Simon Hall, the council cabinet member responsible for Town Hall finances, has admitted that the slow progress being made by Brick by Brick, Croydon’s wholly owned housing developer, has created a £63million “slippage” in the council’s already under-pressure budget.
Labour councillor Hall was being questioned at this week’s Town Hall meeting over what one of the opposition councillors, Helen Pollard, described as “a massive variance” in the council’s originally budgeted figures, and the revised amounts presented to cabinet this week.
Hall offered a cheery, “jam tomorrow” explanation, while Tony Newman, the council leader chairing the meeting, did not allow any further questions on the matter.
It will have not escaped observers that this meeting came just a week after Newman and his ruling Troika which controls the Labour group at the council managed to push through a 5 per cent increase in allowances for cabinet members, with special pay hikes of up to £20,000 for favoured Tony’s cronies.
The harsh reality is that Brick by Brick’s failure to deliver even a single new home in the three years since the company was established could mean that Croydon’s Labour-run council will be forced to make more, and deeper, cuts in other council services over the next two years.
According to the council’s own report, “2018-2019 is the third year of the four-year funding agreement [with central government] and the council continues to face a level of uncertainty regarding the medium term. Savings have been identified for 2018-2019 and 2019-2020 and there is currently an expected budget gap of £6.3m in 2019-2020 at this stage.”
Brick by Brick is using £36.9million-worth of loans from the council to build on council-owned land and property.
This week, Newman’s deputy leader, Alison Butler, the cabinet member for housing and regeneration, claimed, “No other London borough is leading the development of genuinely affordable homes on the scale that we are in Croydon.”
Established in 2015, Brick by Brick has so far built precisely… zero homes. So Butler might have a point.
Simon Hall: BxB has caused a £63m ‘slippage’
Planning consent has been granted for 43 sites around the borough for Brick by Brick schemes, and work has begun to get underway on 10 of these.
With no revenue coming on-stream from Brick by Brick, it has left a multi-million-pound gaping hole in the council’s budget.
When challenged on this, Hall was forced to admit: “The bulk of that variance is the slippage there’s been on Brick by Brick, but through 2018-19 that’s really motoring and we’re going to be delivering those homes.”
So that’s alright then.
Except it probably isn’t.
Although it was supposed to deliver 50 per cent affordable in its first tranche of 1,000 new homes, Brick by Brick’s own reports suggest that in fact, more than 60 per cent of the homes it is building will be put on the private market, leaving even fewer available to genuine Croydon locals, whose money has been used to pay for the homes to be built.
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As the overheated housing market seems to be slowing with it taking ages to shift properties, it will be interesting to see if the banked on riches from these schemes will materialise. It doesn’t take much of an increase in build costs (likely to be linked to Brexit) and fall in sales values for a scheme to go from hero to zero. Its not as if there are no other developers in Croydon building flats whose economics depend on ever increasing property prices.
The issue now is not so much if there are any profits to be banked, but whether these “assets” valued at the top of the market will actually cover the continuing borrowing being undertaken to acquire and develop them. Who is going to pay as a Local Authority manages to go into negative equity? This now has to be the reality of the situation. When is this council going to face up to the fact that it’s property development strategy facilitated by the Chief Executive Jo Negrini is going to become an expensive failure?
https://www.theguardian.com/business/2018/apr/12/london-house-prices-falling-fastest-rate-nine-years-halifax
Irony alert!
– Inside croydon fights all Brick by Brick applications tooth and nail;
– Brick by Brick criticised by Inside Croydon for slower than expected progress
To quote the much favoured Private Eye “you couldn’t make it up”.
So wrong in so many ways.
We report, critically, all bad development applications. Brick by Brick has submitted and had approved more than its fair share. But where it has put in a scheme which has the support of residents, such as in Coulsdon, we have reported that.
We also predicted that the local authority would have problems when it tried to step into the property development market, just as it did with the godawful financial disaster which was CCURV, which was another slow-delivered and costly mistake. And we feel justified in being critical of a scheme which is held up as some sort of panacea for the borough’s housing crisis, but has yet to deliver a single home, and cannot meet even its own targets for providing unaffordable “affordable housing”.
Oh, and your funny little attribution? You’ve got that wrong, too: it is the loathsome Richard Littlejohn who made that particular expression his own, not Lord Gnome.
Pass the sick bag, Alice…
Delays to the development programme are welcome in the context of the financial ruin which might ensue if the building programme had been met. Following the release of the Brick by Brick business plan several Freedom of Information requests were submitted expressing concerns about the financial burden imposed on Croydon Council as a whole by the cost of Brick by Brick development schemes. The business plan suggested that around £140m would be borrowed by the Council to fund the existing development programme – representing around one third of the assets of Croydon Council. However the answers reveal that at the point of peak borrowing Croydon Council will have invested equity and loans totalling £212m in Brick by Brick.
The Council were asked by how much the figures would increase if a three month delay to sales was built in to the business plan. Their answer, that overall borrowing would not change as it would merely be a timing difference, misses the point that this could increase short term gearing, the ratio of borrowings to net assets considerably. The Business plan shows that nearly £88m of sales proceeds will be received in 2018/19 so as no sites are due to complete before December 2018 this sum may be a fair estimate of the increase in borrowings if sales are delayed by three months.
The answers provide a fairly horrific picture. Peak borrowings of £212m could increase to anything up to £300m if sales are delayed – this compares with the overall net assets of the Council of £409m at the last accounting date. In short, the development programme is large enough to threaten the financial stability of the Council itself.
Croydon Council taxpayers are funding a property development company – a high risk venture. Despite the high borrowings inherent in the first phase of the business plan the Council say that they have not set an overall cap for the amount the Council will borrow. This must be a grossly negligent and careless way of looking after public money.