COMMUNITIES, HOUSING AND ENIVRONMENT POLICY ADVISORY COMMITTEE |
17th January 2023 |
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Property Acquisition for 1,000 Affordable Homes Programme |
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Will this be a Key Decision?
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Yes
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Urgency |
Not Applicable
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Final Decision-Maker |
Executive |
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Lead Head of Service |
William Cornall – Director of Regeneration & Place |
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Lead Officer and Report Author |
Philip Morris – Housing Acquisitions Consultant |
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Classification |
Public Report with Exempt Private Appendices The information contained within the Appendices has been considered exempt under the following paragraph of part 1 of schedule 12A to the Local Government Act 1972:-
3 = Information relating to the financial or business affairs of any particular person (including the authority holding that information)
Public Interest Test
On applying the public interest test, the public interest in non- disclosure of the appendices to the report outweighs the public interest in disclosing this information. The reasons in favour of disclosure are the public interest in ensuring value for money and the reasons against disclosure are the harm to the Council’s financial position in respect of a commercial transaction. Any disclosure of such information may compromise the negotiating position of the Council. Keeping the information exempt is therefore in the public interest.
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Wards affected |
Bridge Ward |
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Executive Summary
The development strategy to deliver 1,000 new affordable homes was agreed by the Policy and Resources Committee on 19th January 2022. As part of the agreed strategy, there is an expectation that 50% of affordable homes delivered will be from non-council owned urban brownfield sites.
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As part of this programme an opportunity to purchase a town centre site has arisen. The site has an existing planning permission in place for the development of 19 residential units to include 6 x 1 beds and 13 x 2 bed apartments along with associated parking and landscaping.
Once built it is the intention to let the units as Affordable rent units set at 80% of market rent and capped at Local Housing Allowance levels.
The Committee is being asked to consider the freehold acquisition of the site, before being passed to the Executive to approve the purchase of the proposed freehold acquisition.
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Purpose of Report
Decision
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This report makes the following recommendations to the Committee
That the Executive be recommended to:
1. Approve the financial returns for the proposed acquisition as shown in Exempt Appendix 2 of this report, which supports the Housing Development and Regeneration Investment Plan and overall Development Strategy.
2. Agree that the Director of Finance, Resources and Business Improvement is granted delegated authority to:
a) Negotiate terms for the purchase of the proposed acquisition for the sum as shown in the Exempt Appendix 2 of this report. b) Procure and enter into all such deeds, agreements, contracts and documents which may be required to facilitate the purchase of the site, and the subsequent redevelopment works required to deliver the scheme referred to in this report. Including (but not limited to) any related appointments such as a suitably qualified consultants and Contractor. c) Subject to satisfactory conclusion of all due diligence to negotiate and finalise and complete all legal formalities, deeds and agreements which may be required to facilitate the purchase.
3. Agree that the Head of Mid Kent Legal Services is authorised to appoint Solicitors to negotiate and complete the necessary contract documentation, deeds and agreements associated with the purchase and construction works on the terms as agreed by the Director of Finance, Recourses & Business Improvement.
4. Agree that Post completion of the procurement process to appoint a contractor to bring forward for approval a detailed project delivery and investment plan (prior to the development itself commencing).
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Timetable |
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Meeting |
Date |
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CHE PAC Committee |
17th January 2023 |
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Executive |
25th January 2023 |
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Property Acquisition |
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1. CROSS-CUTTING ISSUES AND IMPLICATIONS
Issue |
Implications |
Sign-off |
Impact on Corporate Priorities |
The four Strategic Plan objectives are:
· Embracing Growth and Enabling Infrastructure · Safe, Clean and Green · Homes and Communities · A Thriving Place
The purchase of the homes described in this report supports the Councils Development Strategic plan in building 1,000 Affordable Homes, within the agreed capital spend of 200m.
Accepting the recommendations will materially improve the Council’s ability to achieve and support Embracing Growth and Enabling Infrastructure and Homes and Communities. |
Director of Regeneration & Place |
Cross Cutting Objectives |
The four cross-cutting objectives are:
· Heritage is Respected · Health Inequalities are Addressed and Reduced · Deprivation and Social Mobility is Improved · Biodiversity and Environmental Sustainability is respected
The report recommendations support the achievement of the Deprivation and Social Mobility is improved cross cutting objective by delivering a high-quality development of affordable homes.
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Director of Regeneration & Place |
Risk Management |
Already covered in the risk section.
