Scottish Government

CHAPTER FIVE: HIGHLAND HOUSING ALLIANCE AND LAND BANK ACTIVITY 2005-2008

Land Bank Fund Activity

5.1 At a special meeting held in Aviemore in April 2004, the Highland Council agreed that all surplus Council property and land in stressed areas be prioritised for housing use.

5.2 Table 5.1 is a summary of residential land and property related activity undertaken by the Highland Council over the period January 2005 - August 2008. A number of key points can be noted from the table.

Table 5.1: Highland Council Residential Land Transactions and Land Bank Loans (January 2005 - August 2008)

*Intended for providing a children's residential unit
** Access land
Source: Highland Council Housing and Social Work Committee Reports

5.3 The first point worth making is that the Council was clearly active in the conduct of residential land trading following its 2004 resolution and prior to the establishment of the LBF, with 8 transactions undertaken in the first quarter of 2005 alone.

5.4 The second point is that the LBF has not been used solely for the purpose of supporting HHA. A range of bodies has benefited over time from the support the LBF can offer, although the biggest deals (at Woodside, Drummuie, Tain, Balvonie and Upper Achintore) have all involved the HHA.

5.5 The third point to note from the table is that the application of LBF money has taken a range of different forms, including both land disposal and acquisition by the Council, site servicing support, and recently, in an explicit change in emphasis, provision of non refundable grant where the procurement of affordable housing in high cost rural areas would be otherwise impossible due to costs exceeding permissible benchmark limits for HAG funding.

5.6 In August 2008, the HSW Committee was advised that the LBF stood at £15.455 million, with outstanding commitments of £3.965 million. It was also advised that a total of £12.814 million had been loaned since March 2005, of which £6.979m had been repaid. This shows that the LBF has grown significantly beyond the initially envisaged £10 million, largely because of annual contributions of around £2.4 million derived from Council Tax levied on second homes, but also (to a much lesser extent) because of overage payments from HHA developments. The overall value of the fund is now expected to reduce somewhat over the next few years. This is because the provision of non-refundable grants from the LBF to support high cost affordable housing developments is expected to grow in significance over time.

5.7 Examples of recent LBF transactions culled from various recent HSW Committee reports give a good feel for how it is used by Highland Council.

• In the centre of Alness a small building located within a public car park was declared surplus by Social Work Services and a trawl of other Council services failed to identify other potential uses within the Council. While the land occupied by the building is currently of limited potential for housing, future redevelopment of the car park could be constrained if the building was sold to a third party. The building was therefore transferred from the General Account to the Housing Account for £9,000, this being paid for by the LBF.
• Cairn Housing Association has recently acquired a site in Culbokie that can accommodate up to 18 units and another site in Munlochy that has capacity for 7 units. Planning consent has been granted for the sites, both of which are in priority areas. A LBF loan was used to buy the sites for £440,000. Cairn will progress proposals for both sites on the basis that they will be developed when HAG becomes available, at which point the LBF loan will be repaid.
• HSCHT is progressing a development at Milehouse Kincraig. It is building 4 houses for sale to identified applicants who will receive grant assistance from the Scottish Government under the Rural Home Ownership Grant ( RHOG) initiative. A Rural Housing Burden will be attached to the titles to ensure purchasers do not make excessive profit from any onward sale, and will give the Trust the opportunity buy back the houses at point of sale. In order to keep the first sales affordable, a grant facility of £25,000 has been provided to HSCHT.
• Cairn Housing Association is redeveloping a former council owned site in Ullapool to provide 10 smaller houses for affordable rent in the centre of the village. Development costs exceed current benchmark figures. To help meet the shortfall a grant of £10,000 has been offered to Cairn.
• Pentland Housing Association wished to purchase approximately 0.4ha of land in Wick, which had been identified for housing within the current Caithness Local Plan. The land will accommodate 10 houses, and a purchase price of £80,000 was determined as reasonable and value for money by independent valuation. A loan of £65,000 was offered from the LBF to assist purchase, repayable on development of the site.

5.8 More generally, the Highland AHIP allocation for 2008/9 of £27 million will by itself support little new affordable housing procurement, because of the level of existing legally committed projects (projects with tenders approved in 2007/8). Moreover, any new projects that can be achieved would mostly have to start in the final quarter of 2008/9 to manage actual spend. To minimise delays in the development process for new affordable housing over the coming year, the Council has therefore agreed that the LBF can be used in 2008/9 to forward fund priority affordable housing projects on the basis that assurances are obtained from the Scottish Government that monies will be repaid from its 2009/2010 investment programme, or from slippage within 2008/2009. Whilst this is expected to restrict other LBF activity in 2008/09, the Council considers the protection this will give to continuity of affordable housing development to be of sufficient importance to accept that opportunity cost.

