Agenda item

Appendix 1 to the report is exempt from publication as it contains commercially confidential information (exempt under paragraph 3, Part 1, Schedule 12A of the Local Government Act 1972 (as amended)).

Further to Minute 43 (18 October 2022), the Cabinet Member for Regeneration and Economic Development presented a report on revised proposals relating to the Gascoigne East Phase 3b development project.

The Cabinet Member explained that since the decision was taken to award the development contract to Wates in the sum of circa £142m, a number of external factors had significantly impacted on the ability to deliver the scheme at the originally approved target price, not least the level of inflation within the construction industry which had risen from approximately 3% to 23%.  In order for the project to meet the established metrics under the Council’s Investment and Acquisitions Strategy (IAS), including producing a positive cumulative cashflow in year 1, officers from the Council, Be First and Reside had reviewed all aspects of the project and developed a package of achievable, albeit challenging, measures that would enable the project to proceed.  The key measures were:

Ø  Switching the original 167 Market Rent (MR) properties to Affordable Rent (AR) to enable £36m of Right to Buy (RTB) receipts to be allocated;

Ø  Applying a service charge to the London Affordable Rent (LAR) properties of circa £33 a week, noting that tenants would be made fully aware of the service charge in advance and that it was expected that the additional cost would be covered by an increased Housing Benefit allowance;

Ø  The Council funding £5.7m of public realm works, to be met from Section 106 or other identified alternative funding;

Ø  Applying 40% RTB receipts for the 3 and 4-bed LAR properties;

Ø  Increasing the rental inflation position on AR tenures from 2% to 2.5%;

Ø  Reducing the long-term interest rates on LAR properties from 3.5% to 3% and on AR properties from 4% to 3.5%;

Ø  Reducing Reside operating costs to 20% above benchmark rates from 2028;

Ø  Assuming that AR properties were let within one month from handover. 

The Cabinet Member advised that consideration had also been given to revising the development scheme, delaying its implementation and/or abandoning the project.  However, apart from the significant contribution that the project would have in terms of providing affordable, sub-market rentable properties to the local community, there were several other key reasons for committing to the development.  Those included the level of costs that had already been incurred on the project to date and the projected additional costs of retendering the development contract in a couple of years’ time.  Furthermore, it was noted that the proposed package of measures would enable the project to proceed in line with the existing planning consent and building control position, avoiding the need for costly redesign of the scheme and the inevitable delays associated with applying for a new planning consent to meet updated planning regulations.

Arising from the discussions, the Cabinet Member confirmed that the proposed use of significant RTB receipts for the Phase 3b project, along with similar proposals relating to the Beam Park development also on the evening’s agenda, would substantially deplete the availability of RTB receipts to support future schemes in the pipeline.

The Cabinet Member provided reassurance to the Cabinet Member for Finance, Growth and Core Services that the additional sources of funding required would be available and he confirmed that the package of measures would be kept under constant review.  It was further noted that officers would continue to lobby the Greater London Authority and other potential sources of external funding to further improve the viability of projects.

Cabinet resolved to:

(i)  Approve the recommendation to proceed with the Gascoigne East Phase 3b development project at the new contract sum agreed with Wates of £147,996,637;

(ii)  Approve the revised total development cost of £174,657,138 including forecast capitalised interest (£169,256,073 excl. interest);

(iii)  Approve the implementation of steps 1 to 4E, as set out in paragraph 2.17 of the report, as the most viable proposal that meets the IAS metrics and the steps required to achieve this position;

(iv)  Approve the handover loan to Reside at £96,080,179, comprising £75,170,844 for Affordable Rental homes and £20,913,031 for the London Affordable Rent homes;

(v)  Approve in principle the use of Council funding of up to £5,987,703 for the public realm works, to be funded from the future disposal of commercial asset(s) or Section 106 monies;

(vi)  Approve the revised use of Right to Buy Receipts of up to £52m to support the viability of the Affordable Rent homes and 3-4 bed London Affordable Rent homes;

(vii)  Approve the revised use of GLA Affordable Housing Grant of £6m and GLA Right to Buy ringfenced monies of £9,754,813;

(viii)  Approve the allocation, subject to the endorsement of the Assets and Capital Board, of £1,771,784 of S106 contributions to support the viability of the LAR homes or the delivery of public realm; and

(ix)  Note that Scenario 4E meets the IAS return metrics producing a Net Present Value of +£40m and a positive cumulative cashflow in year 1.