MD1632 Designation of Housing Zones (Phase 2)

Introduction and background

1.1 The Mayor’s London Housing Strategy sets out plans to create a number of “Housing Zones” to boost housing supply in London. It also identified that a range of planning and financial measures would be used in these areas to unlock and accelerate housing delivery and to build more homes affordable to working Londoners.

1.2 £400 million in funds have been made available for London boroughs and private sector partners to bid from. The 20th Housing Zone was announced on 15 October 2015, and in total they are expected to deliver over 53,000 new homes.

1.3 An extension to the programme to create a further 10 Housing Zones in London was approved by MD1597 in January 2016, which identified that these zones would be a mix of existing bids from the first round of proposals, and a series of commissioned zones resulting from the work of the London Land Commission and other GLA programmes of work.

1.4 Under this extension of the Housing Zone programme, and further to engagement between the GLA and the relevant London boroughs, the GLA has received 11 bids for Housing Zone designation and funding, which are summarised in below and detailed in Part 2 of this report.

1.5 Detailed assessment of these bids was undertaken by the GLA’s Challenge Panel, the Housing Investment Group (HIG) and the Investment and Performance Board (IPB) and it was agreed to proceed with proposals to designate all 11 bids as Housing Zones.

1.6 As part of the Spending Review and Autumn Statement 2015 the GLA agreed with Government that £150m from the GLA’s affordable housing budgets for 2015-18 would be re-profiled into 2018/19. MD 1597 confirms that this £150m and an additional £50m from the current 2015-18 Mayors’ Housing Covenant budget has been reallocated to the Housing Zones budget to support the extension of the Housing Zones programme.. Government are aware of our intention to re-profile this funding. The GLA will look to prioritise investments that have the ability to return part or all of the funding allocations.

1.7 As part of the contractual arrangements with DCLG to release the £200m Financial Transaction funding associated with the first 20 Housing Zones, the GLA have agreed a drawdown schedule for this funding based on the spend projections within the original bidding round and subsequent due diligence. The additional Housing Zones, under Phase 2 of the programme, will also be able to access this funding and help to maximise the chances of it all being used to support housing supply in London.

1.8 The total funding across the first 20 Housing Zones amounts to £561.8 million. This represents the indicative total allocation generated by the Housing Zones bidding process to date. Based on initial and on-going due diligence, it is clear that there is already an element of over programming in this figure given the assumptions made by counterparties.

1.9 Active portfolio or programme management and the risk attached to over programming is a key feature of the due diligence and contracting process aimed at ensuring that the GLA will not be exposed to un-resourced liabilities. Regular programme management reporting is also key feature of the process of managing over programming risk. The contractual obligations are ultimately subject to the outcome of due diligence and the availability of GLA funding. It is expected that overprogramming in the additional Zones, which are the subject of this MD, will be similarly managed.

1.10 Further, a significant portion of the monies requested are for gap funding affordable housing products at estimated grant rates. Previous experience with the existing grant programme indicates that this element of the requested funding (£123.05 million) is likely to be reduced significantly as development partners are brought on board and more accurate cashflow analysis and development programming takes place.

The Proposed Housing Zones

2.1. Proposals have been submitted for the areas identified in Appendix 1 to be designated by the Mayor as Housing Zones.

2.2 In summary, together they are seeking a total of £379.11 million to deliver directly and indirectly 24,592 units by 2026, of which 34.1% would be affordable (8,578 units), of which 6,348 are expected to be achieved by 2021. The Zones are proposing 3,544 affordable home ownership starts (43.7% of the affordable total) with 1,106 of these expected to start by 2021.

2.3 As a number of these Zones are at an early stage of development the numbers proposed are conservative, with potential to significantly increase the contracted numbers of homes delivered in the Housing Zones. It is expected, therefore, that at the contracting stage the total number of homes will exceed 25,000, subject to the full budget being found.

