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New investment vehicle to support council build plans

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A new housing investment body set up by the Local Government Association will seek to borrow £800m to help councils build thousands of new homes.

LG Develop has launched with 14 councils involved, and is open to others if they have land available for housing, and a convincing business plan allowing them to borrow against future rents to build on it.

A document published by the LGA shows the 14 unnamed councils plan to build 6,362 homes over the next three years and are seeking to borrow a total of £798.5m.

The largest programme bidding for money aims to build 1,756 and the smallest 50.

LG Develop is not affected by the restrictions on councils borrowing to build within the housing revenue account system as the homes concerned would not be for rent at the relatively low levels normally changed by councils, but rather for private rent and sale or affordable rents, set at 80% of market levels.

Councils with programmes of varying size will be grouped into consortia for which LG Develop financial adviser Centrus will seek funds from bonds, pension funds and other lenders.

Brian Reynolds, who is leading on LG Develop as programme director for the Cabinet Office’s One Public Estate programme, explained: “Using consortia means they all have to have plans at roughly the same stage, but it not only spreads risk but also allows easier borrowing as if you are going to pension funds you would need to borrow some £50m as a minimum.

“If you can borrow £80m or more you could expect the costs to be cheaper.”

Mr Reynolds, who has been seconded to the Cabinet Office from the LGA, said councils would normally need to own the site concerned, so there was no land cost involved.

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