DD2004 Hounslow – Civic Centre

Type of decision: 
Director's decision
Code: 
DD2004
Date signed: 
16 June 2016
Decision by: 
Jamie Ratcliff, Assistant Director of Policy, Programme and Services

Executive summary

This Director Decision signs off due diligence undertaken in respect of an affordable housing project the GLA proposes to fund in the Hounslow Town Centre Housing Zone  and variances to the housing completion dates as set out in MD1457 and change of GLA investment from Recyclable grant to Grant funding.

 

Decision

That the Executive Directors in consultation with the Deputy Mayor for Housing
•    agree that the outcome of due diligence, detailed in this report, demonstrates it is appropriate for GLA to contractually commit affordable housing grant of £15m to fund the affordable housing at Lampton Road within the Hounslow Town Centre Housing Zone; and 
•    note the deduction of £15m for this transaction from the Grant budget for Housing Zones; and
•    agree the revised forecast completion dates for the delivery of housing completions; and
•    note and agrees that GLA grant investment will change from recyclable grant being made available to the London Borough of Hounslow to scheme specific grant funding being allocated to Notting Hill Housing Trust for the delivery of the affordable housing units; and 
•    note that this decision,  further to MD1457 which was inherited by this administration, approves the affordable housing grant for the Lampton Road site which will deliver 40% affordable housing, but that the GLA will negotiate with Notting Hill Housing Trust with the aim to match the Mayor’s long term strategic target of 50% affordable housing.
 

Part 1: Non-confidential facts and advice

Introduction and background

1.1    The Hounslow Town Centre proposal was designated a Housing Zone by Mayoral Decision 1457, where funding of £18.5m was indicatively allocated (subject to the outcome of legal and financial due diligence) to unlock housing and deliver regenerative benefit to the area.
1.2    London Borough of Hounslow (the Borough) will retain oversight of delivery across the Housing Zone by implementing governance arrangements outlined in the Overarching Borough Agreement (OBA) with the Greater London Authority (GLA) dated 6 November 2015. 
1.3    The Borough’s Housing Zone proposal was for the GLA to invest £15m into the Civic Centre (Lampton Road) site and a further £3.5M into the Town Centre School site (The School site does not form part of this Decision Request).
1.4    The Housing Zone proposal for the Civic Centre (Lampton Road) site was originally for GLA investment to be provided to the Borough as recyclable grant funding. The grant would not be fully recoverable by the GLA but it was to be recycled by the Borough with additional indirect homes being delivered.  Following discussions with the Borough it was identified that the GLA contracting directly with Notting Hill Housing Trust (NHHT) would be more efficient for the GLA as using an affordable housing funding agreement would mean that any grant recovered in future (e.g. staircasing receipts from shared ownership units) would be recycled by NHHT and used to fund future mayoral priorities.  Importantly using the grant funding agreement gave NHHT the confidence to apply for planning consent, at risk, prior to signing contracts with the Borough. 
1.5    The Borough remains committed, through the Overarching Borough Agreement, to deliver 3,647 completions within the Housing Zone area by 2025.  The Borough will help to achieve this by using its own resources, equivalent to 40% of the grant amount, and recycle these resources three times to unlock future developments that will assist in delivering 3,647 dwellings by 2025.  Overall delivery within the Housing Zone area therefore remains in line with MD1457 (which anticipates delivery of 3,478 dwellings by 2025).
1.6    The proposed residential housing scheme at Lampton Road has been submitted for planning permission and approval has now been granted by the local planning authority.  The detail produced in order to submit a planning application has been used to refine the construction programme and so revised start on site and completion dates are anticipated.   
1.7    Due diligence has now been undertaken in respect of the Civic Centre, Lampton Road Intervention in the Hounslow Town Centre Housing Zone, the conclusion of which is set out below.

