London council scraps seven housing schemes amid ‘intense cost pressures’

“In response to these unprecedented challenges, many public and private sector housing developers have either paused, stopped or scaled back their delivery programme. 

“However, the council retains its ambition to continue building new council homes given the scale of our local housing crisis.  

“Arguably, the risk of not building outweighs the risk of building.”

Islington Council has been reviewing its new homes programme over the past year, “ensuring that constrained funds are focused on the most viable schemes”.

The report also pointed out that high levels of inflation and shortages of labour and building materials have led to “significant and rapid increases in construction costs, seeing a reasonably consistent trend of an annual 3% to 4% construction cost increase to above 20% over the last two years”.  

“Furthermore, the introduction of more stringent fire safety regulations has created uncertainty and delay to some schemes, especially buildings over 18m, contributing to significant increases in construction costs and delay to the progress of schemes as new Building Safety Act processes take time to establish.  

“These factors have negatively impacted the cost and viability of council housebuilding schemes to a significant degree.  

“Following interest rate rises, a notional scheme providing [circa] 40-45 social rented properties that would have previously been viable now typically generates a [circa] £20m funding shortfall.”

These issues have been “further compounded” by several other factors, “including a lack of government investment in council house building, restrictions on the use of grant and Right to Buy receipts and falling sales values from a depressed housing market”.  

In addition, the ability of Islington’s Housing Revenue Account to fund the construction of council homes has been “significantly reduced”.  

“In identifying the resources that are needed to deliver the new build programme, a careful balance has therefore had to be made between building new homes and maintaining and improving existing council homes,” it said. 

The council said that despite the challenges highlighted in the report, it is continuing to build 154 new homes across seven sites in the borough. 

However, following the review, seven schemes and one planned block have been scrapped. 

“In the context of the intense cost pressures and significant risks identified in this report, including significantly increased tender prices, a review of the viability and value for money of previously agreed schemes has been carried out.  

“Schemes that were in significant deficit, technically complex, with ongoing cost and construction risk, or very small and fundamentally uneconomic, were all reviewed.”

The following schemes will no longer proceed: Triangle Estate; Quaker Court and Braithwaite House; Drakeley and Aubert courts; New Orleans Estate; Mersey Garages; Elmore Steet and Lindsey Mews; and Macclesfield House. Block D on the Parkview Estate has also been scrapped. 

For the revised programme, a series of pipeline workshops reviewed both existing schemes and potential developments.

According to the report, identified sites “have the benefit of being outside existing estates and generally offer greater scale and lower construction risk, particularly where existing services can be relocated”.  

The revised programme includes 100 council homes delivered through the redevelopment of Finsbury Leisure Centre, as well as schemes at Bemerton Estate, Vorley Road and Harvist Estate, “targeting around 78 new council and 10 shared ownership homes”. 

It also involves starting an assessment on new schemes, “securing planning consent where viable, ensuring availability of ‘shovel-ready’ schemes ready to deliver around 570 new council homes across 15 wards should economic conditions improve and more funding become available”.

Diarmaid Ward, deputy leader of Islington Council, said: “Islington’s Labour-run council is continuing to work towards our target of 750 new council homes by 2027. 

“Sadly, decisions made by this Tory government have made it incredibly difficult. Their economic mismanagement resulting in the current climate of high interest rates and high inflation has had a huge effect on construction. 

“Coupled with the fact that council homebuilding is not funded adequately by the government, it is harder than ever to deliver the safe, secure and genuinely affordable homes that Islington needs. 

“But with over 15,000 households on our housing register, doing nothing is not an option.

“We have refocused our programme on the most deliverable projects and remain committed to building council homes for families in desperate need. 

“However, we need the government to stop stacking the deck against us.”

A Department for Levelling Up, Housing and Communities spokesperson said: “We have laid out an ambitious long-term plan for housing to ensure we deliver the homes that local communities want and need.

“This includes our £11.5bn Affordable Homes Programme, which will deliver tens of thousands of new affordable homes.

“Last month, we also set out a major package of measures which will deliver more homes in London.”

Earlier this year, Kensington and Chelsea Council revealed in a report it had paused four housing projects to review their viability after inflation led to a hike in construction costs. 

In December, Lewisham Council also revised its development programme amid “challenging” economic conditions.