Highland Housing Alliance Activity

5.9 In its first 3 years, HHA received support in cash and in kind to meet initial running expenses. Highland Council provided space for HHA at its headquarters, offering both a contribution in kind but also ready access to the council housing staff and officials with responsibility for the LBF. HHA has since relocated to its own office.

5.10 Revenue funding contributions totalling £300,000 were agreed to cover the first three years of HHA operation, with Communities Scotland, HIE and Highland Council each providing £75,000, and Albyn, Cairn, Lochaber, Lochalsh and Skye and Pentland Housing Associations all providing £15,000 each. Total overhead costs for the first three years were estimated at £490,600, so HHA was expected from the outset to begin contributing to its own keep fairly quickly ⁴.

5.11 Typically (but not exclusively) over the first 3 years of existence, HHA has received funds from the LBF on a repayable (soft loan) basis to finance land purchase and subsequent infrastructure investment. HHA has then sold sites on (normally in sub lots), or developed them and sold dwelling units, making repayments to the LBF while generating a surplus for itself. Some of the land HHA has acquired has subsequently been sold for private market development, and some to RSLs for the provision of rented housing and low cost home ownership.

5.12 Most of the land acquired by the HHA to date has been from within the public sector, with the Council to date the primary source. If necessary, land is first transferred from the General Account to the Housing Account at District Valuer valuation, paid for through the LBF.

5.13 The HHA Business Plan 2005/6 - 2009/10 assumed the average site acquired would be developed as 28.5% affordable homes by housing associations (for both rent and sale), and 71.5% private units through partnerships or onward sales of land to developers.

5.14 When HHA sells land on to RSLs it calculates the price using a formula that takes account of

• The initial price paid.
• Stamp duty land tax paid by HHA on acquisition of the land.
• Conveyancing and other legal costs incurred by HHA in buying and subsequently selling the land.
• Any other fees and costs incurred by HHA specifically related to the land (for example feasibility study costs).
• Incurred site-servicing costs.
• A proportion of HHA annual overheads ⁵.

5.15 Land sales to the private sector are at the highest achievable price.

5.16 Essentially, HHA is a development vehicle designed to source sites for residential development, acquire and service sites where appropriate, and subsequently co-ordinate or otherwise promote their translation into actual residential units on the ground. It also has a brief to undertake research and explore innovative procurement solutions.

5.17 In practice, it is very difficult to disentangle specific HHA activities. For example, site appraisal and site acquisition often merge seamlessly as activities, and site development, site servicing and land trading (acquisition or disposition of additional or sub plots) are part of a seamless process. Again, innovation with respect to dwelling design and build (see below) has been integrally tied up with site acquisition and development proposals. HHA sees all its activities ultimately geared to providing new housing across the Highlands, with an emphasis on affordable housing supply. With these provisos we consider specific aspects of HHA activity to date.

Land Trading and Development

5.18 Table 5.2 summarises HHA land trading activity over the period March 2005 - August 2008. It shows that the HHA purchased 12 sites over this period.

Table 5.2: Highland Housing Alliance Land Trading Summary 2005-8

Source HHA Notes: As at 15/08/2008

5.19 Overall, these 12 sites have the potential to deliver around 900 dwelling units (around 39% of which are expected to be affordable) as follows ⁶:

5.20 Starting in the far north and travelling downwards, these unit numbers roughly translate into 5 in Caithness (<1%), 81 in Sutherland (9%), 217 units in Ross and Cromarty (24%), 291 in Inverness (33%), and 300 in Lochaber (34%).

5.21 It is important to note that not all these units have actually been delivered as yet. The March 2008 Annual Review of HHA activities for 2007/8 records completed HHA involvement in 121 units.

Case Studies: Key Lessons

5.22 The four case studies of site-specific HHA activity provided in appendices D- E give a strong overall feel for the nature of Alliance activity across the Highlands to date. We can summarise the case study findings as follows.

