redacted.

The council says the HDV will build 6,400 homes in the borough over 15 years with at least 40% affordable, and replace in kind all social housing that is demolished. This is in contrast to the last two years, during which the council built no homes for social rent. Since 2011 it has only delivered 280 for affordable rent.

Despite residents’ concerns about the council handing over control to Lendlease, Chris Wood, a partner at Altair who specialises in local authority regeneration projects, says the risk-sharing aspect of the partnership could protect the council.

“It’s a way of sharing risk. Obviously these types of regeneration schemes are laden with risk, and local authorities don’t naturally have the expertise to pay that off. So the principle of partnering with Lendlease or another commercial developer seems to have some merit because obviously you are sharing a good deal of the risk, outsourcing finance, and bringing in development and commercial expertise.

“You are going to lose control, but that’s the price you pay for seeking to benefit from their expertise, their financing, their commercial acumen and their appetite for risk.”

According to official estimates, sites in the first phase of the HDV’s development will be worth around £2bn once work is complete. Initially, however, all profits from the vehicle will go to Lendlease. Rents from any commercial properties that are transferred will flow to Lendlease from day one and the company will continue to receive this revenue until it covers its various costs.

Claire Kober, leader of Haringey Council, wrote on the council’s website in January of this year: “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.”

Professor Michael Edwards, a Haringey resident and teaching fellow at the UCL Bartlett School of Planning, suggested in his submission to the council’s scrutiny committee that figures ought to be provided in support of Ms Kober’s claim.

“If interest rates then rise, it could indefinitely postpone the moment when Haringey begins to receive 50% of the profits from the venture,” he said.

Joint decisions

This is just one of the many complex arguments that surround the establishment of the HDV. For others the council’s choice of partner is causing concern. Lendlease was selected from a longlist that included four housing associations.

Housing observers still remember Lendlease’s regeneration of the Heygate Estate in Southwark, in which they oversaw a reduction in social rented homes from 1,194 to 82 and residents who were moved out could not afford to return after rents were hiked.

The council has sought to reassure residents and colleagues that the partnership arrangement means it can push back if Lendlease tries to reduce levels of affordable housing.

At a meeting of the cabinet last week, members voted to establish the HDV as protesters outside beat saucepans with wooden spoons.

Alan Strickland, cabinet member for regeneration and housing, said at the meeting: “If there are problems in the market, it’s the joint board that will decide what to do, which is actually critical, because it means we’re not in the normal situation where the developer says ‘the market’s crashed; we’re not building anything’. We will be part of the decision about what to do.

“The Heygate Estate is fundamentally different for a number of reasons. The first is that what the council did there was a traditional development agreement on the land and that was sold wholesale to a developer.

“That is absolutely what we’re trying not to do here, hence the reason for a joint company and a partnership. As I mentioned, when you hand over land like that, if a developer comes back and says ‘I’m really sorry, councillors, I know I said 40% but I can’t do that’, there’s fundamentally nothing you can do.”

Mr Strickland repeatedly insisted that the council would be able to veto any attempt by Lendlease to use financial viability assessments to argue for lower numbers of affordable housing.

Although the cabinet has voted in favour of the HDV, it appears this is far from the end of the story. Liberal Democrat councillors have already said they will “call in” the decision and residents have raised £24,000 to fund a judicial review.

As their budgets shrink, councils will increasingly face tough choices that may prove unpopular with some residents. The council hopes the HDV will harness the commercial potential of the new Tottenham stadium and has guaranteed residents of affected areas a right to return to the area after the new homes are built. Whether this is enough to reassure the critics remains to be seen.

How might an affordable housing negotiation play out in the partnership?

The spotlight has been on what the public-private partnership means for affordable housing numbers in the borough.

If, say, Lendlease wanted to change the business plan for Northumberland Park to reduce the percentage of proposed affordable housing from 40% to 20%, this would require a unanimous decision of the board.

If the council and Lendlease were to fail to reach an agreement and a protracted mediation process ended with no consensus, the matter would be declared a ‘deadlock event’ and would lead to the winding up of the HDV. Upon the HDV winding up, the council would have the first option to buy back Lendlease’s share of its land. The potential price has already been agreed by the council, but has been redacted.

Croydon Council wound up its £450m 50:50 vehicle last year and Tunbridge Wells Council did the same in 2012 but neither were anywhere near the scale of the HDV.

Paul Burnham from Haringey Defend Council Housing is sceptical that the HDV would get to the winding up stage.

“You don’t set up a company and say ‘we’re going to restrain our partners’. That isn’t going to happen. [The agreement presents] a strategic vision – which is Lendlease’s strategic vision – and they’re going to push it through. The idea that three people can sit on a board and veto this… we’re very sceptical.”