2.4 The £379.11 million of funding that is sought and which the Mayor is asked to approve be allocated to the 11 zones (subject to due diligence and contract) breaks down into £245.27 million of HZ Grant (up to £123.05 million of which is directly associated with affordable housing provision using the same tests as within the Mayors Housing Covenant financing), £117.78 million of Repayable Grant (which will be prioritised as per 3.4) and £16.05 million of Financial Transaction monies.

2.5 Taking in to account the level of funding returned to the GLA (either directly or through interest bearing loans), the total amount of non-returned grant funding equates to £36,076 per affordable unit.

2.6 Notably, in addition to affordable and private market houses, the Zones will also deliver significant additional outputs including new infrastructure, public transport and public realm improvements.

2.7 Funding directly associated with affordable housing provision has been calculated on the basis of an assumed maximum grant rate. Previous experience with the existing grant programme indicates that this element of the requested funding (£123.05 million) is likely to be reduced significantly as development partners are brought on board and more accurate cashflow analysis and development programming takes place.

2.8 £23.1 million of funding has been requested as a contingent sum to cashflow the purchase of land within one of the identified Housing Zones. These monies would only be drawn in the event that an offer to purchase land is agreed prior to conclusion of the appointment of a development partner, and would be treated as repayable bridging finance.

2.9 It should also be noted that it is proposed that two tranches of further funding (£3.8m and £2m), currently held under the Mayor’s Regeneration Fund (MRF) be aligned with Housing Zone interventions within the North Tottenham Housing Zone in order to supplement and facilitate investment in this area. The realignment of these monies will be taken forward through a separate paper.

2.10. For the reasons set out in this paper, it is considered that the proposals detailed in Part 2 meet the criteria (set out in MD1597) for Housing Zone designation and, subject to due diligence, funding.

2.11. In summary, the Housing Zones are expected to achieve the following levels of development within their respective Zones:

Next Steps

2.12. Following the Mayor’s approval (on the basis set out in this Mayoral Decision) for the list of financial and non-financial interventions listed in Part 2 of this report, the GLA will commence full due diligence for each of the proposed interventions to ensure that, in addition to the previous challenge and interrogation, the proposals comply with all relevant law (including state aid), and represent the value for money for the investment proposed.

2.13. This due diligence will be supported by the property and legal consultants appointed in accordance with MD1438 and MD1592 who will review the legal and property considerations within each intervention to ensure their integrity and validity. Considerable work will also be carried out by teams within Housing & Land and Finance.

2.14. Following that review, if, in the opinion of the Executive Director of Housing and Land (in consultation with the Deputy Mayor for Housing Land and Property) and the Executive Director of Resources, there is a satisfactory outcome to due diligence, individual interventions will be signed off allowing the necessary contract to be entered into, committing the funding.

2.15 In some instances it will be appropriate, following due diligence, for amendments or changes to be made to the proposals as framed within this paper. Funding contracts will also need to be structured to allow some flexibility within the agreed interventions to allow re-profiling across the available funding and outputs to occur, provided the overarching funding envelope agreed through this Mayoral Decision is not exceeded.

2.16 Under the General Delegation in the Mayoral Scheme of Delegation, Senior Members of Staff in the Housing and Land will be able to approve such matters, but are expected to only do so where they consider that the revised interventions will be effective in unlocking or accelerating housing delivery (broadly in line with the housing delivery outputs within the designated Housing Zones as specified in this report), and will continue to represent value for money. Should changes to the interventions be substantial – or for new identified interventions - they should be approved as appropriate through Mayoral Decision or Director Decision (depending on value or timescale).

3.1. The justification for investment in these areas as Housing Zones is that it is considered that they will deliver much needed homes (following the detailed assessment process already undertaken and to continue after the designation), in a cost effective manner, that either would not have come forward without a Housing Zone designation or which will be accelerated in their rate of delivery as a result of that designation. The designation of Housing Zone status and investment in the interventions as described in this report is aimed at meeting the huge challenge of building at least 42,000 homes as year as set out in the Mayor’s London Housing Strategy.