Summary 
1.8    NHHT requires GLA investment in the form of affordable housing grant in accordance with the Housing and Regeneration Act 2008 to deliver a total of 300 affordable homes by 31 March 2025. In addition to these homes, the site will also comprise a further 619 homes the delivery of which will also be required (although not funded) within the Affordable Housing Grant Agreement (AHGA) between the GLA and NHHT. 
1.9    Following the designation of the Housing Zone the Borough used the GLA London Development Panel to seek tenders for the provision of the new civic centre and for the procurement of new residential housing on the Lampton Road site. Following the analysis of the tenders returned the Borough recognised that the scheme was not financially viable, even with the inclusion of GLA grant.  In order to make the scheme financially viable the Borough, and GLA, considered a range of options.  
1.10    The financial viability of the scheme was further challenged by the Government’s announcement of the 1% rent reduction for social housing over the next 4 years. The tender returns were submitted prior to the Government announcement and therefore the rental income assumed in the appraisal could not be achieved.
1.11     Following discussion with local planners one option to make the scheme more viable was to significantly increase the density.  The density on the revised scheme was agreed with the local planning authority and increased from 750 units to 919 units. Of the additional 169 units it is anticipated that 68 affordable home ownership units will be delivered. These 68 affordable units are not funded by the current grant funding agreement, although NHHT hope to bid for grant funding for these units in the future. 
1.12    Another option to address viability was to adjust the tenure split of the affordable units.  The revised tenure split maintained a 40% level of affordable housing but the proportion of affordable home ownership units were increased.  
1.13    After consideration of these factors the Borough (as local planning authority) agreed to support the increased density across Lampton Road although they maintained the need for 40% affordable across the whole site.  The Borough also agreed for the affordable rent to reduce to 90 units and the affordable home ownership numbers to increase to 210 units.  The 68 additional affordable units, provided due to the increase in density, will be delivered as affordable home ownership units.
1.14    Under the draft development documentation the Borough, NHHT and their contractor partner have agreed a process for reassessing the tenure mix should rental income increase.  If rental income increases the mechanism allows for the proportion of affordable rent units to increase.  Accordingly, the AHGA anticipates that the proportion of affordable rent units may increase although the overall number of units would remain the same (300 units)
1.15    The contracted position as set out within the AHGA in relation to the delivery profile of homes and tenure apportionment (subject to the mechanism for increasing the proportion of affordable rent units referred to above) will be as follows:
•    18 Affordable Rent Homes (Grant Funded) and 42 Shared Ownership Homes (Grant Funded) by 31 March 2019;
•    72 Affordable Rent Homes (Grant Funded) and 168 Shared Ownership Homes (Grant Funded) by 31 March 2023; and
•    A further 90 units by 31 March 2020 and 529 units by 31 March 2025 (not funded under the AHGA).

1.16    It is currently forecast (although this may be subject to change in respect of the non-grant funded units) that the homes will be completed as follows:
 

Completions Delivery Forecast

2018-19

2022-23

2023-24

Total

Affordable Rent Homes                                                 (Grant funded)

18

72

 

90

Shared Ownership Homes                                            (Grant funded)

42

168

 

210

Market Sale Homes

90

360

101

551

Additional Affordable Home Ownership Homes                                                                      (Not grant funded)

 

 

68

68

Total Homes

150

600

169

919

 