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Director of Regeneration & Place |
Development
of the site is not currently included in the draft capital programme, with
monies allocated for indicative schemes. This scheme would therefore draw
upon those resources already allocated, subject to the risks set out in this
report and to the initiatives described in the report to close any potential
viability gap. |
Adrian Lovegrove and Paul Holland-Section 151 Officer & Finance Team |
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Staffing |
We will deliver the recommendations with our current staffing. However, we will employ external consultants to help facilitate and oversee the redevelopment works with the appointed contractor. |
Director of Regeneration & Place |
Legal |
S120(1)(2) of the 1972 Act also enables MBC to acquire land to be used for the benefit, improvement or development of their area or for the purpose of discharging MBC’s functions.
MBC must follow its internal procurement rules as detailed in the Constitution and comply with all legal requirements as may be applicable from time to time.
Acting on the recommendations is within MBC’s powers as set out in the above statutory provisions.
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Rob Harris (Contentious and Corporate Governance) |
Information Governance |
The recommendations do not impact the personal information (as defined in UK GDPR and Data Protection Act 2018) that the Council processes.
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Lauren Connett-Policy and Information Team |
Equalities |
The recommendations do not propose a change in service therefore will not require an equalities impact assessment |
Nicola Toulson-Equalities & Communities Officer |
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We recognise that the recommendations will not negatively impact on population health or that of individuals. |
Philip Morris -Head of New Business |
Crime and Disorder |
The recommendation will not have a negative impact on Crime and Disorder. |
Philip Morris -Head of New Business |
Procurement |
On accepting the recommendations, MBC will then follow procurement exercises for commissioning consultancy advice to secure the works contract. We will complete those exercises in line with financial procedure rules. |
Philip Morris -Head of New Business |
Biodiversity and Climate change |
Providing 1,000 new affordable homes will have a significant impact on the Council’s carbon footprint and 2030 Net Zero commitment. Highly thermally efficient, low carbon heating, and climate adapted housing, as well as consideration for shared heating solutions, renewable energy, active travel, and biodiversity enhancements as part of the development strategy will ensure alignment with the Biodiversity and Climate Change Action Plan.
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James Wilderspin-Biodiversity and Climate Change Manager |
2. INTRODUCTION AND BACKGROUND
2.1 As covered under the planning section an application was submitted by the vendor in 2020 and subsequently approved in 2021 to build 19 residential units to include 6 x 1 beds and 13 x 2 bed apartments together with associated car parking, cycle storage and landscaping.
2.2 The site lies on the western edge of the Town centres close to Maidstone West Railway station. The site is considered a highly sustainable location with good access by foot and cycle to a number of services in close proximity. There are also a high number of easily accessible bus services just a short walk from the site.
2.3 The surrounding area is a mix of uses, including commercial, retail, leisure, healthcare and residential. The site itself is relatively small at circa 0.12 ha and currently comprised of a retail store at ground level with fitness use at first floor and to the rear. All tenants have now vacated the premises. A surface car park is located to the west of the site which provides parking for around 29-30 cars in unmarked bays, used for staff and customers and is accessed directly off Tonbridge Road. At this point the carriageway is one way westbound.
2.4 The proposal seeks to demolish the existing site and provide a part 3/4 storey building providing 19 apartments with 14 car parking spaces, two of which will be electric vehicle charging spaces. The development will benefit from the use of photovoltaic panels which will be fitted to the roof. There are 20 Cycle parking spaces proposed with secure storage area. Six of the two bed units have access to private amenity space in the form of balconies although the remaining units do not. An offsite contribution towards improvements to existing open space has been secured through the S106. The planning site layout for this development is shown at Exempt Appendix 1.
2.5 The existing planning permission for the site has no requirement for the provision of affordable homes. The S106 does contain a viability review mechanism which is to be carried out during construction and prior to completion of the 2nd floor slab. This review mechanism will determine if any affordable homes can be delivered on site or a commuted sum payment required.
2.6 It is proposed the development will be delivered as 100% affordable housing, comprising of affordable rent. Also contained within the S106 is a maximum threshold of affordable units to be delivered on site which is only 6 units. This is not in line with our proposals as outlined above. We are therefore intending to seek a deed of variation to remove this cap on the number of affordable homes being delivered on site.
2.7 Should the deed of variation not be obtained then the fallback position would be to proceed with the purchase and deliver 14 market rented units and 5 affordable rented units (all located on a separate floor to the market rented units ) which would be allowed under the existing planning permission and S106. The scheme has been designed to national space standards. The homes will be built to MBC standard specification for Affordable Rent.
2.8 The Councils offer for the proposed acquisition for the freehold of the site has been accepted (subject to committee approval, satisfactory contract, and RIC’s Valuation). The offer was based on a desktop valuation based on Market Sales values and Market rents in the area.
