Local authorities are exploring new private equity funding streams to bolster their housing and regeneration efforts, plugging gaps caused by shrinking government backing.
Southwark and Brent councils have both launched projects with private funds to support in-borough housing development and will seek to expand these significantly.
Southwark Council is in talks with a number of finance houses looking to deliver social housing in the borough.
“There are billions in private equity and pension funds looking for very stable areas to park their money,” said Leo Pollak, Southwark Council’s cabinet member for housing, speaking on a panel for the Voice of Authority. “There is nothing more stable than social housing, because the demand is limitless.”
Pollak said the council is seeking finance as an extension to grant funding and council borrowing from the Housing Revenue Account, as part of its target to deliver 11,000 social rented homes by 2043. Last month, it also launched a search for a joint venture partner to set up a construction company to deliver social housing across the borough.
“This is just the beginning of the conversation to see to what extent we can open up a bigger finance pool to draw upon,” said Pollak. “The door is wide open.”
He added: “I would like to see government try a lot harder in incentivising private money to become more affordable to public authorities which are serious about meeting their housing needs.”
However, recent actions have instead restricted available cash for councils investment specifically into property.
In March, the government launched a consultation on measures that would block borrowing from the £95bn Public Works Loan Board. This means any local authority planning any yield-driven investment anywhere in its capital plan would not have access to the loans.
The move followed a 1% interest rate hike on PWLB loans, designed to curb local authority borrowing.
Kevin White, partner at Montagu Evans, said almost every council the firm works with has been hit by the changes to PWLB borrowing and forced to react.
“That head-scratching for most is still going on, trying to work out just how they deal with that,” he said, but he is hopeful: “There are alternative sources of finance.”
White pointed to the UK Municipal Bonds Agency, which offers local government funding for long-term financing, as well as opportunity in the private sector.
“There are various sorts of long-income options for councils, where you marry the long-term pension income and the ESG agenda with delivering housing and social infrastructure,” he said.
Hit by upcoming restrictions on the PWLB borrowing, Brent Council is exploring new private sector partnerships.
“Our need is still there, so we’ve tasked officers to find other avenues to bring income in, to enable us to continue our work,” said Shama Tatler, lead member for regeneration, property and planning at Brent Council.
“Our section 151 officer and head of finance have been tasked with looking at opportunities where we can seek investment form the private sector that can help us carry out the ambition of particularly our housing programme, which does yield some return,” said Tatler. “If we can get it on a similar or cheaper rate than PWLB, then we will do so.”
She said the council is trialling small investments to start and added that investments “are not thwarted by what the PWLB is doing”.
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