4.1. The designation of these areas as Housing Zones is aimed at implementing the Mayor’s policies set out in the Mayor’s London Housing Strategy. In January 2014 the GLA published an integrated impact assessment (“IIA”), including an equalities impact assessment, of that strategy. The policies related to increasing housing supply, of which this paper relates, were covered by the Integrated Impact Assessment (IIA) for the Further Alterations to the London Plan.

4.2. The IIA concluded that updating housing projections and targets would support the delivery of sufficient housing and may help stabilise housing prices, supporting equal opportunities throughout communities. Furthermore, the provision of housing, including maximising the delivery of affordable housing would be in line with other policies of the Plan (e.g. Policy 3.5), ensuring that the needs of different groups are taken into account in the housing design.

4.3. The delivery of new and additional homes within the Housing Zones will help to implement Objectives 1, 2, 3 and 4 of the Mayor’s Equalities Framework “Equal Life Chances for All” (June 2014) through the creation of new homes, housing products and well-designed housing schemes.

4.4. The designation of a Housing Zone within an area is designed to identify a site or sites as an area for housing growth and delivery within London, often partnered with a series of funding streams and non-financial assistance to deliver these new homes, and therefore the decision within this report will facilitate these goals and ultimately ensure that the needs of different groups are taken into account in the design and development of housing.

4.5. In order to access this funding and designation, any bidding party, be that private sector developer or Local Authority, will be required to enter in to contract with the GLA and / or GLALP to deliver these interventions. Whilst there is a statutory obligation for parties to take account of the impact of schemes under the Equality Act 2010, in order to reinforce these obligations the GLA / GLALP have included the following specific contractual clauses in each and every development agreement which will be in force for every intervention undertaken in the respective Housing Zones, as noted below;

• The Developer shall comply in all material respects with all relevant Legislation, including but not limited to legislation relating to health and safety, welfare at work and equality and diversity, and will use reasonable endeavours to enforce the terms of the Scheme Project Documents to ensure compliance with this clause.

• The Developer has, and is in full compliance with, a policy covering equal opportunities designed to ensure that unfair discrimination on the grounds of colour, race, creed, nationality or any other unjustifiable basis directly or indirectly in relation to the Works is avoided at all times and will provide a copy of that policy and evidence of the actual implementation of that policy upon request by GLA / GLALP.

5.1. In keeping with the objectives of the Housing Zones prospectus, the Housing Zones programme is explicitly designed to be innovative and flexible and as such may involve novel methods of providing funding, or tailoring housing investment or planning policy to local circumstances to increase housing delivery. Officers have worked very closely with the Boroughs in the development of the Housing Zone proposals to look at how the GLA and the Boroughs can work together to deliver homes which would not otherwise be built in the next 10 years. They have also consulted and worked with DCLG. It is not considered necessary or appropriate to consult any other persons or bodies specified in section 32(2) of the Greater London Authority Act 1999 for the purposes of this Mayoral Decision. Further consultation will be undertaken, if or as required, in advance of contractually committing funding to an approved intervention.

5.2. Any new approaches to housing delivery are set out alongside the recommendations for each Housing Zone designation contained in Part 2 of this report. Advice will be obtained in relation to legal contracting process, review of state aid compliance, cost and value assumptions and governance structures, ensuring the GLA can accelerate housing delivery with a high degree of confidence and assess the robustness of Boroughs investment proposals.

5.3. As part of the due diligence process, the GLA’s Finance team will assess the repayment plan as set out in the Housing Zone bid, ensuring that matters relating to security and loan pricing are fully resolved.

5.4. Boroughs and counterparties to the Housing Zones designation will be encouraged to use the Mayor’s Architecture, Design and Urbanism Panel to commission masterplanning work which comes out of the designation, to ensure that the highest quality design is achieved from the interventions that are supported.

