MD1545 Designation of Housing Zones (Round 2)

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 13^th 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.

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;

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.

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.

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.

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.

7. Legal comments

Designation of areas as a Housing Zone and financial and non-financial assistance

7.1 Where the Mayor designates an area as a Housing Zone, the Mayor may provide financial and non-financial assistance to help unlock or accelerate the delivery of housing within that zone.

7.2 The designation and provision of financial assistance (whether by grant or loan) and non-financial assistance is permissible under section 30(1) of the Greater London Authority Act 1999 (the GLA Act), if the Mayor considers that doing this will further one or more the Authority’s principal purposes of: promoting economic and social development in Greater London, and improving the improvement of the environment in Greater London. The funding available is capital in nature and must be used as capital expenditure.

7.3 In determining whether or how to exercise the power conferred by section 30(1) of the GLA Act (and therefore in determining whether or how to designate and provide financial and non-financial assistance), the Mayor must:

(i) have regard to effect that these decisions will have on the health of persons in Greater London, health inequalities between persons living in Greater London, the achievement of sustainable development in the United Kingdom and climate change and its consequences (sections 30(3-5) of the GLA Act;
(ii) pay due regard to the principle that there should be equality of opportunity for all people (section 33 of the GLA Act); and
(iii) have due regard to the Public Sector Equality Duty; namely the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by the Equality Act 2010, and to advance equality of opportunity between persons who share a relevant protected characteristic (race, disability, gender, age, sexual orientation, religion or belief, pregnancy and maternity and gender reassignment) and persons who do not share it and foster good relations between persons who share a relevant protected characteristic and persons who do not share it (section 149 of the Equality Act 2010);

7.4 As noted in section 4 above, in January 2014 the GLA published an integrated impact assessment (“IIA”), including an equalities impact assessment and health impact assessment, of the London housing strategy, which included a policy for Housing Zones. It is also noted in section 4 that the delivery of new and additional homes within the Housing Zones programme will help to implement objectives in the Mayor’s Equalities Framework “Equal Life Chance for All.”

7.5 Going forward, the Mayor will also need to have due regard to the Public Sector Equality Duty, and the matters set out in sections 30(3-5) and 33 of the GLA Act, when entering into any funding agreements.

7.6 In addition to the above, where the Mayor is proposing to use the power conferred in section 30(1) of the GLA Act, the Mayor must consider consulting in accordance with section 32 of the GLA Act. Section 5 above refers to the consultation and engagement that has taken place in relation to this matter. The Mayor will also need to consult in accordance with section 32 of the GLA Act, as appropriate, prior to entering into any funding agreements.

7.7 Section 31 of the GLA Act prohibits the Mayor from using his power in section 30(1)(a) of the Act to incur expenditure in doing anything which may be done by Transport for London, which on the face of it would prevent the GLA from incurring expenditure in providing funding for transport provision. However, section 31(5B) of the GLA Act provides that nothing in section 31(1)(a) shall be taken to prevent the Authority incurring expenditure in doing anything for the purposes of, or relating to, housing or regeneration. Accordingly, the GLA has the power to fund proposed transport-related interventions within the proposed Housing Zones.

7.8 Section 31(3)(b) prohibits the Mayor from using his power in section 30(1)(a) of the Act to incur expenditure in providing “any education services” in any case where the provision in question may be made by a London borough or any other public body. Providing the GLA does not fund the provision of “any education services,” it can fund matters related to education.

7.9 Under section 34 of the GLA Act, the Mayor is empowered to do anything (including the acquisition or disposal of any property or rights) which is calculated to facilitate, or is conducive or incidental to, the exercise of any functions of the Authority exercisable by the Mayor.

7.10 State Aid and other matters

7.11 Prior to entering into any funding agreements in respect of the interventions contained in Part 2 of this Mayoral Decision, appropriate advice must be sought by the GLA as to due diligence; state aid; and appropriate security for lending. The GLA will need to give detailed consideration to this advice, and obtain appropriate advice and assistance in preparing the necessary documentation to provide Housing Zone funding.

GLA Land and Property Ltd

7.12 Consideration will need to be given as to whether any proposed GLA funding is, by virtue of section 34A of the GLA Act and the Greater London Authority (Specified Activities Order) 2013/973, a specified, commercial, activity that must be dealt with by GLA Land and Property Ltd (“GLAP”). If it is, GLAP will be required to enter into the relevant contractual funding agreements, committing the GLA funding. GLAP does not need to be expressly authorised to do this in this Mayoral Decision, by virtue of section 4.3 of the Mayoral Scheme of Delegation. The entering into of such agreements is the implementation of decisions contained within this Mayoral Decision.

Social housing

7.13 Section 333ZE of the GLA Act applies sections 31-36 of the Housing and Regeneration Act 2008 (HRA) to the GLA, with modifications. To comply with the requirements of section 31 of the HRA as modified, where the GLA is proposing to give financial assistance on condition that the recipient provides low cost rental accommodation, the GLA must impose a further condition ensuring that a registered provider of social housing is the landlord of the accommodation when it is made available for rent.

7.14 Under section 333ZH of the GLA Act, where the GLA is proposing to give financial assistance on condition that the recipient provides low cost home ownership accommodation, the GLA must consult the Regulator of Social Housing about the proposals.

7.15 Under section 333ZE(3) of the GLA Act sums received by the GLA in respect of repayments of grants made by it for the purposes of social housing are to be used by it for those purposes.

Delegation to GLA Officers

7.16 Section 38 (1) of the Act provides that any function exercisable on behalf of the GLA by the Mayor shall also be exercisable on behalf of the GLA by any member of staff of the GLA if or to the extent that the Mayor so authorises, whether generally or specially, and subject to any conditions imposed by the Mayor.

7.17 The General Delegation contained in section 2 of the Mayoral Scheme of Delegation provides for various functions to be delegated to GLA officers on a standing basis. However, the delegations contained in this Mayoral Decision are beyond the scope of the standing delegations, and therefore need to be made expressly.

7.18 Officers exercising functions delegated under this Mayoral Decision will need to act in accordance with the terms and conditions of the delegation(s).

Procurement

7.19 The award of GLA funding for Housing Zones is not a procurement, and is not therefore subject to the requirements of the Public Contracts Regulations 2006. The GLA is still subject to the overarching duties of fairness and transparency.

9 Planned delivery approach and next steps

Appendix 1 attached