• Woodside of Culloden was the first major HHA deal, on a site owned and considered by Highland Council as a 'jewel in the crown'. Woodside was initially expected to yield 100 units (25 affordable), but while identified for development in the local plan it needed to be catalysed by up front infrastructure investment. HHA acquired the site in March 2005, and had disposed of most of it by December 2007, fully serviced and with the yield increased to 153 units, some 28% of which (58) were to be affordable. In the process, HHA realised a £2.2 million surplus and the LBF earned an overage payment of £510,000.
• Silver Darlings Close in Wick was a regeneration development in an area of fragile economic prospects widely regarded by the private sector as unsuitable for speculative development. After site acquisition in September 2006, HHA attracted grant and private funding and arranged development of 5 townhouses, which were marketed in September 2007. Of the 5 townhouses, the first 4 were sold by February 2008 and the last one by August 2008, realising a surplus of £50,000.
• Upper Achintore involves the development of a major site involving 300 units (50% affordable) with very large up front site servicing costs. Ultimately involving expenditure and revenue streams currently costed at around £55 million, the development is marginal in terms of financial viability for the private sector, and involves considerable risk. The bulk of the land was in the Council's ownership, and this was transferred to HHA in order for it to establish a JV vehicle to progress site development, working in collaboration with an RSL (Lochaber HA) and a private developer (West Highland Properties Limited). Phase 1 of the development is now underway over a decade after the Upper Achintore site was first identified for housing in the local plan. Surplus earned by HHA at Woodside and Silver Darlings Close is being reinvested to meet up front electricity infrastructure costs at Upper Achintore.
• Maryburgh involves 4 landowners with conjoined land allocated for housing in the local plan. Unless all parties collaborate, the project will not realise any value. At the same time, there are considerable up front site servicing costs in the form of major trunk road realignment requirements. At the behest of the Council, HHA is negotiating purchase of the land of one of the major owners at Maryburgh, which will put it in a position to shoulder upfront site servicing costs, and thereafter use value created on private developments on part of the land it owns at the site to drive up the proportion of affordable housing secured across the development as a whole.

5.23 Collectively, these case studies give a very good feel for the nature of HHA development activity. Examination of HHA files and interviews with a number of interested parties show they have involved:

• Ability to create and drive forward complex consortia arrangements.
• Consistent evidence of a willingness to commit resources up front (with risk, but in the reasonable expectation of a return over time) in order to accelerate development at sites that have been a problem.
• Willingness to amend and adjust plans in line with emerging information about site and market conditions, without abandoning the initial objectives for site development.
• Ability to bring sites on stream that have previously defied efforts to translate local plan expectations into development reality.
• Focus on driving up affordable housing yield on developments wherever possible, in the context of an approach to site masterplanning designed to avoid the stigmatisation of the resulting affordable housing units.
• Willingness to reinvest surpluses made on one site to finance the resolution of impediments to development (and in the reasonable expectation of further surplus creation) at other sites.

Major Research and Innovation Activity

5.24 In this section, we consider HHA efforts to establish a Highland Housing Fair ( HHF) and to progress a modular housing construction initiative.

The Highland Housing Fair

5.25 The HHF concept has been borrowed from Finland. It involves building a number of residential properties at a designated site that showcases innovative design. The HHF is seen by HHA as a way to promote sustainable housing and efficient procurement and supply chain management. According to a Council report to the Inverness, Nairn, Badenoch and Strathspey Planning Applications Committee of 4 ^th March 2008:

"The key objectives of the Highland Housing Fair ( HHF) are embodied in securing a development which 'stimulates innovation in the building industry' and allows architects and developers to counter the prevalent forms of development and aspires to be a catalyst for the region's building industry. The development aims to achieve and meet core objectives and provides a comprehensive approach to not only house design but the associated infrastructure including streetscape, landscaping, boundary definitions thereby resulting in an exemplar environment. A key theme is the promotion of sustainable development and each proposal is required to demonstrate proper account has been had to meet the sustainability design codes (Highland Council, 4 ^th March 2008).

5.26 While initially in fact a Council initiative, it was agreed in January 2006 that the Alliance would play a lead role in site assembly and subsequent management of the competition/development phases of the project. In September 2006 HHA secured a site for Fair at Upper Muckovie, Milton of Leys, Inverness (Balvonie) from the private development company Tullochs. The Balvonie site covers 13.8 acres, with HHA intending to use 7.5 acres (phase 1) for the permanent Fair houses (55 units in total, 22 of which would be affordable), with the remaining ground reserved for a future (phase 2) affordable and mainstream housing development of 45 units.

5.27 A detailed masterplan for the site was commissioned, and a design competition launched in December 2006. The competition was open to any organisation to enter, on both the private and affordable elements, subject to meeting the requirements of an Urban Design Framework and those embedded within the masterplan.