5.5. In regards to the potential levels of housing delivery and numbers of affordable homes to be delivered within the Housing Zones, it should be noted that the figures stated here do not prejudice any future Mayoral decisions on planning designations/de-designations or consideration of future planning applications of potential strategic importance.

5.6 The scale of the proposed housing zones presents significant opportunities for innovative building design to reduce resource costs, and unlock investment connecting new developments to necessary utility and social infrastructure assets. Such assets include low carbon decentralised energy and water networks, green infrastructure, waste and recycling collection infrastructure, low emission transport hubs, parks and open spaces. Boroughs and counterparties to Housing Zone designation should look to include opportunities to address environmental and wider regeneration, quality of life and place making benefits that are viable and will help unlock investment in line with policy ambitions set out in the London Plan. GLA support can be made available to help identify environmental opportunities in specific locations.

6.1. This paper relates to a general policy to consider more housing zones, over programming of expenditure and the principles of housing zones.

6.2. Budget of £200m has been allocated to these zones, so the indicative allocation of £379.1m represents overprogramming of £179.1m.

6.3. All future housing zones will come back for detailed decisions on their feasibility, value for money and viability; therefore there is no need for detailed finance comments at this stage.

Designation of areas as a Housing Zone and financial and non-financial assistance

7.1 Where the Mayor designates an area as a Housing Zone, the Mayor may provide financial and non-financial assistance to help unlock or accelerate the delivery of housing within that zone.

7.2 The designation and provision of financial assistance (whether by grant or loan) and non-financial assistance is permissible under section 30(1) of the Greater London Authority Act 1999 (the GLA Act), if the Mayor considers that doing this will further one or more the Authority’s principal purposes of: promoting economic and social development in Greater London, and improving the improvement of the environment in Greater London. The funding available is capital in nature and must be used as capital expenditure.

7.3 In determining whether or how to exercise the power conferred by section 30(1) of the GLA Act (and therefore in determining whether or how to designate and provide financial and non-financial assistance), the Mayor must:

(i) have regard to effect that these decisions will have on the health of persons in Greater London, health inequalities between persons living in Greater London, the achievement of sustainable development in the United Kingdom and climate change and its consequences (sections 30(3-5) of the GLA Act;
(ii) pay due regard to the principle that there should be equality of opportunity for all people (section 33 of the GLA Act); and
(iii) have due regard to the Public Sector Equality Duty; namely the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by the Equality Act 2010, and to advance equality of opportunity between persons who share a relevant protected characteristic (race, disability, gender, age, sexual orientation, religion or belief, pregnancy and maternity and gender reassignment) and persons who do not share it and foster good relations between persons who share a relevant protected characteristic and persons who do not share it (section 149 of the Equality Act 2010);

7.4 As noted in section 4 above, in January 2014 the GLA published an integrated impact assessment (“IIA”), including an equalities impact assessment and health impact assessment, of the London housing strategy, which included a policy for Housing Zones. It is also noted in section 4 that the delivery of new and additional homes within the Housing Zones programme will help to implement objectives in the Mayor’s Equalities Framework “Equal Life Chance for All.”

7.5 Going forward, the Mayor will also need to have due regard to the Public Sector Equality Duty, and the matters set out in sections 30(3-5) and 33 of the GLA Act, when entering into any funding agreements.

7.6 In addition to the above, where the Mayor is proposing to use the power conferred in section 30(1) of the GLA Act, the Mayor must consider consulting in accordance with section 32 of the GLA Act. Section 5 above refers to the consultation and engagement that has taken place in relation to this matter. The Mayor will also need to consult in accordance with section 32 of the GLA Act, as appropriate, prior to entering into any funding agreements.

