“One or two” councils making ill-advised property investments risk tarnishing the reputation of the whole sector, one of local government’s leading estates professionals has warned.
The growing trend for councils to invest in property in order to generate income has attracted some high profile criticism this year, including from former business secretary Vince Cable.
Speaking at the Association of Public Service Excellence conference on Thursday, Mark Bradbury, head of capital assets at Southampton City Council, said councils investing in property was nothing new but said the approach being taken by a small number councils was “causing concern”.
“This is not new to us; what is new is looking at borrowing to fund that and looking beyond our boundaries,” he said.
However, he said it was crucial councils looked beyond the rental income when deciding whether to invest and also considered the security and quality of tenants, otherwise they could be left with a “bespoke” property that would be difficult to re-let if the tenant moved on.
“I’m aware of authorities that are buying buildings who are not looking beyond the rental income,” he said.
“There are one or two people out there causing the concern and dragging the rest of us down with them.”
Mr Bradbury was previously head of economic development and property at Sevenoaks DC, the first council to achieve self-sufficiency largely through property investments. He defended the practice of buying properties outside a council’s boundaries, a trend that came in for particular criticism from Sir Vince. He said Southampton had investments in Cambridge and the West Midlands.
“If a business goes bust [in your area] it’s not just the rent that you lose, it’s the council tax, business rates, the disposable income of people who worked there. Investing beyond your boundaries is an obvious thing to do as part of a balanced portfolio,” he said.
Also speaking at the conference David Bentley, head of asset management at the Chartered Institute for Public Finance & Accountancy, said there was a “spectrum” of views on whether councils should be investing in this way ranging from the “gung-ho” to the “no, never”.
He said the association was increasing the amount of attention to assets and commercialisation, but particularly investment assets, as part of work going on to update to its Prudential Code.
Mr Bentley said this would focus on three areas: appropriate and adequate governance, independent expert advice, and a general requirement for a council to consider risk and act proportionally relative to its size.
However, he stressed Cipfa was not suggesting councils were not already doing this.