Our housing correspondent, BARRATT HOLMES, on how a neighbouring borough has twigged that Croydon’s model for house-building doesn’t work
Another Labour-run south London council is to junk its arm’s-length house-building company – after seeing what the catastrophic clusterfuck Brick by Brick has caused in Croydon.
Merton Council is holding a special meeting next week to vote on a recommendation to close its company, Merantun, after a review showed that costs had soared and predicted returns had plummeted.
As in Croydon, where the council is the planning authority, Merton had already granted planning permission to its own company, for four housing schemes submitted by Merantun, though none had yet gone on site for construction. Residents in the Mitcham Cricket Green conservation area are now demanding that the proposals be abandoned altogether.
In the agenda for the Merton sub-committee on December 21, the council paperwork includes the following recommendation: “To note the decision of the Merantun Development Ltd (MDL) board that the business case is no longer viable and not to proceed with the development of sites.
“Note that [London Borough of Merton]-owned land will not be transferred to MDL.
“Note that the business case for the development of Private Rented Sector housing at the scale set out in MDL’s business plan is no longer viable and to commence the process of closing down the company.”
Scrapping Merantun is likely to cost Merton’s Council Tax-payers a significant sum, though fortunately for them, nothing like the £200million-plus that has so far been pumped into Brick by Brick by Croydon Council.
Merantun was formed in August 2017, two years after Croydon set-up Brick by Brick.
According to Merantun’s most recent set of company accounts, up to March 2019 the company had made operating losses over the 2017-2018 and 2018-2019 financial years totalling £450,000. The amounts relate to “administrative expenses”, and were spent before the company began engaging architects and preparing planning applications in the last 18 months.
The U-turn over Merantun will be a devastating blow to Labour councillor Mark Allison, recently selected as leader of Merton Council. Allison chairs the council’s Merantun sub-committee. Before he became council leader, he was the council cabinet member for… finance.
In the report to the sub-committee, Chris Lee, the council’s regeneration director, wrote, “Merantun Development was incorporated to deliver a mix of private rent and affordable housing on small sites that would contribute towards Merton’s housing targets and generate a revenue return to the council’s general fund.” Sound familiar?
“The original business plan anticipated that there may be a need to exit or ‘jump off’ at various points depending upon market conditions and the financial outlook of the council. Merantun now believes that one of those points has been reached.” Yeah. Without a single new home being built. That was clearly always seen as a “jumping off” point.
Factors affecting the company’s business plan included increases in the costs of construction and borrowing, as well as reductions in house prices as a consequence of covid-19 and Brexit, according to the report. “Collectively, these impacts mean the business case to deliver private rented sector homes as set out in Merantun’s business plan is no longer viable,” the report states.
“This alongside the financial challenges facing all local authorities as a consequence of covid-19 and other matters means that the appetite for risk is reduced.”
Under Merton’s financing plans for Merantun, loans to the development company would not be fully repaid for 30 years.
Merantun’s anticipated development costs had risen 6 per cent in three years, the report revealed, while its predicted sales revenue had dropped by 12 per cent and forecast rent levels had failed to rise to compensate.
Merantun schemes had planning consent for 93 homes across four sites. The schemes drew much criticism from existing residents, who described one proposal of a six-storey block of 36 flats as “a horror”.
“Now [the council] is winding up Merantun, their future needs to be rethought, not sold on to a private developer,” residents living around the Mitcham Cricket Green conservation area tweeted this week.
Which is a point of view which many of their Croydon neighbours might share in respect of Brick by Brick’s planned projects.
Read more: Council forced to declare itself bankrupt
Read more: BxB-built library which has never opened is now to be closed
Read more: Brick by Brick has paid nothing to council
Read more: Officials to investigate possible wrong-doing at council
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