The Overview and Scrutiny Board met to discuss a call-in of a recent Cabinet decision regarding a Build to Rent scheme at the Local Housing Allowance. After extensive debate and questioning, the Board ultimately voted not to uphold the requisition, meaning the Cabinet's decision can be implemented immediately.

Build to Rent Scheme at Local Housing Allowance

The primary focus of the meeting was the call-in of a Cabinet decision to enter into a 40-year nomination agreement with Inspired Solutions for the delivery of up to 600 build to rent properties. The scheme aims to address the council's significant pressures with temporary accommodation (TA) and hotel costs, which have led to substantial budget overspends.

What was discussed:

• The Proposal: Inspired Solutions would identify and purchase land with existing planning permission in Havering, fund the development of new properties, and then enter into a 40-year nomination agreement with the council. The council would have 100% nomination rights to these properties, with rents capped at the Local Housing Allowance (LHA) 2024 rates. The council's financial exposure would be limited to void losses, repairs beyond general maintenance, and potential rent arrears.
• Financial Benefits and Risks: The scheme is projected to deliver significant cost avoidance, with an estimated £56.6 million saving over 40 years for the first 71 units, and a potential £579 million saving if all 600 units are delivered. Councillors raised concerns about the long-term financial risk, the reliance on projected savings, and the potential for costs to outweigh benefits if demand for TA decreases. 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.
• Procurement and Best Value: Questions were raised about the lack of a formal procurement exercise. Officers explained that a procurement process was not required as Inspired Solutions brought the site and development proposal to the council. They argued that the scheme represented best value by comparing its costs and risks to those of temporary accommodation and other affordable housing development options.
• Delivery and Track Record: Councillors questioned Inspired Solutions about their experience and track record, as the company was formed in 2020. Simon Smith, Managing Director of Inspired Solutions, explained 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 that the scheme's novelty and complexity had required significant time and effort to develop the financial and contractual structure.
• Tenure Mix and Management of Needs: Concerns were raised about the potential for concentrations of high-needs households without a tenure mix. The council outlined a resettlement period and a selection process to ensure residents were known and supported. The management of the properties would be undertaken by a company appointed by Inspired Solutions, with the council having oversight and contractual safeguards.
• Decision-Making Process: The speed at which the decision progressed from the forward plan to Cabinet was questioned, with some councillors feeling it had not allowed for sufficient scrutiny. Officers clarified that discussions had been ongoing for several months and that the decision had followed the required notice periods.
• Contractual Safeguards and Exit Strategies: The board explored the contractual arrangements, including penalty clauses for non-performance, the council's option to purchase properties at the end of the 40-year term, and what would happen in the event of Inspired Solutions' bankruptcy. It was explained that properties would be held in Special Purpose Vehicles (SPVs) to protect the funder and the council, and that the funder would have stepping rights to take control of the SPV rather than seizing the assets.
• Subsidy Control Act 2022: The potential for the council's guarantees to constitute a subsidy under the Subsidy Control Act 2022 was acknowledged, requiring a formal assessment to ensure compliance.

The Decision:

Following a debate and a vote, the requisition to uphold the call-in was not upheld. The Chair used their casting vote to break a 5-5 tie, resulting in the decision being implemented immediately. This means the council can proceed with entering into the nomination agreement with Inspired Solutions.