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TfL publishes plans for property company with potential to deliver up to 46,000 homes
Transport for London (TfL) has published proposals for a “dedicated, self-financing property company” that it plans to use to deliver housing after agreeing a new funding package with the government.
The organisation claims that the company has the potential to deliver between 10,000 and 46,000 new homes.
Proposals reviewed at a meeting of TfL’s finance committee late last month set out multiple potential business plans.
They were published less than one month after TfL signed a new financing deal with the government through which it received £1.08bn to keep London’s transport network running.
It is the third emergency support package agreed since the start of the COVID-19 pandemic, which has seen TfL’s finances take a major hit as income from fares has plummeted.
One of the conditions laid out in the funding agreement was that TfL would “agree a plan for housing delivery through a dedicated commercial property company that meets the shared ambitions of the mayor and [government] to deliver housing in a high-demand area and to provide an increased revenue stream”.
Plans to create such an entity were already in motion before the COVID-19 pandemic.
In April 2019, commercial and other property assets from across the TfL group were consolidated into Transport Trading Limited Properties (TTLP).
The report to the finance committee said: “The pandemic has been a catalyst for major change in the real estate sector, where its impact has generally been to accelerate existing trends.
“In TfL, the impact of the pandemic has hastened a move towards commercial debt to fund investment in property, which was always a likely conclusion of the decision to consolidate property assets in TTLP in 2019.”
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The creation of the company came four years after TfL first announced plans to deliver 10,000 homes on TfL land across the capital, with a target deadline originally set for the end of March this year.
To date TfL has delivered less than 20% of this target. The report to the finance committee said that TfL had started just 1,567 homes during this time, of which 266 have completed. A further 6,300 have planning approval.
Following an analysis of options, TfL has decided that its preferred option to fund TTLP is “non-recourse debt secured on TTLP’s asset base”.
This option will see TTLP have a separate balance sheet and its own financial and management accounts focused on commercial development activity, with borrowing independent from wider TfL activities.
TfL has put forward three separate business proposals for the company, based on the amount of funding made available to it.
The first plan is “capital neutral” and means the only property projects that will access TfL funding “are those that are contractually committed, health and safety related or generating a very short-term return”.
The second plan, which TTLP has adopted “as the default deliverable model”, assumes access to commercial debt funding but no grant funding.
It is estimated that this option would have a net capital funding requirement of £400m by 2045 and allow TfL to deliver 13,278 homes.
A third proposal has been modelled that would see TfL add 61 commercially unviable projects to its pipeline requiring government grant in order to be developed.
This plan has a net capital funding requirement of £2bn by 2045 and would see TfL develop 46,350 homes.
Under all options TfL said it will carry on its commitment “to deliver an average of 50% affordable housing across sites brought to the market since May 2016”.
It said the next steps will include “completing the review of the asset base to create a consolidated list of assets available to use as security now or in the future – and to identify what, if any, further work needs to be done to the asset data so that it can be offered as security”.
Graeme Craig, director of commercial development at TfL, said: “TfL’s housing programme has always been ambitious and the pandemic and multiple lengthy lockdowns has had a significant impact on our ability to build more homes, as it has for house builders across the country.
“As part of our new funding deal with government, we have been working with the GLA and MHCLG to agree a plan for our housing delivery programme, including a clear milestone for housing, as well as affordable housing, to be delivered by the end of 2024.
“As part of our long-term strategy, and building on the successful work that has already taken place in recent years, we are now looking to take forward development activity in a commercial property company that is wholly owned by TfL.
“This will provide sustainable revenue to reinvest into public transport while delivering thousands of new homes for the capital, with 50% affordable housing across the current portfolio.
“This entity would be able to progress our commercial development programme by accessing commercial debt, which would help progress commercially viable projects in the long term.”
