The solution to rising housing demand and escalating rental costs may be upon us already, as one London authority finds fertile ground following a successful link-up with the private sector to deliver muchneeded social housing provision.

Barking and Dagenham has become the first London borough to secure private financing for the development of social housing, thanks to a dual partnership with private property developers Long Harbour and contractors Laing O’Rourke.

The borough has the second highest proportion of social rented housing in outer London, so the move has been welcomed as a positive move by the council to meet the tide of high demand for affordable, high quality housing.

‘As a council, we have a long record of looking at how we can involve the private sector in delivering affordable housing schemes,’ explains Ken Jones, divisional director of housing strategy for the London Borough of Barking and Dagenham.

‘In the late 1990s, we were one of 14 national pilots to establish a local housing company, to trial ways in which the private and public sectors could better link up to deliver more and higher quality social housing.’

Previous experiments with social housing have shown that while social housing provision is crucial, unless it’s delivered to a high standard it becomes counterproductive.

Some commentators have questioned the wisdom of involving the private sector with public housing projects, largely due to fears that private contractors will not deliver structures of a sufficiently high standard, and that corners are cut to boost what is in essence a permanently capped profit margin.

Such concerns appear to have been dispelled with this latest venture, because of the nature of the partner arrangement, which sees the private and public elements working on equal terms, ensuring high quality can be delivered without council ‘subservience’ to their private sector counterparts.

The freehold of the councilowned land remains the property of the borough, despite Long Harbour and Laing O’Rourke putting up the capital for the creation of the 477 units, which will be spread over two sites in Barking Town Centre at the prime William Street Quarter site and the Eastern End of the Thames View on the edge of Barking Riverside.

All the properties will be available at ‘affordable’ rents - set between 50-80% of market value - with rents collected by the private investors for the duration of the 60- year lease, when the buildings will revert to local authority ownership.

Work on the dual location development was due to begin as LGN went to press and is due to be finished by the end of 2013. Once complete, it will be Barking and Dagenham’s task to manage and maintain the properties, for which it will receive a fee from the developer.

The key to the project in council terms has been the mixed tenure approach to the housing provision. Across the two sites, more than 20% of the total provision will be social rented, around 5% of the total will be in receipt of a slice of the local housing allowance (65%) and the majority will be in receipt of 80% of that allowance.

The housing mix will comprise one and two bed flats, with 70 four bed houses, 220 three bed, 21 two bed and 146 one bed flats and 20 two bed flats.

‘If we just delivered 477 purely social rented dwellings, it wouldn’t have been sensible in the long term,’ Jones argues. ‘In housing schemes like this, it’s all about having the right mix of tenure.’

The deal amounts to the borough borrowing money from the private company to provide assumed rate of interest, which will be spread over the length of the lease, yet Jones believes the relationship represents one of the most appealing arrangements going forward if local authorities are to deliver enough quality social housing at a time when funding is being slashed at Government level.

The ability to source private funding really unlocked the project, he says, and it was as a result of the borough’s desire to seek out alternatives in the past that acted as a catalyst for the latest venture to blossom.

‘We had two redundant tower blocks that formed part of our ongoing renewables programme,’ he explains.

‘Around the same time, we’d been singled out to receive funding from the now scrapped Building Schools for the Future (BSF) for investment in two schools - Dagenham Park and Sydney Russell School and we wanted to develop affordable housing as well. Alongside the BSF initiative the Local Educational Partnership (LEP) was set up to deliver the project, establishing a partnership between the council and Laing O’Rourke.’

Following demolition of the two blocks of flats, the council decided to progress the building project and retain its partnership with Laing O’Rourke, who would be the developer of the dual site programme, enabling the partners to deliver the affordable housing element under a financially prudent model.

Some may question how projects such as this differ from those developed under the Private Finance Initiative (PFI), which have led to the building of many arguably excessively lowbudget hospitals within the NHS.

The National Audit Office has questioned whether such schemes provide good value for public money in the long term as opposed to non-profit publicly-funded projects. Jones argues that the Barking and Dagenham model offers good returns for both the council and the investor, and is one that he believes should be more widely exploited.

‘There’s a seachange going on in housing, and it’s not all a result of the credit crunch. The relentless increase in owner occupation has fallen away and there’s been a dramatic increase in private rental,’ he states.

‘It’s not a temporary phenomenon but is deep-seated and will only increase, so more councils need to more fully understand partnerships like the one that we’ve formed.’ He goes on: ‘For the developer it makes clear business sense. They have a 60-year yield on the rental, it’s safe, has rental guarantees, the properties are all professionally managed by the local authority and the developer is involved with none of the day-to-day running.

‘There’s no risk to the reputation of the developer, and for the council it makes sense as we get valuable new housing built, housing that will revert back to us for future use. I firmly believe that if this method spreads, local authorities will have a real chance to build a bank of affordable properties available for future generations.’

For the 80% of the housing on offer under the project, Barking and Dagenham is looking to market the homes to households in employment but those whose rent would represent no more than 35% of the net household income. Jones believes that such mixed tenure private/ council partnerships represent a sensible way forward.

‘We receive high quality spacious properties that meet the necessary envi ronmental standards - Code Level 4. Coupled with this is the fact that it is within reach of those on lower incomes, which is vital in this borough if we are to address the demand for housing.’

Jones admits that this model works best if the council owns the land to develop on, in terms of the higher percentage of lower rental property that can be offered.

Yet, he believes that it can work in other circumstances where private land up is available for development

‘We’re proving that it can be done already with some other projects we have in the pipeline, both straight council developments and one with an institutional partner - in what is a similar set-up to this current project,’ he says.

‘HRA [Housing Revenue Account] Self Financing is one method that has levelled the playing field in terms of the delivery of social housing, yet many councils have not woken up to the opportunity to achieve good quality affordable housing this way.’

‘There’s a growing consent that this is “the only game in town”, Jones concludes. ‘We can’t rely on housing associations to deliver the goods, and they’ve shown that they don’t.

‘Housing associations have really fallen down in terms of local accountability, so for us improving housing quality and stock is something we’ve wanted to explore for some time and will continue to do so. It’s a no brainer for developers, it’s a safe development for them and they make money from it.'