MD1545 Designation of Housing Zones (Round 2)

Type of decision: 
Mayoral decision
Code: 
MD1545
Date signed: 
09 November 2015
Decision by: 
Boris Johnson MP (past staff), Mayor of London

Executive summary

This approval designates a further eleven Housing Zones (Round 2) comprising Blackhorse Road & Northern Olympic Park, Wembley, Meridian Water, Ilford Town Centre, Rainham and Beam Park, Poplar Riverside (Phase 1), Edgware Road, Alperton, Sutton One, Lambeth and Morden Town Centre as Housing Zones. Alongside the designation the Mayor indicatively allocates up to £310.7 million to fund interventions to unlock or accelerate the delivery of up to 25,837 homes within these Housing Zones. This funding and any non-financial interventions will only be contractually committed subject to the outcome of due diligence and the availability of GLA funding.  

Decision

That the Mayor:

-DESIGNATES the areas identified within the London Boroughs of Waltham Forest, Brent (two Zones), Enfield, Redbridge, Havering, Tower Hamlets, Westminster, Sutton, Lambeth and Morden Town Centre as Housing Zones;

-APPROVES the indicative allocation of £310.7 million being made available to fund the interventions specified in these zones for the purposes of unlocking  or accelerating the delivery of housing within each designated Housing Zone in line with the proposed housing delivery outputs specified in this report, noting that such funding shall only be contractually committed subject to the outcome of legal and financial due diligence;

-DELEGATES authority to the Executive Director of Housing and Land and the Executive Director of Resources, in consultation with the Deputy Mayor for Housing, Land and Property, to approve the interventions that are to be funded subject to satisfactory due diligence and to contractually commit funding of up to £310.7 million across the designated Housing Zones subject to the availability of remaining funding across the programme; and

-AGREES that, where considered appropriate by the Executive Director of Housing and Land in consultation with the Deputy Mayor for Housing, Land and Property, the GLA shall provide non-financial assistance sought by the boroughs and will support the requests for non-financial assistance, where that assistance is sought from outside the GLA.

Part 1: Non-confidential facts and advice

Introduction and background

1 Introduction and Background
 

1.1 The Mayor’s London Housing Strategy sets out plans to create a number of “Housing Zones” to boost housing supply in London. It also identified that a range of planning and financial measures would be used in these areas to unlock and accelerate housing delivery and to build more homes affordable to working Londoners.

1.2 In line with MD1366, the Housing Zone Prospectus was launched on the 13th of June 2014 with proposals to deliver 20 Housing Zones across London. The primary aim of the programme is for Housing Zones to deliver, over ten years, at least 50,000 homes. Under the Housing Zones programme, London boroughs can ask the Mayor to designate a geographical area as a Housing Zone, and may bid for GLA funding to unlock and accelerate housing supply within that zone. The Housing Zone Prospectus sets out the bidding process and what can be funded.

1.3 To support these aims, £400 million has been made available in London.

  • £200 million is a loan from DCLG to the GLA for the GLA to onward lend this money for the purposes of Housing Zones. It is known as a “Financial Transaction” and is referred to as such in this Mayoral Decision and associated documentation. The GLA must repay DCLG’s loan and so all GLA Financial Transaction money is only available as a loan to be repaid at an agreed rate of interest, and to an agreed schedule. It is accessible to private developers and private Registered Providers, and is intended to kick-start development. The terms for this funding were agreed under MD1481.
  • £200 million will be made available on a more flexible basis. This £200m has been reallocated from the existing Mayor’s Housing Covenant 2015-18 programme to the Housing Zones programme (as is noted in MD1366). It will be available largely through London Boroughs. The GLA’s preference will be to pay grant on a recoverable basis, but it will also consider non-recoverable grant-funding, particularly where affordable housing is being delivered.

1.4 In total, £310.7 million of funding has been requested for interventions across eleven Housing Zones. Up to £ 119.1 million of these monies is to be repaid as Financial Transactions, up to £102.1 million to be repaid to the GLA as recoverable grant and up to £89.4 million committed as grant funding.