1.17    These forecast delivery dates and the provision of grant funding to NHHT (rather than recoverable grant to the Borough) are changes to the proposals set out in MD1457.  Overall, however, the units will still be delivered by 2025 and the amount of funding for this intervention remains the same.  In accordance with the Housing Zones Change Management Process (DD1485), a request for these amendments was submitted to the Housing Zones Steering Group for consideration.  It was agreed the request falls within a “Tier 2” pre-contract variation under the Change Management Process and therefore would require Housing Zones Steering Group review followed by agreement in principle by the Assistant Director – Programme Policy and Services, or in his/her absence a Head of Area other than the Head of Area in whose area the Hounslow Town Centre Housing Zone is, before being submitted for a Director Decision.  GLA officers confirm that this process has been followed.
1.18    The delivery dates for the development at Lampton Road has slipped 12 months from that stated in MD1457.  When design and programming discussions were under way, with the successful contractor, it became apparent that the delivery programme needed refining. The impact of this has been to put back the completion date for phase one into 18/19 and the delay of phase one delays the whole programme.  The revised delivery dates should be seen as pessimistic and it is the intention of NHHT and their contractor partner (see paragraph 1.19 below) to accelerate delivery and attempt to bring some units to completion in 17/18.  
1.19    The Borough intend to contract with Bouygues (UK) Limited, BY Development Limited and NHHT for them to construct a new Civic Centre on a nearby council-owned site, and the existing Civic Centre site (Lampton Road), with the benefit of planning permission for 919 new homes, will then be transferred to NHHT.  The GLA and NHHT’s obligations under the AHGA will be conditional upon the development documentation in respect of the Lampton Road site having been entered into (see paragraphs 1.35 and 1.36 below).
1.20    The proposed Housing Zone intervention at Lampton Road enables the Borough to build a new modern and fit for purpose Civic Centre and allows for the existing Civic Centre site to be used for the development of up to 919 new homes of which 40% will be affordable.  
1.21    Without the Housing Zone intervention the land available at this site would only allow the development of approximately 250 units. 
1.22    The Lampton Road project falls in the north of the Housing Zone boundary and is surrounded by Lampton Park, Lampton School and playing fields.

Funding
1.23    The Borough’s Housing Zone bid requested grant of £15m for this project. This represents an average grant rate of £50,000 per affordable home.  This average does not include the 68 affordable units that will be delivered in the period post-2022.
1.24    The £15m of GLA grant funding will be drawn down by NHHT at start on site of phase 1. This is in order to improve the economic viability of the residential scheme.  The effect of providing the entire grant at start on site improves scheme cash flow and directly enables the delivery of a high proportion of the site (40%) as affordable housing. The AHGA allows the GLA to reclaim grant should the agreed quantum of delivery not be achieved by the contracted end date.  Should only partial delivery be achieved then the grant recovery will reflect the number of affordable housing completions that are delivered (i.e. on a pro rata basis).
1.25    Including the market-sale homes, which are a delivery requirement within the AHGA, this represents an average grant rate across all tenures of homes delivered within the Civic Centre, Lampton Rd Intervention of £16,322 per home (although for completeness the market sale homes and the 68 additional affordable homes at Lampton Road do not have any housing zones funding attributable to them). 
1.26    NHHT have agreed to regular iterations of an agreed scheme appraisal mechanism to reassess whether improved rental income is achievable.  Under the draft development documentation between the Borough, NHHT and Bouygues (although it should be noted that this may change – see paragraphs 1.35 and 1.36 below), if additional rental income becomes available it will be used to increase the proportion of Affordable Rent as opposed to Affordable Home Ownership within the scheme up to a capped conversion figure.  If the increased rental income cannot be fully used to deliver additional Affordable Rent units then the surplus income will be used by NHHT to deliver additional affordable homes.  These funds will for an initial period be ring-fenced for the delivery of affordable housing within the LB Hounslow after which they will be used to provide affordable homes elsewhere in London.  The quantum of affordable housing delivered on this scheme will remain at 40%, the appraisal mechanism will only be used to adjust the affordable tenure mix.
1.27    The Borough have committed to the GLA (in the Overarching Borough Agreement) that they will deliver a 68 unit development scheme at Nantley Road (27 units of which will be affordable) from its own resources.  These resources are only available to the Borough as the construction of the new Civic Centre will provide them with a more cost efficient civic building and one where they do not need to set aside significant future capital funding for the refurbishment and modernisation of their existing Civic Centre which is no longer fit for purpose.

