Build to Rent Scheme: £579m Savings or Long-Term Risk?

Havering Council's Overview and Scrutiny Board has voted not to uphold a call-in regarding a Build to Rent scheme, allowing a 40-year nomination agreement with Inspired Solutions to proceed. The scheme, which aims to provide up to 600 new homes, has been projected to save the council up to £579 million over four decades, but concerns were raised about long-term financial risks.

The decision, made by the Cabinet, was called in by councillors who questioned the procurement process, the lack of alternative supplier consideration, and the speed at which the decision was made. However, the Overview and Scrutiny Board ultimately voted 6-5, with the Chair casting the deciding vote, not to uphold the requisition, meaning the Cabinet's decision can now be implemented.

The Build to Rent scheme involves Inspired Solutions identifying and purchasing land with existing planning permission in Havering, funding the development of new properties, and then entering into a 40-year nomination agreement with the council. The council would have 100% nomination rights, with rents capped at Local Housing Allowance (LHA) 2024 rates. The council's financial exposure is limited to void losses, repairs beyond general maintenance, and potential rent arrears.

Officers explained that a formal procurement exercise was not required as Inspired Solutions brought the site and development proposal to the council. They argued the scheme represented best value by comparing its costs and risks to those of temporary accommodation and other affordable housing development options. The projected savings, estimated at £56.6 million for the first 71 units and potentially £579 million for all 600 units, are based on the council not having to accommodate households in expensive temporary accommodation. The financial modelling for the £579 million saving assumes that all 600 units are delivered and occupied by households in Temporary Accommodation. However, modelling indicates that beyond the initial 71 units, supply would exceed projected Temporary Accommodation demand, meaning additional units would instead meet wider housing needs and therefore would not generate further cost avoidance savings. This position depends on the successful delivery of other housing projects; if these do not materialise, additional cost avoidance benefits could arise. The report also notes, There is a risk that inflation may be higher than forecast in the modelling, which could reduce the scale of cost reductions achieved. ¹

Concerns were raised about Inspired Solutions' track record, as the company was formed in 2020. Simon Smith, Managing Director of Inspired Solutions, stated that they had secured financing and were in the final stages of contracts with another local authority, with construction due to commence shortly. He highlighted the novelty and complexity of the scheme had required significant time to develop the financial and contractual structure.

Discussions also covered the management of high-needs households, the speed of the decision-making process, contractual safeguards, exit strategies, and compliance with the Subsidy Control Act 2022. The board explored the contractual arrangements, including penalty clauses for non-performance and the council's option to purchase properties at the end of the 40-year term. The council will commit to a resettlement period and implement a selection process to ensure residents are known and supported. This includes having a period where the council is familiar with their history and risks, followed by a settling-in period where support is provided. The management of the properties will be undertaken by a company appointed by Inspired Solutions, with the council having oversight and contractual safeguards.²

Councillor Dilip Patel questioned the long-term financial risk, asking if Havering residents would end up paying for the risk if cost-raiser assumptions failed. Officers assured the board that the council's financial commitment is only triggered upon practical completion of the properties and that the costs are significantly less than continuing to use expensive nightly-charged accommodation.

Councillor Jane Keane expressed her support for the scheme, highlighting the distress caused by current temporary accommodation. She inquired about the cabinet member's oversight and the checks and balances in place. The response indicated detailed delegations and consultations with the cabinet member for future decisions.

The scheme is intended to address Havering's significant pressures with temporary accommodation and hotel costs, which have led to substantial budget overspends. The projected savings are a key driver for the proposal, with the council facing an estimated £6.1 million overspend in 2023/24 on temporary accommodation.

At the end of the 40-year term, the council has the option to purchase the properties at a substantial discount, estimated at around 5% of market value.³

The Overview and Scrutiny Board's decision means the council can now proceed with entering into the nomination agreement with Inspired Solutions. The potential savings and long-term financial implications of the Build to Rent scheme will continue to be a focus.

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