A further update on Croydon Council’s financial position and how this relates to Brick By Brick
As outlined earlier this month, Croydon Council is in discussions with government and others about their finances, in particular relating to a potential inability to meet future spend commitments following the Coronavirus crisis. The reasons for this are complicated, and Croydon isn’t the only council in the country to be struggling at this time.
This week the council’s auditors Grant Thornton published a report on the council’s finances, which referenced the council’s investment in Brick By Brick. We are working very closely with the council to help them fully respond to these matters, but it should be noted that Brick By Brick itself is in good financial health, with strong revenue forecasts for the current financial year.
Brick By Brick was set up by the council in 2016 with a mission deliver beautifully designed high-quality homes that are accessible for local people. The council is our sole shareholder and our business model is such that over time, as we build out homes and sell them, we return our profits to the council to be reinvested in front line services, as well as paying off our loans from the council, with interest.
By its nature, housing development is a slow and complicated business. It takes time to establish a company, assemble land, take schemes through planning, and then build and complete high-quality homes. Sometimes schemes suffer delays from their original forecast completion dates, moving out the completion date and/or point at which repayments on loans are due to be paid.
This is normal with a development programme of the nature and scale that Brick By Brick is delivering. Delays on projects can be caused by a number factors, such as unforeseen events (eg: the COVID-19 pandemic and national lockdown), additional works required on complex small sites, or supplier-side/regulatory delays.
The timing of our funding requirements, including the proposed timing of loan repayments and any interest owed, is detailed in our Business Plan, which is approved by the council on an annual basis. Likewise, all of our project timings are detailed in the Business Plan and updated if required via progress information shared with our Board, the council and others. Our latest approved Business Plan (20/21) is publicly available on our website here. To date, none of the agreed repayment dates have been missed by Brick By Brick.
We are extremely proud of our record to date. We have completed a wide range of developments providing top quality homes of different tenures including private sale, shared ownership and affordable/social rent. We continue to offer shared ownership as part of this mix, actively working with other registered providers to increase the number of mortgaging options available to prospective purchasers.
The Brick By Brick model includes the delivery of a far higher than normal proportion of affordable housing delivered by developers in the private sector, which offers the council a saving on how it would ordinarily provide new housing for people in severe housing need. Brick By Brick homes can be procured at a lower cost to the council than many other types of affordable housing such as private rental properties or street purchasing, and come with the benefit of warranties and better space standards.
So far, 283 homes have been completed across 15 different sites and we generated £23m of revenue in FY19/20. Our draft audited accounts, currently with the council for review, show a significant pre-tax profit, and we have also accrued around £6m in overage (ie: excess land value) and around £14m of revenue to the council in the form of interest on development finance.
We are now entering a new and important phase where the proceeds from sales of our completed homes can provide a significant financial return to the council to be spent on frontline services at a time of great need, benefiting the people of Croydon. This is the core principle of the Brick By Brick model.
With a pipeline of over 1,000 homes under development and nearly 700 more in planning, we look forward to playing an increasing role in the supply of new homes throughout the borough as we deliver on our mission to provide well-designed, accessible and affordable homes for local people, with profits returned to the council and reinvested locally.