Plot |
Accommodation |
Unit Size |
Market Rent PCM |
Total Gross Rent per unit /per annum capped at LHA rates |
Mixed Tenure Gross Rents |
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M2 |
Sq Ft |
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1 |
1B2P |
50 |
538 |
£ 700 |
£ 7,850 |
£ 7,850 |
2 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 9,843 |
3 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 9,843 |
4 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 9,843 |
5 |
1B2P |
50 |
538 |
£ 700 |
£ 7,850 |
£ 7,850 |
6 |
1B2P |
50 |
538 |
£ 700 |
£ 7,850 |
£ 8,400 |
7 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
8 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
9 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
10 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
11 |
1B2P |
50 |
538 |
£ 700 |
£ 7,850 |
£ 8,400 |
12 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
13 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
14 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
15 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
16 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
17 |
2b4P |
70 |
753 |
£ 900 |
£ 9,843 |
£ 10,800 |
18 |
1B2P |
54 |
581 |
£ 700 |
£ 7,850 |
£ 8,400 |
19 |
1B2P |
54 |
581 |
£ 700 |
£ 7,850 |
£ 8,400 |
Totals |
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1218 |
13111 |
£ 190,800 |
£ 175,063 |
£ 186,830 |
2.9 A full schedule of accommodation along with the estimated market rent per unit, per calendar month (PCM) and subsequent total gross rent per unit, per annum (PA) capped at Local Housing Allowance Levels, is summarised below:
2.10 All the affordable housing will be let as Affordable Rented Homes with rents set at 80% of market rent but capped at the local housing allowance levels as shown in table above. The homes will be let to households on the Councils Housing register in accordance with allocations scheme policy.
2.11 The Council have recently concluded the procurement process to appoint suitably experienced and qualified companies to carry out a number of professional specialist consultancy services to support our ambitious housebuilding programme. Part of these specialist services comprise of Employers Agent, Cost Consultancy, Principal Designer and Clerk of Works all of which will be required for this project. The Council will therefore utilise the services of the appointed consultancy firm (Calfordseaden) for these areas of works.
Financial Returns and Commitments
2.12 Option 1 -All Affordable Rent
For the all affordable rent option the total Gross Rent for the Scheme and subsequent total Net rent for the scheme after the deduction of allowance (before inflation and interest) is £175,063 and £161,419 respectively. Exempt Appendix 2 shows the relevant scheme financial summary.
2.13 The overall returns are reasonable, especially in terms of affordable housing. However, the costs ratio is above the required level mainly due to the unprecedented increase in build costs seen recently in the Southeast which has been seen on a number of site appraisals recently.
2.14 It is proposed the part of the total scheme Costs (£5,408,753) will be funded with £950,000 coming from Homes England grant funding through continuous market engagement bid process for the affordable homes programme 2021-2026, and a sum of £304,000 from the Brownfield Land Release Fund (BLRF).The remaining estimated total works cost would be funded from the existing approved capital programme to support delivery of affordable housing. This would provide a TSC /MVS of 103.9% after deduction of the BLRF monies from the works costs.
2.15 The acquisition is financially viable and meets the Councils minimum internal financial parameters. It will provide much needed high quality affordable homes in the area.
2.16 These properties will be managed by MBC Housing Management Team, which is within the Housing and Community Services Department. The team will be responsible for all tenant contacts including repairs, voids, maintenance compliance and rent management.
2.17 Option 2- 14 Market Rent and 5 Affordable Rent Units
For the mixed tenure option, the total Gross Rent for the Scheme and subsequent total Net rent for the scheme after the deduction of allowance (before inflation and interest) is £186,830 and £181,134 respectively. Exempt Appendix 3 shows the relevant scheme financial summary.
2.18 The Council is in
receipt of off-site s106 contributions for use towards the provision of affordable
housing. It is proposed that part of the Total Scheme Cost (£5,500,493) will be
funded with £225,000 coming from the aforementioned off-site contributions pool
of monies and a sum of £304,000 from the Brownfield Land Release Fund (BLRF).
The remainder of the estimated Total Scheme Cost would be funded from the
existing approved capital programme to support the delivery of affordable
housing. This would provide a TSC /MVS of 105.7% after deduction of the BLRF
monies from the works costs.
2.19 The acquisition is
financially viable and meets the Councils minimum internal financial
parameters. It will provide 5 much needed high quality affordable homes and add
to Maidstone Councils existing PRS stock in the area.
2.20 These properties will
be managed by MBC Housing Management Team, which is within the Housing and
Community Services Department. The team will be responsible for all tenant
contacts including repairs, voids, maintenance compliance and rent management.