7.7 Section 31 of the GLA Act prohibits the Mayor from using his power in section 30(1)(a) of the Act to incur expenditure in doing anything which may be done by Transport for London, which on the face of it would prevent the GLA from incurring expenditure in providing funding for transport provision. However, section 31(5B) of the GLA Act provides that nothing in section 31(1)(a) shall be taken to prevent the Authority incurring expenditure in doing anything for the purposes of, or relating to, housing or regeneration. Accordingly, the GLA has the power to fund proposed transport-related interventions within the proposed Housing Zones.

7.8 Section 31(3)(b) prohibits the Mayor from using his power in section 30(1)(a) of the Act to incur expenditure in providing “any education services” in any case where the provision in question may be made by a London borough or any other public body. Providing the GLA does not fund the provision of “any education services,” it can fund matters related to education.

7.9 Under section 34 of the GLA Act, the Mayor is empowered to do anything (including the acquisition or disposal of any property or rights) which is calculated to facilitate, or is conducive or incidental to, the exercise of any functions of the Authority exercisable by the Mayor.

State Aid and other matters

7.10 Prior to entering into any funding agreements in respect of the interventions contained in Part 2 of this Mayoral Decision, appropriate advice must be sought by the GLA as to due diligence; state aid; and appropriate security for lending. The GLA will need to give detailed consideration to this advice, and obtain appropriate advice and assistance in preparing the necessary documentation to provide Housing Zone funding.

GLA Land and Property Ltd

7.11 Consideration will need to be given as to whether any proposed GLA funding is, by virtue of section 34A of the GLA Act and the Greater London Authority (Specified Activities Order) 2013/973, a specified, commercial, activity that must be dealt with by GLA Land and Property Ltd (“GLAP”). If it is, GLAP will be required to enter into the relevant contractual funding agreements, committing the GLA funding. GLAP does not need to be expressly authorised to do this in this Mayoral Decision, by virtue of section 4.3 of the Mayoral Scheme of Delegation. The entering into of such agreements is the implementation of decisions contained within this Mayoral Decision.

Social housing

7.12 Section 333ZE of the GLA Act applies sections 31-36 of the Housing and Regeneration Act 2008 (HRA) to the GLA, with modifications. To comply with the requirements of section 31 of the HRA as modified, where the GLA is proposing to give financial assistance on condition that the recipient provides low cost rental accommodation, the GLA must impose a further condition ensuring that a registered provider of social housing is the landlord of the accommodation when it is made available for rent.

7.13 Under section 333ZH of the GLA Act, where the GLA is proposing to give financial assistance on condition that the recipient provides low cost home ownership accommodation, the GLA must consult the Regulator of Social Housing about the proposals.

7.14 Under section 333ZE(3) of the GLA Act sums received by the GLA in respect of repayments of grants made by it for the purposes of social housing are to be used by it for those purposes.

Delegation to GLA Officers

7.15 Section 38 (1) of the Act provides that any function exercisable on behalf of the GLA by the Mayor shall also be exercisable on behalf of the GLA by any member of staff of the GLA if or to the extent that the Mayor so authorises, whether generally or specially, and subject to any conditions imposed by the Mayor.

7.16 The General Delegation contained in section 2 of the Mayoral Scheme of Delegation provides for various functions to be delegated to GLA officers on a standing basis. However, the delegations contained in this Mayoral Decision are beyond the scope of the standing delegations, and therefore need to be made expressly.

7.17 Officers exercising functions delegated under this Mayoral Decision will need to act in accordance with the terms and conditions of the delegation(s).

Procurement

7.18 The award of GLA funding for Housing Zones is not procurement, and is not therefore subject to the requirements of the Public Contracts Regulations 2006. The GLA is still subject to the overarching duties of fairness and transparency.

7.19 In accordance with paragraph 6.4 of the GLA’s Contracts and Funding Code, the GLA must ensure that its funding be distributed fairly, transparently and in accordance with the GLA’s obligations regarding equality of opportunity. To this end, the methodology employed to select the further Housing Zones is set out in MD1597.

Appendix 1 - Maps of the proposed Housing Zones are included in the attached signed document.