Local Housing Companies more attractive than PFI, say local authorities

There is growing support amongst local authorities for the use of Local Housing Companies (LHCs) to meet housing targets as other forms of funding are affected by the credit crunch, a survey by law firm Nabarro has found.

More than a third (38%) of local authorities said that they were likely to use LHCs for future housing development, and LHCs were viewed as the second most attractive future housing delivery option after 'other joint ventures', which 56% of respondents said they were likely to utilise. By contrast, just 34% said that they were likely to use PFI funding while joint ventures with RSLs and Housing Associations were being considered by 11% of the 89 authorities questioned.

LHCs – in which local authorities provide land to private developers in return for providing funding and a proportion of 'affordable homes' – were introduced by the 2007 Housing Green Paper and 14 pilot schemes were launched. However, none has yet been completed, in part due to the property downturn.

Under the LHC scheme, local authorities provide sites on their own land, while the private sector provides development and funding skills to build the homes, with a significant element at an affordable level. LHCs are 50:50 joint ventures, with local authorities retaining control and sharing equally in the rewards and risks with the private sector.

However, the survey found a number of barriers preventing the greater take-up of LHC schemes, including the financial and time costs involved, a lack of in-house skills and resources at local authorities, concerns over financial risks and a lack of available land.

The survey also suggested that many local authorities are not yet fully aware of the benefits of LHCs. Two-thirds of local authorities which said they were 'very familiar' with LHCs would consider using them, compared to one-in-three of those who are 'not at all familiar' with them.

A significant bar to the use of LHCs is the lack of information or guidance available to local authorities, the survey also found. Other key findings include:

• Almost three quarters - 71% - of local authorities would be more likely to consider LHCs if there was greater clarity from the centre on funding.
• 64% of local authority respondents would be more likely to consider LHCs if provided with information from the pilot projects.
• More than half - 54% - of those questioned would be more likely to consider LHCs if the Homes and Communities Agency or government provided detailed guidance notes.
• 54% would be more likely to consider LHCs if there was greater clarity on their accounting treatment.

The research was based on 89 interviews with senior decision makers in local authorities during August and September 2009. Sixty-seven per cent of respondents were from metropolitan or district councils, 28% from unitary authorities, 3% from London boroughs and 2% from county councils.