Our housing correspondent, BARRATT HOLMES, on how the failure to seal a property deal with Croydon College and ‘Brexit uncertainties’ have caught out the geniuses running the council-owned house-builders
The council’s Alison Butler with Labour’s shadow housing spokesman, John Healey MP. Croydon won’t build a single council home in eight years
Brick by Brick needs another £78million loan from Croydon Council to continue with its home-building programme, it has been revealed.
The council-owned development company, which was set up in 2015, has yet to complete a single housing unit for occupation by any Croydon Council Tax-payer.
Of the first homes due to be completed by Brick by Brick, using council property and paid for with millions of pounds of public cash, 71 per cent of the units delivered in 2019 will go for private sale or rent.
Under Brick by Brick’s plans, Croydon’s Labour-run council will not have built a single new council home between 2014 and 2022.
Last month, Brick by Brick – whose managing director is the council employee Colm Lacey – deliberately withheld vital financial details and news of director resignations and replacements when reporting to a scrutiny meeting formed of elected councillors.
Now that its 2019-2020 Business Plan has been finalised, it’s easy to see why Lacey and his boss, council CEO Jo Negrini, were so shy about unveiling the horrible truth about the venture.
Brick by Brick wants to push back the date when it is supposed to become self-financing, and last night, as its latest business plan was delivered to the council cabinet meeting, it was revealed that they need an extra £78million in borrowing.
As one horrified councillor told Inside Croydon: “This really is the repeating nightmare for Croydon.
“Having squandered millions of pounds of public cash on the CCURV under the Tories, now Labour are frittering away public money like drunken sailors over a house-building programme which is not delivering any council housing.”
According to Brick by Brick’s own figures, they are already borrowing £196million from the council, with a total funding requirement (made up of equity and borrowing) of £262million to the end of 2021.
In last year’s business plan Brick by Brick told the council that it would no longer require funding from the council after the end of this financial year.
But the multi-million-pound dropped bollock over Brick by Brick’s failure to secure the agreed purchase from Croydon College of the annex building on Barclay Road has set-back its planned flat-building on that town centre site by at least two years.
Meanwhile, build over-runs and mounting costs in the refurbishment of the Fairfield Halls next door are putting a real squeeze on Brick by Brick’s finances.
Brick by Brick’s latest revision of the plans for what’s left of its Fairfield site are set to go before the planning committee at the Town Hall this Thursday. The much-changed scheme almost doubles the number of units that they originally said that they would build alongside the Fairfield Halls. In the planning officers’ report going before the committee, BxB says it wants to build 424 flats in five blocks, including one of 29 storeys to tower over the Fairfield Halls.
And with “Brexit uncertainties” hitting the London housing market, Brick by Brick’s previously optimistic financial projections have come seriously unstuck.
Demolition work around the Fairfield site has had to go ahead piecemeal, incurring increased costs
Brick by Brick claims that, “Essentially the extension of the programme requires more borrowing as it is substantially more investment.
“The fundamental reason for this is the addition of a new pipeline of sites into the 2019-2020 business plan,” they say.
The price tag that BxB is putting on this “new pipeline” is a cool £206million.
The extra funding is to be made up of £58.5million from the council “at a commercial rate of interest”, it is claimed (at a time when the banks are becoming exceedingly wary of any new lending), plus £19.5million of equity investment.
When the Brick by Brick concept was originally pitched by Tony Newman and his Labour council, all the housing company’s profits were to have been fed in to the Town Hall’s coffers.
The council has a draft budget of £30million in 2019-2020 to cover Brick by Brick funding.
The council report to last night’s cabinet said: “After 2021-2022, BxB anticipates that it will become self-financing, with revenue from sales of housing sufficient to cover all known ongoing development expenditure.”
However, the latest statement from the company said: “The Brick by Brick business model will always require additional borrowing to support additional units for development – unless the programme reduced dramatically in terms of ambition – because all debt, interest and profit on schemes is returned to the council as the individual schemes complete.”
Taken from BxB’s own report – how Croydon’s housing market is cooling rapidly, denting the house-builders’ potential for profits just at the time when their units are going up for sale
Brick by Brick has around 250 sites identified, with the possibility of building another 4,000 homes. To date the company has achieved planning consent on 39 sites which will deliver more than 1,250 homes.
Some of these might be brought forward thanks to grants from the Mayor of London (which some might describe as “good money after bad”).
As was revealed when the first draft of the latest business plan was put before the scrutiny committee a month ago, Brick by Brick is keen to blame “Brexit uncertainties” for its troubles.
Reading through its latest business plans, there is no acceptance that BxB’s “experts”, its directors or expensively hired consultants guessed badly wrong with projections of steady 4.5 per cent a year growth in house prices. In 2018 in Croydon, house prices grew by less than 2 per cent, and things already look like they are worse in 2019.
Labour council leader Tony Newman is ‘proud’ to be building so many homes for the private market
The finalised report submitted to council cabinet states: “BxB’s previous analysis of the Croydon market (undertaken in 2017) had indicated that a forecast [Housing Price Index] of 4.5 per cent was a reasonable medium‐term expectation to 2021…
“However, ongoing uncertainty surrounding Brexit has had a demonstrably larger bearing on the performance of the local property market than had been anticipated two years ago, which has led to much slower increases in 2018.”
That referendum in June 2016 appears to have caught the brains trust at Croydon Council by surprise.
Brick by Brick describes 2018 as “one of the most challenging years for the Croydon property market for some time”. In fact, according to Land Registry data, some Croydon properties lost value in the last 12 months.
In anticipation that the local market “is likely to continue to stagnate”, BxB is considering pivoting its offer, and instead of putting the majority of its new properties up for private sale, it may instead place many of them on the private rental market: “Unlike many other developers, Brick by Brick has considerable potential to use tenure as a means of addressing any potential reduction in property values.”
But not to worry: the council-owned and public-funded house-builder will be opening its “sales showroom” on George Street on March 5.
Because local authorities building council homes always need a “sales showroom”, don’t they?
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So Negrini has got the begging bowl out for her project and is asking for a bailout. Has Fat Tony even heard of the expression “throwing good money after bad”?
Anyone who prepared the original business plan assuming and annual price growth of 4.5% without some sort of standard sensitivity analysis should be sacked.
These sensitivities should have been highlighted so that the council (aka the tax payer) could properly assess the risk of gambling multiple millions of public money in the vain hope of turning a profit. The latest iteration seems to be the work of a desperate gambler (or city trader) who already stands to lose his shirt and is therefore desperate to borrow more public money on one last gamble.
Nick Leeson springs to mind.
The (imminent) collapse of the Whitgift development is hardly likely to increase property prices which have already been overinflated by the promise of the development. This will inevitably send ripples over the attraction of Croydon to buyers and investors who would not doubt have been banking on capital growth.
You’re ‘avin a larf! Innit?!