Housing Revenue Account (HRA) reform and the switch to self-financing has opened up a number of options for councils seeking to develop new housing and manage long term housing needs.

This increased flexibility has come at a time when economic conditions and a lack of housing supply means there is an increased appetite for councils, whether or not they are current stockholders, to start building again for commercial and social reasons.
Whilst it is open to councils to adopt the traditional option of partnering with a registered provider, where land is either sold or gifted in return for nomination rights over any new housing built, this may no longer be attractive due to the loss of control over any new housing.

One of the options open to councils is a subsidiary housing development vehicle (HDV).  The purpose of the HDV would be to undertake housing development activity on land acquired from the council and/or on the open market.

The council could provide funding raised via prudential borrowing whilst day to day management of any dwellings developed or acquired by the HDV could be undertaken by the council which would provide an additional revenue stream for the HRA.

There are a number of advantages with this approach: first, any new housing would not be subject to the right to buy (this would not be the case if a council wished to deliver new build social housing via its HRA using surpluses and/or borrowing against HRA assets); and second, developing new housing outside the HRA through the HDV would also enable the council to spend any HRA surpluses and any borrowing headroom solely on the council's existing housing stock. 

Our clients are taking advantage of the current situation and starting to build and as a result we are being asked to support them with their housing delivery plans, often for schemes that include Private Rented and Open Market stock as well as the development of affordable housing so that the council may take advantage of the commercial opportunities that are available to generate revenue.

We are committed to supporting the housing sector and helping our clients to achieve their vision and would like to help you do so as well. The remainder of this note identifies some of the key legal issues to be considered if councils intend to adopt the HDV option for meeting their housing needs.

1. Vires for setting up the HDV

Due consideration would have to be given to whether the council has the requisite powers to establish an organisation set up specifically to undertake housing development activity.

2. What legal form should the HDV take?

The options for the HDV are wide and include:

  • company limited by shares
  • company limited by guarantee
  • industrial and provident society
  • limited liability partnership

Councils will have to consider the key characteristics of each form and then determine which one provides sufficient flexibility to meet the council's housing objectives going forward. 

3. Charitable status

There are significant tax advantages associated with adopting charitable status and the council should consider whether the HDV should be charitable or not.  The key disadvantage is that the HDV would have to be operationally independent of the council.

4. Registration with the HCA

A further consideration is whether the HDV should register with the Homes and Communities Agency as a registered provider.  This would open up the opportunity to access HCA funding for new affordable housing but would also create a further regulatory and administrative burden.

5. Finance

It would be open to the council to on-lend prudential borrowing so that the day to day running costs and development funding activity of the HDV are met going forward.

6. What about EU procurement?

It will be important to ensure that any land transferred to the HDV does not trigger the requirement for an open procurement process.  Likewise, consideration will have to be given to whether the provision of any housing management services to the HDV would be subject to the EU procurement rules (including in particular the Public Contract Regulations 2006).

It may be possible to take advantage of the “Teckal” exemption (named after the European case that established the principle) which is a specific exemption available to “contracting authorities” from the full application of the EU procurement rules.

In order to do so, certain tests concerning the control and function of the HDV will have to be satisfied.

7. What about state aid?

Careful consideration will also have to be given to the land/financial arrangements between the council and HDV as these could amount to state aid.

8. What about consents?

If the council intends to transfer land assets to the HDV, there may be a requirement to obtain the Secretary of State's consent to the disposal of such land assets.  There same considerations will apply if the council wishes to transfer any void housing stock to the HDV.

Please contact us so we can help you deliver your plans

We have up to date experience advising on the practical steps involved in setting up a housing development vehicle and would be happy to meet up with you and share our experiences with you. If you would like to set up a meeting to discuss in more detail, please contact us. 

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