Agenda item

Report of the Executive Director (Finance and Transformation).

Report of the Executive Director (Finance and Transformation).

This report presents members with an update on Now Housing Ltd, the councils wholly owned housing company. The paper was originally published as a part 2 paper due to the fact the tenants had not yet been written to, to consult with them, but as they have now all been written to, the paper has been moved to part 1. The recommendations made to Cabinet will be subject to the consultation responses of the tenants.

The company is struggling to find viable sites to increase the size of the existing stockholding of 12 units. Since its inception, there have been turbulent economic conditions and high inflationary pressures. This is particularly relevant for the company as significant increases have been seen in construction materials and labour costs. Whilst these costs have risen, the company is constrained to charging rents within the local housing allowance, which have not risen at the same rate. Overall, this means the gap between the costs of a scheme and the income generated have widened to extremely challenging levels. Unlike the council, the company is unable to plug any viability gaps by using restricted right to buy receipts.

In June 2022, a paper was presented to this panel which highlighted new legislation the government was proposing, in relation to council loans to companies. Based on the proposed changes the council would need to charge more to its revenue account, which it would need to seek to recoup from the company. Doing this would add further pressures to finding viable sites.

The company is currently making a loss and was not expected to be able to get to a profitable position until it had a stock holding of around 40 to 50 units. With the increasing challenges of finding viable sites which have arisen from factors that would not have been foreseen when the company was formed, the recommendation is to agree the exit strategy which will prevent losses from accumulating to significant levels.

The proposed exit strategy, supported by both the shareholder group and Now Housing Board of Directors, is that the council purchase back the block of 12 units. The tenants in the block are on fixed term tenancies and so would transfer to the council at the point of sale, and the council would seek to convert these tenancies to secure tenancies at social rent, in line with the rest of its housing stock and its rent and tenancy policies. The company will be able to apply to be struck off the register after a period of three months from the point of transfer of the block.

The following points were raised and discussed:

• Members said that within item 3.6 of the report it lists a condition that the council must charge to its revenue account an expected amount of credit losses. Officers clarified that for all loans the council make to the company, there needs to be a notional calculation made on how much is not expected to be repaid. The council have to make a charge to a revenue account for that expected loss, so a notional calculation is made with the help of expert advisors. Based on the previous forecast of eventually loaning the company about £100m, it could have meant that the council could have needed to charge somewhere around £3m to the General Fund, which the General Fund cannot afford, so it would need to pass that cost on to the company which the company can also not afford. So, in summary the reason for the recommendation of this exit strategy is because effectively neither the company nor the council can afford those expected credit losses as a result of the new legislation.

RESOLVED (Unanimous)

The panel noted the update and recommendation to Cabinet for the Exit Strategy for Now Housing.