This blog looks at the thorny question of how to ensure democratic principles are applied in the delivery of the so-called “garden communities” (GC) as it relates to three extensive development locations in north Essex. It is not concerned with the efficacy or otherwise of garden communities per se nor does it speculate as to the likely outcome of the North Essex Authorities (NEA) efforts to secure the agreement of the planning inspectorate with regard to the soundness or otherwise of their local plan proposals currently under examination.
That said, for the sake of what follows, let us assume for the moment that, with regard to the said proposals, the GCs survive in some form not too far removed from what is being proposed. The question then shifts to stewardship as it relates to their delivery.
It is clear that the government sees any type of ostensibly viable development with the word “garden” in front of it, if not a panacea then as an effective way forward in helping solve the perceived longstanding undersupply of homes in this country. Whether one subscribes to this argument or not, it is clear that this approach to solving our housing crisis is set to remain the preferred option for some considerable time to come.
In north Essex there is much public opposition to the NEA’s GCs proposals. Therefore, if the argument against their formation were to be lost it becomes essential that the local community plays a meaningful and proportionate part in their subsequent realisation and is also fully represented when it comes to consideration of their ongoing financial viability particularly during the delivery phase. In the end it will be district taxpayers, as the guarantors of last resort, who will be required to cover any shortfall in the event that the NEA’s GCs project should not succeed wholly or in part.
This project is highly (some would say overly) ambitious and the protracted duration of its development phase will span many authority administrations meaning that those who are today so enthusiastically proposing it will be long gone before it is completed and therefore no longer accountable regardless of whether it succeeds or not.
A recent Lichfields report points out that, due to their overly long development phase, such GC projects as are being proposed today will have to survive at least 3 economic cycles with downturns of unknown severity before they are completed. It is therefore perfectly reasonable to expect a number of failures nationally which could cost local taxpayers dear.
The NEA’s GCs proposals in particular means this project will be 100% leveraged from the outset (at a time of historically low interest rates) and its guarantors will therefore be vulnerable to interest rate hikes over the several decades that the project will be cashflow negative.
By way of example, similar council projects funded through the Public Works Loans Board (by far the most common source of loan capital for council financed infrastructure projects) were recently subjected to an overnight interest rate hike of 1% thereby increasing debt service costs by 55% at a stroke placing many of these projects under severe strain thereby increasing the likelihood that some will fail.
With regard to the NEA’s GCs project there’s talk of raising the required funding through the private sector insurance market. The peak debt level for this programme is estimated at £0.5Billion. Given the lack of any chargeable asset based collateral such loans would have to be secured by other means namely through guarantees provided by the NEA members, in other words the local taxpayer.
All the more reason then that local taxpayer and local community interests are well represented when the important decisions are being taken which brings us to consideration of the structure and shape of the delivery vehicles deployed and the arrangements for their direction and oversight.
The government has anticipated this aspect of stewardship having revisited the nature of the much vaunted development corporation model which delivered the many post war new towns we see today. In consequence, in 2018 it revamped the regulations given in the 1981 act (through secondary legislation) that address the formation and management of the development corporation as a housing delivery vehicle with the objective of meeting the needs and challenges of today’s housing marketplace.
In the interest of devolving hitherto centrally held powers (some would say this interest is more to do with financial expediency) in 2018 the government amended the regulations so as to empower local authorities to delivery garden communities themselves. In doing so it has modified the development corporation model which now enjoys the somewhat cumbersome but nevertheless descriptive title of the Locally Led New Town Development Corporation with its equally clumsy acronym LLNTDC.
However, it does not stop there. A recent (now closed) government consultation portends further changes designed to further promote the use of the development corporation as the vehicle of choice for LAs when delivering large scale housing projects.
These proposals, if implemented, as well as rationalising the four incompatible development corporation models that exist today into a single unified framework, would also provide them with additional powers. These could include a power to make planning decisions by right and independent of the overseeing authorities. This will be particularly beneficial where a new town area spans more than one local authority as is the case with all three NEA schemes. It is also proposed that development corporations would be able to secure funding directly from developer contributions via S106, CIL, etc. In addition the new style development corporation is expected to have its own fund raising powers.
There are also obligations. Chief among these will be a requirement to delivery essential infrastructure when and where it is needed and to ensure that the final product complies with government climate change targets, two of the most fundamental tenets underpinning the garden community concept.