Appraisal
1.28    Project due diligence was undertaken by officers of the Housing and Land directorate applying methodology used to assess affordable housing bids submitted to the GLA for funding via the Mayor’s Housing Covenant 2015-18 Programme. This includes assessment of value for money, strategic fit with GLA priorities and review of deliverability.
Value for Money 
1.29    The value for money assessment takes into account the grant rate proposed for the project and judges this against the total scheme costs. On the basis of the assessment carried out the project is deemed to represent good value for money.
Value for Money (Overall Housing Zone)
1.30    The London Borough of Hounslow has committed (under the Overarching Borough Agreement) to recycle £11,555,000.  It is expected that, to meet this obligation, the Borough will invest £7,400,000 (40% of the total £18.5m housing zone investment) three times (equivalent to £11,555,000).  This will be resourced from both Hounslow CIL and New Homes Bonus generated by the additional homes unlocked across the entire Hounslow Town Centre Housing Zone towhich the Civic Centre, Lampton Road Scheme will contribute. This funding will also be used to facilitate the direct delivery of at least 465 homes over the 2015-2025 housing zone programme period.
1.31    The Borough’s commitment to recycle capital will help to deliver 3,647 units, within the Town Centre area, in the period up to 2025 and it is the Borough’s intention that 40% of these units will be “affordable units”.  
1.32    At the end of 2025 the Housing Zone proposals, if all reinvestment has been achieved, will deliver 3,647 units of which 1,459 will be affordable.  This equates to £12,680 per affordable unit and is slightly lower than the figure (£13,377) included in MD1457. 
Strategic Fit 
1.33    A key rationale for funding the Civic Centre, Lampton Rd Intervention is the additional 669 homes which are able to be delivered on the Lampton Road site as a result of unlocking the move of the Council Civic Centre (enabling 919 units to be delivered rather than 250 units). Maximising the site’s potential for residential development (now 919 units) will include 300 grant funded affordable units by 2023 with an additional 68 affordable units by 2025.
1.34    In addition to creating much needed new supply of housing, the move to the town centre of the new Council office building is expected to add additional value to the local area through support for local businesses and engagement with communities.  Initial forecasting undertaken by the Borough shows a positive impact on jobs – 295 full time construction jobs for the six year build and 50 sustained. The new civic offices will also maximise the use of the new site through co-location with the town centre library releasing new retail space on the High Street.
Deliverability
1.35    It is intended that NHHT will enter into a Development Agreement with the Borough and Bouygues for the Civic Centre redevelopment proposals including the delivery of the housing.  The GLA’s and NHHT’s obligations under the AHGA are conditional upon the Development Agreement having been entered into by 31 May 2016 or such later date as the parties may agree in writing, otherwise the AHGA will terminate (unless otherwise mutually agreed).  
1.36    The contractual delivery milestone dates within the AHGA mirror those dates within the draft Development Agreement as at the date of this report.  There is a risk that further changes are made to the draft Development Agreement before it is entered into so, in order to mitigate risk to the GLA, it is a condition of payment of grant under the AHGA that NHHT’s solicitors must provide an opinion to the GLA that the terms of the Development Agreement do not prejudice or undermine the operation of the AHGA or prevent NHHT from complying with the AHGA’s terms. 
Contractual relationship with development partners
1.37    In the original Housing Zone submission it was envisaged that GLA Housing Zone funding would be drawn down by the Borough and the Borough would contract with Bouygues and NHHT for the construction of a new Civic Centre.  When the new Civic Centre is completed the Borough would transfer the existing Civic Centre (Lampton Road) site to NHHT.  NHHT and Bouygues would then develop this land for residential development including 40% affordable tenures. The Housing Zone funding would be used to accelerate and increase the quantum of residential delivery and ensure that a minimum 40% of the development would be affordable tenures. 
1.38    As mentioned at paragraph 1.4 above, following discussions with the Borough and its partners it was mutually agreed that the GLA would provide grant funding directly to NHHT and that this funding would be for the provision of affordable housing on the Lampton Road site.  The GLA would use a grant funding agreement as the form of contract
1.39    The GLA will sign an affordable housing grant agreement with NHHT and will allocate £15,000,000 of grant for the delivery of 300 affordable units 210 of which will be for affordable home ownership (subject to the mechanism for increasing the proportion of affordable rent units described in paragraph 1.14 above).  A further 68 affordable home ownership units will be delivered on this site, by NHHT, without Housing Zone grant funding.  
1.40    The GLA has entered into an Overarching Borough Agreement with the London Borough of Hounslow and the Borough remains committed to deliver 3,647 completions within the Housing Zone area by 2025.  Overall delivery within the Housing Zone area therefore remains in line with MD1457.
Due Diligence on the project cost
1.41    The Borough used the GLA’s London Development Panel to seek tenders for the construction of the proposed Civic Centre and the subsequent residential development.  Following shortlisting four tenderers were invited to submit detailed tenders.  The Borough commissioned GVA to manage the tender evaluation process and process was undertaken with input from Borough officers and GLA representatives. 
1.42    The tenders were scored and the Bouygues, Notting Hill Housing Trust bid was selected as the preferred tenderer.

