Local authority housing companies are key players in delivering new homes across the country. Scott Dorling of Trowers & Hamlins explains why strong governance and clarity of purpose are success factors.
It’s estimated that around the country up to 200 local housing companies are wholly or partially owned by local authorities. There’s huge variety as these companies have been set up for lots of different reasons.
A 2024 report by the Bartlett School of Planning indicated that “the phenomenon of the ‘local housing company’ is firmly established as part of the scene of local authority governance and delivery of housing”.
Public interest reports have highlighted some of the reasons why some of these companies (such as Brick by Brick in Croydon) have failed, in particular the lack of joined-up governance between the council and the housing company. In several cases councils have also decided to take back housing delivery in house.
It’s important, therefore, to explore what makes some local housing companies successful. Others can then learn from this and realise the potential of these vehicles.
Both councils and the companies themselves have roles to play in building successful and productive relationships to achieve housing-related outcomes.
Clarity of purpose is key to success
The purpose of a housing company may change. However, everyone needs to be clear what the company is there for and how it will achieve the council’s objectives.
The council needs to understand the various roles it plays: as a funder, as a shareholder and so on. If the council has loaned money to the company, for example, someone in the organization needs to act as the ‘lender’ to hold the company to account for its obligations under the funding agreement. If those roles are muddled, that’s when things start going wrong.
An important tool in this respect is the business plan. It’s vital for the company and council to work proactively together to prepare the business plan as a way of ensuring clarity of purpose.
Clarity of governance
Clarity of governance means that the council should have a sufficient level of scrutiny of the company. That’s not just about who is on the board – it’s about reporting too. Are regular and robust reporting arrangements in place? Is the council getting the right information it needs to hold the company to account for achieving its business plan?
What level of involvement do elected members, for example, have in looking at the business plan of the company to see that it’s achieving what the council wants it to do? Member oversight can be crucial for ensuring that the company and council are closely aligned.
What’s really important is getting roles and responsibilities clearly delineated to build a clear and strong relationship between council and company. One useful approach has been for the company to commission an internal governance review with an independent organisation. This can have the benefit of examining not only how the company makes decisions and operates internally, but also in making recommendations for improvements in reporting.
Learning from diversification
When the purpose and governance of the company are clear, there’s a foundation for innovation. As housing companies have matured as organisations, they are flexing, adapting and diversifying to meet housing need. Aequus, the housing company created by Bath and North East Somerset Council and which I helped to set up, is one such example. It’s now branching out into providing developer management services for other local authorities.
In Bristol, Goram Homes has been established as a body with a commercial purpose. This enables it to take risks on the open market. As it isn’t a body governed by public law, it doesn’t have to adopt the procedures set out in public procurement rules in its transactions. So this gives it freedom to act more like a developer and test value for money.
Four key questions for councils setting up housing companies
- Is it clear what the housing company is there to achieve for the council?
- Are people in the council and the company clear about their respective roles and responsibilities?
- Have the council and company worked collaboratively on an agreed business plan?
- Are regular and robust reporting processes in place?
The Local Authority Housing Company Network provides an informal platform and confidential space for CEOs and MDs of wholly owned housing companies to share best practice and their experience in running these unique organisations. If you’d like more information, please contact Sarah Yates.
Scott Dorling is a Partner at solicitors Trowers & Hamlins, where he is the National Head of the Public Sector Housing practice. He has advised on the establishment of many housing companies, including Sixty Bricks (LB Waltham Forest), Sempra Homes (Basildon) and Goram Homes (Bristol).