Agenda item

To consider a proposed Draft Residential Property Investment Strategy, and to make recommendations to the Cabinet.

The Panel considered a draft Residential Property Investment Strategy.  This Strategy was for the Council to invest in residential property, in particular:

·        To purchase privately owned residential properties, either as existing private sector rental income-producing units or with vacant possession for letting to private sector tenants or

·        To develop sites that the Council owned or had acquired to build dwellings to deliver a more diverse range of housing and tenures, to include open market rental properties, sales and affordable housing offered under a range of different tenures

It was emphasised that this was a not a housing strategy.

The report set out the financial strategy and business case, detailing the property market, housing occupancy types and details of the households by tenure in the Hampshire districts as well as housing stock by size and occupancy type.  The report also covered the envisaged operational arrangements when forming a wholly owned company (WOC) controlled by the Council, together with financing and timescales.  Risk management issues were set out in the report as well as financial implications.

The report concluded that the risks of establishing the wholly owned company were outweighed by the benefits over time.  The rationale for setting up the WOC was primarily to create a revenue stream which would supplement the general fund.

Members noted that property prices were a solid asset base long term, and under supply would underpin supply and demand over time.

The Company would undertake performance reviews and provide reports to shareholders on a regular basis and also to the Corporate Overview and Scrutiny Panel.  The Housing Revenue Account and the Housing Revenue Account Business Plan would continue to operate alongside the WOC to deliver investment into new and existing social housing in the District.  The WOC might also however be invited to deliver affordable housing in the future.  It was projected that these arrangements would produce an estimated surplus of £350,000 per year based on a £10 million investment.  Members felt it was a great opportunity and acknowledged the in-house expertise available to the Council.

A member queried the use of a company which would have to pay Corporation Tax, and felt that a better vehicle might be a Limited Liability Partnership (LLP), which was a model used by Hampshire County Council, might be a more favourable option.  Officers would contact the County Council to check on the suitability of such an arrangement.

Members queried whether the investment could have negative consequences for the Council in terms of its liquidity and credit rating.  The Service Manager (Financial) explained that the use of pooled funds was acceptable if the cash was available as the Council looked to develop its housing strategy.  Reserves would decrease and there would be less in pooled funds, but the rationale was to spend now to protect the Council’s revenue position going forward and to diversify how the Authority used its cash holdings.  In terms of the Council’s credit rating, the proposals were relatively minor in terms of its overall financial position but a negative impact on the credit rating was possible although much depended on interest rates.  In answer to a question it was explained that if the wholly-owned company failed, the Council would be liable.  However it was emphasised that the WOC would operate prudently, starting on a modest basis and building up.  The Finance and Efficiency Portfolio Holder emphasised that the position was secure and the interest rates charged by the Public Works Loan Board were stable.

RESOLVED:

That the Cabinet be advised that the Panel supports the draft Residential Property Asset Investment Strategy.