Merton Council and Clarion Housing have agreed a deal to overcome the viability deficit of their £1.3bn estates regeneration.
The project seeks to deliver 2,550 new homes, with a combination of affordable and for-sale across the Eastfields, High Path and Ravesbury estates.
Merton has agreed to forgo payments from Clarion, after the housing association raised concerns over a significant viability gap 18 months ago.
The council said this was a “multi-million-pound package”, but did not reveal the full value. It has backed the measures at the cabinet meeting on 6 September.
On April 6 2020, Clarion wrote to Merton’s chief executive warning that the project had swung from a projected surplus at the point of planning consent in April 2019, to loss a year later, posing a serious risk to deliverability.
In a statement, the council said the deficit was due to “increased construction costs and the worsening economic outlook affecting housebuilders”.
While the UK’s largest listed housebuilders have all returned to pre-pandemic levels of sales and revenue, ongoing challenges in London persist. Most recently, Balfour Beatty said it would no longer build resi in central London for developers that had made the capital a “no profit zone”.
To kickstart the £1.3bn project, Merton has suspended its right to receive 5% of the value of the properties sold by Clarion, a previous stipulation of the 2010 transfer agreement. The clawback will only apply if the project breaks even or delivers a profit. Merton officers will regularly review the operations.
The council said: “By making this decision, the council can ensure that new affordable homes are built and the regeneration by Clarion is completed without having to use local council tax funds.”
Martin Whelton, cabinet member for housing, regeneration and the climate emergency, said: “This is the biggest housebuilding programme in Merton, which will help to meet the increasing demand for housing in the borough and will address the longstanding issues for residents on the estates.
“I understand, given previous housing issues on the estates, that some residents will be cautious. But we firmly believe this is the best decision to guarantee the modernisation of their homes.”
Clare Miller, group chief executive at Clarion Housing Group, said: “Clarion wants to work across the whole community to deliver our vision, and this is a welcome and important decision.”
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