James Duncan from law firm Winckworth Sherwood discusses public/private partnerships, the potential issues, and the opportunities for boosting housing delivery.
A lot happened in the final months of 2017 to encourage local authorities and the private sector to partner for the delivery of new housing. The November Budget announcement of a £44bn package of investment, loans and guarantees is welcome if light on detail. Will it be additional funding for existing loan and guarantee schemes or will a new pot of funding be set up for grant applications? The specific inclusion of the words ‘loans and guarantees’ suggests the former approach and may lean toward funding for build to rent, purpose built temporary accommodation, housing infrastructure funds and possibly to investment in modern methods of construction.
Also, the release at the end of November by the GLA of the Draft Policy H13 Build to Rent which, if adopted, would apply to all London Boroughs. It actively encourages London Boroughs to support institutional investment in build to rent on public land through partnerships and joint ventures with the private sector.
Local authorities are reluctant to sell the family silver when contributing public land to public/private partnerships. The concerns of London Boroughs may be eased as Draft Policy H13 Build to Rent states that they can support ‘institutional investment on public land, including exploring the use of joint ventures or deferred receipts’. In the case of London Boroughs at least, local authorities can invest land in a public/private partnership for build to rent schemes at a discounted or even nil value. The return is long-term income from the rents received from tenants, meeting the need to have independent sources of investment grade long-term income to replace central funding.
As reported in the FT on 4th July 2017 the Local Government Association said that between 2015 and 2020, the Revenue Support Grant for local authorities will have shrunk 77p in the pound and that almost half of all [local authorities]— 168 — will no longer receive any core central government funding in the 2019/20 budgetary year. Local authorities must find new sources of investment grade long-term income and BTR public/private partnerships is an obvious source.
“Where a local authority invests in housing delivery through a public/private partnership it is likely that it will be exempt from public procurement rules.”
One of the biggest issues for local authority delivered housing is the delay and cost associated with procurement compliance. Where a local authority invests in housing delivery through a public/private partnership it is likely that it will be exempt from public procurement rules. This significantly speeds up housing delivery. Even if a local authority is a majority economic owner or has significant control or veto rights in the public/private partnership, as long as that public/private partnership is established for a commercial purpose (i.e. formed with a view to a profit) it will be exempt from procurement. The ‘profit’ derived from the investment then can be used to fund other statutory functions.
There are legal, governance, fit and financial matters to look at when entering into and selecting a public/private partner, but there are numerous examples around the country where this has been achieved and new housing delivered both on time and within budget.