1.5 These eleven Housing Zones constitute the second round (Round 2) of the Housing Zones programme following the approval via Mayoral Decision of the initial (Round 1) nine Housing Zones on 31 July 2015, which allocated funding up to £251.1 million across these Housing Zones.

1.6 The total funding across the twenty Housing Zones amounts to £561.8 million. This represents the indicative total allocation generated by the Housing Zones bidding process to date. Based on initial and on-going due diligence, it is clear that there is an element of over programming in this figure given the assumptions made by counterparties. Active portfolio or programme management and the risk attached to over programming is a key feature of the due diligence and contracting process aimed at ensuring that the GLA will not be exposed to un-resourced liabilities. Regular programme management reporting is also key feature of the process of managing over programming risk. The GLA’s decisions on whether contractually commit funding  are  subject to the outcome of due diligence and the availability of GLA funding. 

1.7 It should also be noted that HM Treasury have made £540 million of additional borrowing available to Boroughs through the Public Works Loan Board (PWLB), available at the “Project Rate” for 2014/15 and 2015/16 that can be bid for through the Housing Zones process. Some of the proposals covered in this paper include plans to borrow from the PWLB at the Project Rate but this additional borrowing is not included in the figures quoted.

1.8 Should any area designated as a Housing Zone seek additional PWLB funding post-designation it is expected they will approach the PWLB directly to seek this additional borrowing.

Objectives and expected outcomes

2. The Proposed Housing Zones

2.1 Proposals have been submitted for the areas identified in Appendix 1 to be designated by the Mayor as Housing Zones. In summary, together they are seeking a total of £310.7 million to deliver directly and indirectly 25,837 homes, of which it is estimated (subject to Planning) 8,294 would be affordable units. An expected £221.3 million of funding would be returned to the GLA as either loans or Recoverable Grant monies. Further details of the proposed interventions (both financial and non-financial) and the approach to delivery are set out below and in Part 2 of this report.

2.2 In summary, the Housing Zones are proposing to achieve the following levels of development  within their respective Zones;

Housing Zone Borough All tenures   Affordable only   Total Homes Funding
    2015-2018 2019 + 2015-2018 2019 +    

Blackhorse Road &

Northern Olympic Park

Waltham Forest 1,511 966 458 260 2,477 £44,895,000
Wembley (Brent) Brent 960 1,420 308 568 2,380 £8,000,000
Meridian Water Enfield 450 3,200 180 1,280 3,650 £24,985,000
Ilford Town Centre Redbridge 556 1,633 129 424 2,189 £54,768,148
Rainham and Beam Park Havering 703 2,754 98 843 3,457 £30,560,000
Poplar Riverside (Phase 1) Tower Hamlets 1,643 1,391 279 169 3,034 £51,950,000
Edgware Road Westminster 361 752 134 384 1,113 £25,500,000
Alperton (Brent) Brent 506 2,707 206 880 3,213 £17,900,000
Sutton One Sutton 688 984 232 170 1,672 £175,000
Lambeth Lambeth 236 1,346 116 748 1,582 £10,000,000
Morden Town Centre Merton 0 1,070 0 428 1,070 £42,000,000
Total   7,614 18,223 2,140 6,154 25,837 £310,733,148

2.3 Boundaries for the proposed Housing Zones are included as Appendix 1 to this report.

Next Steps

2.4 Following approval for the list of financial and non-financial interventions listed in Part 2 of this report, the GLA will commence full due diligence for each of the proposed interventions to ensure that, in addition to the previous challenge and interrogation, the proposals comply with all relevant law (including state aid), and represent the value for money for the investment proposed.

2.5 This due diligence will be supported by the property and legal consultants appointed in accordance with MD1438 who will review the legal and property considerations within each intervention to ensure their integrity and validity. Further work will also be carried out by teams within Housing & Land and Finance.

2.6 Following that review, if, in the opinion of the Executive Director of Housing and Land (in consultation with the Deputy Mayor for Housing Land and Property) and the Executive Director of Resources, there is a satisfactory outcome to due diligence, individual interventions will be signed off allowing the necessary contract to be entered into, committing the funding.

