Council loans its company £5 millionto buy 86 affordable homes

Date: Friday 16th February 2018

EDEN District Council has agreed to give its commercial company a loan of up to £5 million to buy 86 new homes in Penrith.

The Heart of Cumbria company will use it to purchase a range of affordable homes on the Carleton Heights development being built by Persimmon Homes.

The council will also buy £1 million worth of shares in Heart of Cumbria to help fund its ambitions for affordable housing and commercial opportunities in Eden.

The loan will be paid back over 30 years at a rate of four per cent and will come from the council’s reserves and its general fund. Heart of Cumbria plans to buy a mix of two-bedroomed apartments, two-bedroomed houses and three-bedroomed houses.

The properties are part of the site’s affordable housing allocation and have yet to be built, but will be purchased in stages over the next four years and then rented out. The rental income received will be paid by Heart of Cumbria into council coffers to help pay for council services in future.

Conservative councillors said the decision would help address Eden’s perennial shortage of affordable housing. It would also generate a new revenue stream for the authority at an uncertain time for local government funding.

Four Lib Dem councillors voted against and expressed concerns, as did some Independents. A number of documents relating to the company — including Heart of Cumbria’s business case, a plan of the properties to be bought and details of how they would be let or how the tenants would be found — were not made public. They were declared “exempt” from discussion in the open meeting, as was a report by the council’s London-based financial advisers Arlingclose.

The council recognised the £5 million loan was a “significant financial undertaking” but said “relevant due diligence and analysis” had been undertaken.

The recommendations were presented by council chief executive Robin Hooper, who has helped mastermind Heart of Cumbria, but plans to leave the authority at the end of May. Mr Hooper said: “A number of members have asked whether we should be running a company and taking on properties.

“Could I remind you that from 1st April the council faces new legal responsibilities to the homeless to provide short, medium and long-term housing accommodation. Those people will not be able to afford to buy a house, or even a proportion of one. At best, they might be able to secure housing benefit to have a rental property.

“The more rental properties we have available the more people we will be able to help. For many years it has been the council’s desire to meet the needs of those people. That’s part of the reason for having the Heart of Cumbria company.”

Mike Eyles (Lib Dem, Penrith East) said: “By simply buying 86 houses that are already subject to Section 106 agreements to provide affordable housing at that site does not increase the affordable housing stock in this district by a single unit.

“If this council wanted to use £6 million to build affordable homes, I would be more inclined to support this. The primary purpose of the company has been to provide income to the council. So far all it has done is consume taxpayers’ money, including staff resources who are paid to perform council duties but are instead working on company business. I will not support these proposals.”

But Andy Connell (Lib Dem, Appleby) said the deal would cater for people who could not afford to buy their own home.

John Owen (Con, Shap), who is on the council’s Conservative-run executive and is also a Heart of Cumbria director, said the properties would soon be snapped up by willing renters and there would be a “great demand”.

Council leader Kevin Beaty (Con, Skelton) said the authority’s strong financial management during the last few years had helped make the funding possible.

He said: “We can now release some of our reserves and there will be £6 million in our flagship scheme to purchase the 86 homes through our development company, but also with an ambition to also develop affordable housing in the Lake District national park and hopefully the Yorkshire Dales national park, to attract families to those areas.”

In an unexpected twist, the Conservative-controlled council will in future have to get all decisions concerning Heart of Cumbria past the opposition parties.

It follows a crunch vote by the council’s accounts and governance committee on Thursday. Three Conservative councillors, who sit as directors on Heart of Cumbria, lost their bid to be able to speak, and vote, on company matters in the council chamber.

Voting was deadlocked at four in favour and four against, as John Lynch (Con, Penrith East) sided with those against the idea, and committee chairman Andy Connell (Lib Dem, Appleby) used his casting vote to defeat the proposal by five votes to four.

It means Gordon Nicolson (Con, Lazonby), Paula Breen (Con, Penrith Carleton) and Mr Owen — councillors and company directors — can speak about the company but not vote in matters concerning it.

This has cut the 20-strong ruling Conservative group in the council chamber to 17 — exactly the same number as the opposition block of Independents, Liberal Democrats and a single Labour councillor.

In the event of the council chamber ever being deadlocked 17-17 on Heart of Cumbria decisions, council chairwoman Mary Robinson (Ind, Kirkoswald) would hold the balance of power with her casting vote.