Homes England to provide £15m grant in private equity-backed development

New fund launch

Mr Carter said that Cheyne’s Social Property Impact Fund, which was launched in November 2014 and has previously struck deals with housing associations including South Yorkshire Housing Association and Bristol-based United Communities, is now close to fully allocated, which means a new launch could be on the cards.

“It’s been going four years now, and it’s taken time to build up the momentum and build up that trust that the public sector can work with private capital.

“We are coming to the end of the amount of cash that we’ve got left, and we’re looking at the next iteration of the fund.”

Asked when another fund might be launched, he said: “We need to find a home for other opportunities that are coming through, so sooner rather than later.”

Council partnership

In Stoke, while the partnership was negotiated some time before the Housing Revenue Account (HRA) cap was lifted in October 2018 (something the council had campaigned to achieve), Mr Brazier sees continued benefit in this kind of partnership now that the restriction on borrowing headroom has been removed.

Putting £40m into a project represents “quite a heavy investment” in one area, he said, and “it is about not putting all your eggs in one basket”. While Stoke will balance the risk of managing and maintaining the sites through its arm’s-length repair company Unitas, all the development risk lies with Cheyne.

“In terms of getting the sites away, once the land has been bought on a 40-year lease by Cheyne, the risk then sits with them, so if they have a design of the scheme as a certain specification – and they will build it at a good standard – if it suddenly goes a couple of million over what they originally thought, that’s their risk not ours.

“So that’s the positive thing and it does then mean we focus the headroom being lifted to other areas in the city.”

Stoke will return the rents it receives to Cheyne, minus a management fee it will retain and which Mr Brazier “expects [it] to outperform”. Cheyne’s lease is Consumer Price Index linked, and – dependent on government policy regarding the rent cap – after an initial term Stoke may seek to add another 0.5 to 1 per cent at its own discretion, which it would not pass on to Cheyne but would retain in a ringfenced account as a buffer against financial pressures on the sites, Mr Brazier said.

Land valuation

The £40m cost of the scheme includes the purchase of land at Bucknell New Road and Pyenest Street, although through valuation of residual land this is currently deemed to have a “zero value”, Mr Brazier said. Based on current figures, when Stoke acquires the stock for £1 at the end of the 40-year term, it will have an estimated value of circa £150m, Mr Brazier said, “so it’s a tremendous win-win”.

Pyenest Street, a cleared brownfield site held in the council’s general fund, has obtained designation as one of Stoke’s Housing Zones, through support from the Ministry of Housing, Communities and Local Government (MHCLG). Some of the site is privately owned and will be purchased under compulsory purchase order with funding from the MHCLG. This will form phase one of the scheme, to be completed by spring/summer 2022.

Bucknell New Road, which contains a mix of existing council homes, is held by the council’s HRA. Some of these homes have already been refurbished, others will be refurbished by Stoke separately to the Cheyne deal (including two high-rise blocks that will be repurposed for supported housing and extra care), and the rest will form part of Cheyne’s redevelopment, due to complete in summer 2026. Existing residents on the site (which is 50 per cent occupied) will be supported to move to new homes on the Pyenest Street site upon completion.

Mr Brazier said that the new properties will be offered under assured shorthold tenancies, which could be regularly renewed and last for “many, many years”.

Significantly, tenants will not have a right to buy under the contracts, which would otherwise “start to alter the effect of the agreement with Cheyne”, he said.

The partnership with Cheyne was initiated over the past two years as Stoke was looking to invest in its existing stock and to start a new build programme, in recognition that “its investment thus far hadn’t been as good as it could have been”, Mr Brazier said.

While Stoke currently aims to build 100 social homes year, it loses around 140 units through Right to Buy.

“Clearly our ambition has to be along the lines of building 250 a year,” Mr Brazier said.

Subject to discussion by council members, this could see the authority going to the Public Works Loans Board to apply for further borrowing.