Project Milestones
1.43    The key project milestones are summarised as follows: 
Planning
1.44    A detailed planning application for phase one and an outline planning application for phase 2 was submitted on the 11th December 2015.
1.45    Planning consent for the Lampton Road Scheme was granted by the Borough on the 10th March 2016.
 

Project

Forecast Start on Site Date

Forecast Practical Completion Date

Absolute Longstop Completion Date

Lampton Road – Phase 1

31st Dec 2016

31 Mar 2019

31 Mar 2020

Lampton Road – Phase 2

31st Dec 2019

31 Mar 2023

31 Mar 2025

 

 

 

 

 

 

 

Governance
1.47    The Overarching Borough Agreement dated 6 November 2015 between the GLA and the Borough sets out the governance structure for the overall Hounslow housing zone proposal.  In addition, the AHGA has a specific clause and obligations in regards to monitoring and reporting.  The GLA will contract with NHHT in respect of the Civic Centre, Lampton Road AHGA and this relationship will be managed on a reciprocal basis through quarterly review meetings in order to ensure transparency and deliverability of the Scheme. The relationship will be managed by a designated officer from the GLA’s Housing and Land Directorate with oversight of Housing and Land Senior Management Team. 

Stakeholders / Contractual Arrangements
1.48    The counterparty in respect of the Lampton Road project is Notting Hill Housing Trust who will enter into a Housing Zone Affordable Housing Grant Agreement with the GLA. The wider redevelopment of the Civic Centre, Lampton Road was tendered through the London Development Panel (LDP) and the site will be covered through a Development Agreement entered into between the London Borough of Hounslow, Bouygues as lead LDP bidder and Notting Hill Housing Trust.

Conclusion
1.49    In summary, the assessment undertaken by officers of the Housing and Land directorate concluded that the Lampton Road scheme meets the GLA’s requirements in terms of value for money, strategic fit with GLA priorities (including the aim to unlock and increase housing supply) and deliverability. Officers recommend therefore that it is appropriate for GLA to contractually commit affordable housing grant of £15m to fund the, Lampton Road residential Scheme.
 

Objectives and expected outcomes

The project will regenerate the old civic centre site at Lampton Road into a new development delivering a forecasted minimum of 368 affordable homes and 551 homes for market sale.
2.2    The redevelopment of the existing, not fit for purpose, Civic Centre will help facilitate the delivery of a new civic centre at Bath Road in the heart of Hounslow Town centre, all to be delivered before March 2025.
2.3    The Borough will use available resources, which otherwise would be used to repair and refurbish the existing Civic Centre, to develop new housing on the council-owned Nantley Road site.  This site will deliver a minimum of 68 new homes 40% of which (27 units minimum) will be delivered as affordable tenures.
 