Proposed Delivery
Timescale
2.21 Details
of the proposed delivery timescale are given below. The dates should be
regarded as indicative at this stage as the Council may need to extend and /or
amend the timetable as necessary
Activity |
Finish Date |
Exchange and Completion of Contracts |
February 2023 |
Procurement of Contractor |
April 2023 |
Start On Site |
September 2023 |
Practical Completion |
April 2024 |
3. AVAILABLE OPTIONS
3.1 Option 1: The Committee could
choose not to recommend the approval of the purchase of the proposed
acquisition to the Executive. The Council would however lose an excellent
opportunity to purchase a site with full planning permission with access to
good transport links and amenities to add to its affordable housing stock. It
will assist towards much needed affordable accommodation in the Borough and
contribute towards the Council 1,000 Affordable Homes delivery target.
3.2 Option 2: The Committee recommends to the Executive that the purchase of the proposed acquisition is approved on the agreed terms and procures the professional consultants and Contractor to help deliver the scheme. This site when built would assist with affordable housing provision, contributing towards delivering the 1,000 affordable homes target.
4. PREFERRED OPTION AND REASONS FOR RECOMMENDATIONS
4.1 Option 2 is the recommended option. A significant amount of work and negotiation has been completed by officers to reach this accepted offer stage with the vendor. The scheme has full planning consent on purchase and represents a good investment opportunity which supports the 1,000 Affordable Homes Development Strategy.
4.2 The acquisition will also deliver 19 new apartments within a residential location, making a valuable contribution to the borough’s identified affordable housing need.
4.3 Should MBC fail to secure the deed of variation required to allow the site to be delivered as 100% affordable it is recommended the site still be acquired and delivered as a mixed tenure scheme providing 14 market rent units and 5 affordable rent units which is in line with the existing planning permission and would not require any variation to the S106 agreement.
5. RISK
5.1 The risks associated
with this proposal is the increase in build costs since the start of the
pandemic. Due to supply chains and shortage of labour construction costs have
risen. The BCIS which provides cost and price data for the UK construction
Industry, is forecasting with the initial rise in January, prices will ease off
slightly. Initial costings have been provided by Calfords Seaden based on
similar schemes. The scheme is of a size to attract the smaller contractors,
who will have less overheads and can be competitive with pricing.
5.2 Officers will
continue to monitor the viability, as build costs remain turbulent. Therefore,
post-acquisition, officers will monitor local rental values and demand. Upon
completion of the procurement process to appoint a contractor, Officers will
bring forward for approval to this Committee a detailed project delivery and
investment plan (prior to the development itself commencing).
5.3 The appraisal has
assumed some subsidy from Homes England. The housing will be 100% affordable
rent on site. There is a restriction within the S106 regarding a maximum number
of affordable homes to be delivered on site and so officers will need to obtain
a deed of variation to agree this. MBC will be seeking grant from Homes
England for the affordable rented provision. The chances of securing such grant
funding are much improved by MBC having acquired the site with secured Full
Planning Consent. If the grant is not forthcoming or officers are unable to
agree the deed of variation, the homes could be provided for PRS housing
through Maidstone Property Holdings Limited. A smaller number of affordable
rented units could also be provided, all located on one separate floor, which
would be consistent with the current planning consent, so this risk can be
mitigated.
6. CONSULTATION RESULTS AND PREVIOUS COMMITTEE FEEDBACK
6.1 Previous committee feedback has expressed the desire for MBC to acquire potential housing led sites within the Maidstone borough to deliver housing for social housing purposes for the benefit of the local community. This proposal achieves that intention.
7. NEXT STEPS: COMMUNICATION AND IMPLEMENTATION OF THE DECISION
7.1 The next steps,
subject to the decision made by the Executive, will be to secure the site with exchange
and completion of contracts on the terms as agreed by the Director of Finance,
Resources and Business Improvement, subject to RICS valuation, and satisfactory
contract. Alongside the acquisition, officers will work with the appointed Employers
Agent to source a suitable contractor within a deliverable price and will
return to Committee with recommendation for the Contractor to be appointed and
confirmed costs for build.
7.2 The Head of Mid Kent Legal Services will also be authorised to instruct/appoint the Solicitors to complete the necessary contract documentation, deeds and contracts associated with the purchase.
8. REPORT APPENDICES
The following documents are to be published with this report and form part of the report:
· Exempt Appendix 1: Site Layout
· Exempt Appendix 2: Financial Summary Option 1
· Exempt Appendix 3: Financial Summary Option 2
9. BACKGROUND PAPERS
None