2.7 In some instances it will be appropriate, following due diligence, for amendments or changes to be made to the proposals as framed within this paper. Funding contracts will also need to be structured to allow flexibility within the agreed interventions to allow re-profiling across the available funding and outputs to occur, providing the overarching funding envelope agreed through this Mayoral Decision is not exceeded.

2.8 Under the General Delegation in the Mayoral Scheme of Delegation, Senior Members of Staff in the Housing and Land will be able to approve such matters, but are expected to only do so where they consider that the revised interventions will be effective in unlocking or accelerating housing delivery (broadly in line with the housing delivery outputs within the designated Housing Zones as specified in this report), and will continue to represent value for money.

3 Objectives and expected outcomes

3.1 The justification for investment in these areas as Housing Zones is that it is considered that they will deliver much needed homes following the detailed assessment process already undertaken and to continue after the designation, in a cost effective manner, that either would not have come forward without a Housing Zone designation or which will be accelerated in their rate of delivery as a result of that designation. The designation of Housing Zone status and investment in the interventions as described in this report is aimed at meeting the huge challenge of building at least 42,000 homes as year as set out in the Mayor’s London Housing Strategy.

Equality comments

4 Equality comments

4.1 The designation of these eleven areas as Housing Zones 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, of which this paper relates, were covered by the Integrated Impact Assessment (IIA) for the Further Alterations to the London Plan.

4.2 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.

4.3 The delivery of new and additional homes within the Housing Zones 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.

4.4 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 the decision within this report will facilitate these goals and ultimately ensure that the needs of different groups are taken into account in the design and development of housing.

4.5 In order to access this funding and designation, any bidding party, be that private sector developer or Local Authority, will be required to enter in to contract with the GLA and / or GLA land and Property Ltd (GLALP) to deliver these interventions. Whilst there is a statutory obligation for parties to take account of the impact of schemes under the Equality Act 2010, in order to reinforce these obligations the GLA / GLALP have included the following specific contractual clauses in each and every development agreement which will be in force for every intervention undertaken in the respective Housing Zones, as noted below;

  • The Developer shall comply in all material respects with all relevant Legislation, including but not limited to legislation relating to health and safety, welfare at work and equality and diversity, and will use reasonable endeavours to enforce the terms of the Scheme Project Documents to ensure compliance with this clause.
  • The Developer has, and is in full compliance with, a policy covering equal opportunities designed to ensure that unfair discrimination on the grounds of colour, race, creed, nationality or any other unjustifiable basis directly or indirectly in relation to the Works 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 / GLALP.  
Other considerations

5 Other considerations

5.1 In keeping with the objectives of the Housing Zones prospectus, the Housing Zones programme is explicitly designed to be innovative and flexible and as such may involve novel methods of providing funding, or tailoring housing investment or planning policy to local circumstances to increase housing delivery. Officers have worked very closely with the Boroughs in the development of the Housing Zone proposals to look at how the GLA and the Boroughs can work together to deliver homes which would not otherwise be built in the next 10 years. They have also consulted and worked with DCLG. It is not considered necessary or appropriate to consult any other persons or bodies specified in section 32(2) of the Greater London Authority Act 1999 for the purposes of this Mayoral Decision.

5.2 Any new approaches to housing delivery are set out alongside the recommendations for each Housing Zone designation contained in Part 2 of this report. The appointment of external advisors in relation to legal contracting process, review of state aid compliance, cost and value assumptions and governance structures will ensure the GLA can accelerate housing delivery with a high degree of confidence and assess the robustness of Boroughs investment proposals.

5.3 As part of the due diligence process, the GLA’s Finance team will assess the repayment plan as set out in the Housing Zone bid, ensuring that matters relating to security and loan pricing are fully resolved.

5.4 Boroughs and counterparties to the Housing Zones designation will be encouraged to use the Mayor’s Architecture, Design and Urbanism Panel to commission masterplanning work which comes out of the designation, to ensure that the highest quality design is achieved from the interventions that are supported.

5.5 In regards to the potential levels of housing delivery and numbers of affordable homes to be delivered within the Housing Zones, it should be noted that the figures stated here do not prejudice any future Mayoral decisions on planning designations/de-designations or consideration of future planning applications of potential strategic importance.

