The Tory government’s obstinate fixation to drive the country off a Brexit cliff-edge at the end of October is driving down the value of the pound and causing massive problems for industry. Especially in construction – which could mean very bad news for the council’s programme of building mainly private housing. BARRATT HOLMES reports
Brick by Brick, Croydon Council’s loss-making in-house house-builder, has gone out and bought itself a lovely new logo. The company has only existed since 2015, but it is already trying the change its image.
But it may take more than the skills of a central London graphic artist to achieve that, especially if four pieces of news this month affecting the construction sector and local authorities are anything to go by. Brick by Brick, always a speculative project based on borrowing huge sums of public cash, could be about to hit a Brick by Brick wall…
First L&Q, one of the country’s largest housing associations, which runs several sites in Croydon, announced that it was putting all its new building schemes on hold as new market data underlined how Brexit uncertainty was having a detrimental effect on the house-building industry.
The housing association last week told staff that it had decided to “pause taking on new projects for the moment” as the housing sector was “operating in one of the most challenging environments in recent history”. Which sounds like it could be squeaky bum time for Brick by Brick’s Colm Lacey and his backers, council leader Tony Newman and borough chief exec Jo Negrini.
In a statement, L&Q’s David Montague said: “Although the outcome of Brexit is still unknown, the uncertainty it has created has resulted in a serious downturn in the housing market. On top of this, we face ever-growing costs to meet new government guidelines on fire safety and to deliver on our quality promise.”
The second straw in the wind came from another major housing association, Peabody, which responded to the Tory government’s proposals to give its tenants the right to shared ownership by announcing that were shelving their plans to buy a large site to be developed for social housing.
Not for the first time, Tory right to buy policies are having a detrimental effect on housing provision, particularly in the social housing sector.
But if Peabody, which owns more than 56,000 homes, is worried about the move – announced by housing secretary Robert Jenrick at the Conservative Party conference – then there’s a good chance that it could also adversely affect the few homes being developed by Brick by Brick that are intended for social rentals.
A third piece of bad news was dressed up as a triumph by Newman. But most people won’t be so easily fooled.
Boozepark’s Roger Wade announced last week that he had extended the venue’s lease for the site next to East Croydon Station by five years.
This is, in fact, terrible news for central Croydon.
What it really means is that Stanhope and Schroders, the owners of the site, who have been nursing along their Ruskin Square development for two decades, have now abandoned any notion of investing in building a top-end office block next to East Croydon until 2025.
At a rough estimate, that’s the loss of a £200million investment in the town centre.
“I think this is a very strong vote of confidence in Croydon’s local economy,” said Newman, providing further proof that he is either a nine-bob buffoon, or a liar.
“It’s part Brexit, it’s part Westfield,” was the explanation from a source close to the company for Stanhope and Schroders’ cooling of interest in investing in Croydon.
When Stanhope and Schroders built their latest office block in Ruskin Square, which is now home to Her Majesty’s Revenue and Customs, they spent around £200million, for offices which now house 2,500 workers. All of whom travel into Croydon most days, use the area’s cafés and sandwich bars, and some of whom might still bother shopping in the run-down Whitgift Centre.
But it is now nearly three years since HMRC moved in, and Stanhope and Schroders have shelved all further developments in Croydon since. They are clearly in no rush to revisit what was once a key part of their plan for Ruskin Square, a mixed-use development which also includes yuppie flats, like the already built Vita building nearby, where “two-bed luxury apartments” change hands for more than £500,000.
Boxpark was only ever supposed to be a temporary “meanwhile” use of the key site next to the railway station. They were given the land by Stanhope at a peppercorn rent, and Newman’s council handed Wade a £3million loan of public money. “Stanhope decided to let Wade carry on there – they don’t have any plans to use the land for a while yet,” the source said.
“No one knows what’s happening over Brexit, and none of the promises about the redevelopment of Croydon town centre have been fulfilled.
It is now nearly nine months since Westfield and Hammerson put their £1.4billion town centre shopping mall scheme “under review”, offering no hint of when such a review might be completed. The business environment, especially in retail, has got no better since, and the source close to the Ruskin Square developers suggests that they have seen no indication of any intention to start work on “Westfield Croydon” at all.
“Westfield’s new French owners have laid off a lot of the original staff,” the source said. “If there really is a ‘review’ going on, it is hard to see who is conducting it.”
None of which is good for any businesses invested in Croydon, many of whom have been led down the garden path since 2012 by overblown, “ambitious” promises from Westfield and their cheerleaders such as Gavin Barwell, Newman and Negrini.
And now the screws are getting tightened a notch or two.
The final, (very) bad piece of news for Newman, Negrini and Brick by Brick is a 1per cent rise in the interest rate from the Public Works Loan Board, the source of the cheap money used so far to fund Croydon’s speculative housing arbitrage scheme.
Against the background of a decade of historically low borrowing rates, Croydon Council has so far borrowed at least £85million from the PWLB to pass on the money to Brick by Brick to pay for its housing schemes.
Under conventional banking, a start-up developer such as Brick by Brick might expect to have to pay 10, 12, even 13 per cent interest on its borrowing each year. Croydon Council lends money to Brick by Brick at an exceptionally favourable 0.25per cent interest over where it can borrow itself.
The increased PWLB borrowing rate won’t apply to the loans already taken out, but for a project which is already struggling to wash its face financially, it could kibosh completely Negrini, Newman and Lacey’s plans for a second-round of 1,000 homes. An extra 1per cent interest on a similar level of borrowing – say £100million – would mean an extra £1million per year in costs which the already loss-making housing company, or the council, would have to find.
It seemed likely that for what they call their “pipeline” developments, the council would have to borrow more public money, simply because Brick by Brick, after nearly five years, is still yet to generate any real revenue of its own, despite their reliance on using public property to build homes for private sale.
For example, six months after houses went on sale for £600,000 a time at the Ravensdale and Rushden site in Upper Norwood, according to Brick by Brick’s own sales website, at least eight remained unsold. That’s £4.7million-worth of property that has yet to benefit Brick by Brick’s bottom line.
The Treasury announced the rate rise last Wednesday, from 1.8per cent to 2.8 per cent. Sharon Taylor, the council leader in Stevenage, said the decision would “trash” her council’s 30-year housing plan.
Croydon’s council leadership has been silent on the matter – stunned silence, quite possibly.
Croydon had made ready use of the PWLB’s “easy” money, spending over the asking price to buy the Croydon Park Hotel and also buying up the Colonnades on the Purley Way. Such speculative ventures from the local authority have been justified as a means of generating income to compensate for lost grants from central government.
Now, it seems, central government is putting a stop to that, too.
In a letter to council finance directors on Wednesday, the Treasury’s Local Government and Reform team said the decision to increase the interest rate was taken because “some local authorities have substantially increased their use of the PWLB in recent months, as the cost of borrowing has fallen to record lows”.
It could just be that as well as Westfield and Ruskin Square, Brick by Brick’s development plans are put on hold, too.
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