5.28 Situated on an area of green wedge land, and not included within the adopted local plan, the HHF site has proved somewhat controversial. Outline planning permission for the Fair was granted in May 2007, despite concerns expressed by a small number of highly vocal objectors, including the Inverness South Community Council. The Inverness, Nairn, Badenoch and Strathspey Planning Applications and Review Committee subsequently gave approval for the installation of service infrastructure on the whole site, and for individual house plot development associated with phase 1, in March 2008.

5.29 Initial infrastructure work has begun on site, dealing with ground works and drainage. More generally however, progressing the development since securing planning permission has also proved less than straightforward, with issues arising with respect to the proposed affordable housing with respect to cost and design. In a HHA board paper of June 2008, the general exercise of matching developers to plots is described as having been "quite gruelling".

5.30 In July 2008, the Highland Council decided to delay the Fair for a year, because deteriorating financial market conditions have caused some developers difficulty in funding plot purchase. It is currently expected that the Fair will take place in 2010.

5.31 In sum, the HHF has not been an unqualified success so far, and uncertainty continues to surround its eventual delivery and timing. HHA did not initiate the HHF idea, but has been assiduous in trying to bring it to fruition. While the HHA view is that this has not been wasted effort (as it is close to the stage where it has a 100 unit housing site in Inverness with essential drainage and earthworks undertaken), and while it is in the nature of risks (and innovation) that not everything works, the opportunity cost of time spent by HHA on the HHF project (in terms of the things it could have otherwise progressed) may well have been unduly high.

Timber Housing Procurement/Modular housing construction ('Pod' Housing)

5.32 In June 2006, HHA staff and board members undertook a study trip to Orkney to inspect a number of timber frame, 'pod' or 'factory built' housing units built using off site prefabrication techniques capable of significantly reducing unit procurement costs. Subsequent to this visit, HHA has been actively engaged in promoting the development of timber frame units across the Highlands.

5.33 In September 2006, it met with the development staff of the RSLs, the Forestry Commission and HIE, to discuss a procurement programme (initially of about 150 units) based on factory production, but preserving the core of current RSL design briefs. Subsequently, in November 2006, HHA met with a number of developers pre-identified through an OJEU compliant procurement framework, to gauge interest in involvement with the proposal.

5.34 By March 2007, HHA had agreed a tender document with 5 RSLs to produce a 200 unit programme involving standard internal layouts for 'housing for varying need' ( HVN) standard houses to be assembled over a number of separate sites. In April it entered into a contractual arrangement with Scottish Sustainable Homes Ltd (to provide) and Tulloch Homes Group (to assemble) the pre-built homes using Scottish timber.

5.35 Subsequent progress has been slower than with respect to a number of other HHA ventures, as delays have attended the commissioning of a factory by Scottish Sustainable Homes Ltd at Brora to undertake the pre-fabrication work. By June 2008 the prefabrication company was still not fully geared up to supply the units required, even though by March 2008, HHA had established a programme of sites for the first 120 modular homes. Modular units will be developed first at Kildary in Easter Ross (17 units for sale; development is imminent) and subsequently at Invergordon, Scotsburn Road Tain, Achareidh (Nairn) and Drummuie (Sutherland).

5.36 Overall, this project has involved:

• Design of house types to HVN standard that are jointly acceptable to RSLs.
• Negotiation of a framework proposal with Scottish Sustainable Homes and Tulloch Group Homes.
• Assembly of a programme of sites across RSL and HHA land holdings suitable for assembly of prefabricated units.

5.37 The programme is still in prospect rather than delivered, but achieving the progress made to date has been no small feat, and continues to hold out the realistic expectation of significant procurement and sustainability benefits.

Other HHA Activity

5.38 Other HHA activities also of particular note are as follows.

• Working with the Cairngorm National Park Authority and the Scottish Environment Protection Agency ( SEPA), HHA have commissioned a project to produce a standard pattern book of private drainage system components, in order to agree with SEPA what they will accept in rural projects of 1 to 5 houses where a private system is the only possibility.
• HHA has established and endowed a Highland Housing Alliance Charitable Trust with £1.25 million for use in supporting affordable housing projects throughout the Highlands ⁷.
• HHA has undertaken a large number of site feasibility studies both at its own behest, and at the behest of Highland Council, clarifying where local plan sites are not viable, and on sites that are, what might be required to move development forward.