Equality comments

3.1    Hounslow Town Centre Housing Zone is aimed at implementing the Mayor’s policies set out in the Mayor’s London Housing Strategy. In January 2014 the GLA published an integrated impact assessment (“IIA”), including an equalities impact assessment, of that strategy. The policies related to increasing housing supply, to which the Hounslow Town Centre Lampton Road scheme will contribute, were covered by the Integrated Impact Assessment (IIA) for the Further Alterations to the London Plan. 
3.2    The IIA concluded that updating housing projections and targets would support the delivery of sufficient housing and may help stabilise housing prices, supporting equal opportunities throughout communities. Furthermore, the provision of housing, including maximising the delivery of affordable housing would be in line with other policies of the Plan (e.g. Policy 3.5), ensuring that the needs of different groups are taken into account in the housing design.
3.3    The delivery of new and additional homes will help to implement Objectives 1, 2, 3 and 4 of the Mayor’s Equalities Framework “Equal Life Chances for All” (June 2014) through the creation of new homes, housing products and well-designed housing schemes.
3.4    The designation of a Housing Zone within an area is designed to identify a site or sites as an area for housing growth and delivery within London, often partnered with a series of funding streams and non-financial assistance to deliver these new homes, and therefore this decision will facilitate these goals and ultimately ensure that the needs of different groups are taken into account in the design and development of housing.
3.5    In order to access this funding NHHT will be required to enter into a contract with the GLA to deliver the intervention. With regard to project delivery the agreement places the following obligations on NHHT in respect of the Equality Act 2010:
•    The counterparty shall comply in all material respects with all relevant Legislation relating to health and safety, equality and relevant employment matters. 

•    The counterparty has, and is in full compliance with, a policy covering equal opportunities designed to ensure that discrimination prohibited by the Equality Act 2010 is avoided at all times and will provide a copy of that policy and evidence of the actual implementation of that policy upon request by GLA.  
 

Other considerations

Key Risks and Issues
4.1    The GLA payment of grant is subject to the following conditions which have been introduced to mitigate the key risks and issues identified which may affect the delivery of the Scheme:

•    NHHT must provide the GLA with evidence that the Lampton Road Site Development Documentation and any other documentation relating to NHHT’s Secure Legal Interest has been entered into;
•    GLA is provided with an opinion from NHHT solicitors that the terms of the Lampton Road Site Development Documentation does not conflict with the terms of the AHGA;
•    NHHT must obtain vacant possession of the part of the Site on which Phase 1 will be delivered;
•    NHHT must provide the GLA with evidence of detailed planning permission approval for the Site for Phase 1 and outline planning approval for Phase 2; and
•    NHHT can only draw down grant on or after start on site of phase one has been achieved.

Links to Mayoral Strategies and Priorities

4.2    The purpose of the Housing Zones Programme is to increase housing supply by accelerating and unlocking development to deliver 50,000 homes by 2025. The Lampton Road project will contribute towards this and support the aim to deliver 42,000 homes per annum prescribed by the Further Alterations to the London Plan March 2015.

4.3    Without the Housing Zone intervention the council offices will remain onsite and although the Borough would make some land available for residential development this option would only release land for only approximately 250 units.  Further, the high cost of refurbishment and alterations to the existing offices would mean the Borough would have reduced resources with which to bring forward other residential sites (with 40% affordable housing) within the Housing Zone area.

4.4    The £15m Housing Zone funding enables the Borough to develop a new Civic Centre on an alternative site releasing the Lampton Road site and making it available for the residential development of 919 units (40% of which will be affordable housing tenures).  The option with Housing Zone funding enables an additional 669 more residential units on this site.  The new Civic Centre will be a modern energy efficient building with significantly reduced running costs and overheads.  These efficiencies mean that the borough can use the resources made available for the purchase and development of residential land where 40% of the units built will be affordable tenures.
 

Financial comments

5.1    As per MD 1457, an area of Hounslow was designated a Housing Zone and was allocated £18.5m of grant. 
5.2    This DD is to finalise the decision to allocate £15m to the civic centre site. 
5.3    £50k per property is fairly expensive for grant for social housing, but part of this planning permission is to provide a new civic centre, which in its self will be costly. 
5.4    The site is very close to the centre and has good transport links; therefore the site is a good location for affordable housing. 
5.5    The monies will go to Notting Hill Housing Trust after start on site, this is obviously a risk, but the amount must be paid back if the social housing properties are not built, therefore relieving the risk. 
5.6    This is a standard social housing grant, and therefore should be classed as a low level risk. 
 

Planned delivery approach and next steps

Activity

Timeline

Completion of Contract

June 2016

Physical Start on site

December 2016

Practical Completion of development

March 2025