There is another major advantage of using the development corporation as the delivery vehicle of choice. It separates political and commercial interests. Since the introduction of local plans LPAs have been primarily responsible for designating land use and private sector companies have developed it. Now we are seeing many LAs crossing this divide and looking to take on the development of land themselves. These so-called garden community projects are of a large (or very large) scale and involve correspondingly large financial risks.
The NEA’s proposals are no exception. For most councils this is a field in which they lack any track record and have little internal experience or qualifications. Such projects involve large negative cashflows over extended periods with little in the way of asset collateral to underpin them. Profitability is also often marginal and depends on key factors such as the price at which land can be purchased and future market trends and conditions going out several decades into the future. Whichever way you look at it this is a high risk venture. How it is managed is of vital interest to us all and it may be argued that the LLNTDC is the most effective vehicle we have at our disposal.
However, it should be noted that, despite their new found availability, LAs are not obliged to deploy development corporations as it is envisaged that they may not be suitable in all circumstances (although no actual examples are cited). That having been said, in the case of the NEA GCs project, it is hard to see how not doing so could possibly be justified.
The primary concern here is one of democratic representation. The LLNTDC model has some attractive features that have been specifically designed to ensure that the full spectrum of stakeholder interest is represented within the LLNTDC decision making process.
To maintain a power equilibrium on the board the regulations include a requirement for an independent chairman, vice chairman and that a majority of the board members are also independent although it is not currently clear as to what constitutes ‘independence”. The overseeing council(s) may nominate a single member each and vested interests (e.g. developers, community groups, taxpayers, etc) may also be represented.
However, LLNTDCs come with a weakness in that their oversight, including board appointments, remains in the hands of the councils themselves. The actions of appointment committees will therefore be critical in ensuring that boards are balanced and sufficiently represent the full spectrum of stakeholder interests.
To date the NEAs have not committed to any particular delivery vehicle model so we cannot say what the outcome might be. Any as yet unidentified delivery mechanism (e.g. a private limited liability company) would not be subject to any prescriptive board representation arrangements and must be considered inferior in this regard. However, the very large scale of this project involving at it does, three separate sites all of which span two local authorities, suggests that such a delivery vehicle would be beset by many challenges. It would possess no planning powers of its own and the very high levels of funding required coupled with the total absence of any asset collateral would limit its ability to raise loan capital.
Right now, there are several major development companies that have substantial land holdings within the proposed GCs areas or otherwise hold options. These companies either individually or as consortiums were well represented at the recent local plan Examination in Public (EiP). It is clear that they already hold entrenched and influential positions. How these pre-existing relationships might play out when the delivery vehicles are set up are of concern. It is essential that those with a vested interest and who stand to gain financially should not be allowed to gain any advantage at the board table at the expense of other stakeholders.
The development corporation goes some way to preventing this from happening through its prescriptive rules relating to the makeup of the board members. There is also no share capital (and therefore ownership) to worry about. The arrangement for the redistribution of assets at windup (as well as the accreditation of newly delivered housing units to the participating LAs) are foreseen from the outset.
The current NEA arrangement which leverages a private limited liability company (NEGC Ltd) set up by the councils to oversee delivery of the GCs is problematic to say the least. Its board members are exclusively senior elected members of their respective councils (the CEO excepted) who all enjoy high levels of influence. The shareholding councils are regularly voting taxpayer funds to NEGC while at the same time the said elected members are spending this money in their role as directors.
In Braintree DC’s case the NEGC board member is not only the leader of the council but also sits on its local plan subcommittee. His signature also appears on NEGC’s financial returns making him the de facto finance director of the company. It may therefore be argued that in this case at least too much power is concentrated in the hands of just one individual.
Whilst such interest is considered to be non-pecuniary as defined by the respective councils’ codes of conduct it may nevertheless be viewed as a potential conflict of interest given the absence of any moderating voice on the NEGC board. It should be noted that the said code of conduct was written long before the advent of locally led garden community projects and will not have envisaged such a situation as described above. It is arguable as to whether such arrangement meets the test of several of the Nolan Principles in Public Life.
For the avoidance of doubt it should be noted that I do not argue that any person involved in any of the foregoing organisations has done anything untoward.
To date only seed funds have been passed to NEGC but this will increase dramatically if or when the NEA’s local plan proposals are found sound by the planning inspectorate with the GCs included. Such an arrangement for the delivery of the GCs is demonstrably not fit for purpose in a country that prides itself on being a modern and open democracy.
We await the inspector’s decision but, in the event that he gives this project the green light either imminently or at some time in the future, we must do all we can to ensure that we, the local community, have a place at the voting table whatever shape it may turn out to be.