Financial comments

6.    Financial comments

6.1.    The Housing Zone programme is funded by £200m loan funding from DCLG known as “Financial Transaction” funding and £200m from the Mayor’s Housing Covenant 2015-18 programme.

6.2.    The average funding amount per unit in Round 2 is £12,027 (£310.7m divided by 25,837 units) based on total funding and total units; notwithstanding that part of the funding is loan funding or returnable grant funding.

6.3.    Financial Transaction funding is to be issued as loan funding, with interest, to private bodies only and must be returned to DCLG. 

6.4.    The designation of £561.8 million of Housing Zone funding (for all 20 zones) is not agreement to enter into funding agreements with partner organisations which will be subject to further approval under the appropriate delegations following financial and legal due diligence.

6.5.    All Financial Transaction loan funding will be conditional upon detailed due diligence and the provision of adequate security by loan applicants. Interest rates for these loans will be set based on this work. 

6.6.    The funding available is capital in nature and no revenue funding is available to be granted to applicants to fund, for example, feasibility or temporary improvements.

6.7.    The overall risk profile of the investments made across the Housing Zones programme will be considered by the Treasury team.

6.8.    All housing zones need to be aware of the GLA’s repayment period, in that all funds must be repaid to the DCLG by 2031 and that the repayments of the £200m loans, are phased, therefore not being able to accommodate large balloon payments at the end of the loan period. This needs to be taken into account specifically on projects such as Merton, with a large loan of £42m and a 12-year payback period. 

Investment and Performance Board

8.    Investment & Performance Board and Housing Investment Group

8.1.    The Housing zones for approval in this document were tabled at IPB on the dates in the table below, and were approved in principle. Supportive comments were received on the overarching Housing Zone proposals from Investment & Performance Board on how the diverse areas of the GLA could best interact with the Housing Zone programme. These comments have been acted on within the GLA teams and have resulted in the formation of a number of new working groups and practices in order to ensure the co-ordination across the GLA family and beyond to partner organisations.

8.2.    Housing Investment Group made a number of recommendations to each Housing Zone. Details of these recommendations and how they have been incorporated are contained in Part 2 of this report as they relate to commercial interests and considerations within each zone.

8.3.    The Housing Zones which are the subject of this approval were considered most recently as follows: 

Housing Zone Borough Latest Meeting
Blackhorse Road & Northern Olympic Park LBWF March 2015, IPB
Wembley (Brent) Brent March 2015, IPB
Meridian Water Enfield May 2015, IPB
Ilford Town Centre Redbridge May 2015, IPB
Rainham and Beam Park Havering May 2015, IPB
Poplar Riverside (Phase 1) Tower Hamlets April 2015, IPB
Edgware Road Westminster June 2015, HIG; September 2015, IPB
Alperton (Brent) Brent June 2015, HIG; September 2015, IPB
Sutton One Sutton July 2015, HIG; September2015, IPB
Lambeth Lambeth September 2015 IPB
Morden Town Centre Merton September 2015 IPB

8.4.    Since these approvals, the Blackhorse Road & Northern Olympic Park Housing Zone has witnessed a reduction in the overall number of homes to 2,477 compared with the 2,508 reported to Investment & Performance Board in March 2015. The reason for the reduction is covered in Part 2, paragraph 1.11.   

8.5.    The Poplar Riverside Housing Zone is for Phase 1 only, consistent with the Investment & Performance Board recommendation in March 2015.  

8.6.    The Edgware Road Housing Zone has witnessed a reduction in the total number of affordable homes to 518 compared with the 537 reported to Housing Investment Group in June 2015, but this does not reduce the total number of homes compared with the position previously approved. There has also been a slippage in the timing of homes delivered compared with the position reported to Housing Investment Group. These changes are covered in Part 2, paragraph 19.7.    

Planned delivery approach and next steps

9 Planned delivery approach and next steps

Activity Timeline
Confirmation of Housing Zone status Summer 2015
Detailed Due Diligence commences Summer 2015
Contracting commences Summer 2015
Delivery of interventions Autumn 2015

 

Appendices and supporting papers

Appendix 1 attached