Kier has become the latest contracting firm to unlock public sector work by signing up to an innovative deal whereby it will build 152 homes in Kent.
The ground-breaking deal has been signed with Kent County Council which has transferred three sites to Kier. The contractor will now seek planning permission and enter into an agreement with an institutional investor and registered social landlord, to fund and manage the homes respectively.
Around 50 of the homes will be sold on the open market, with the rest intended for intermediate ownership, market rent or affordable rent, providing a steady income stream for the future. Kier will pass some of this on to the council under the terms of its lease, while the investor will make a steady return, typically over a period of 40 years.
“This model opens up the chance to develop affordable, intermediate or market rented housing without necessarily using any public sector funding,” said Dennis Seal, director for development and affordable homes at Kier. “Anybody can negotiate this type of deal. The model has the flexibility to deliver housing across different tenures to take into account local need, and if you target the right opportunities, you don’t need any public funding at all.” Homes can also be delivered immediately rather than over a period of years as buyers and mortgage finance are lined up, he added.
Kier’s Blue Quarter in Maidstone
Kier is now exploring opportunities elsewhere in the country. It has already modelled housing markets across London and the south-east, to see where else the model could work, and is now looking at the rest of the country. The Kent deal took more than a year to get to this stage.
Getting a deal off the ground depends on a combination of factors, not only rental levels, said Seal. “You could have exceptionally high rental income but it wouldn’t work because of the level of housing allowances and intermediate rents, or an area might have very high sales values but rents are very low.”
Seal says there is strong demand from pension funds for exactly this kind of steady, low risk, index-linked investment. “Residential development is becoming more popular among investors, but there is not enough product in the market to satisfy demand. A year ago we were talking to a couple of investors, now I’m aware of eight or nine who are looking at this very, very seriously.”
Other councils are looking at way to boost housing supply by entering new types of financial arrangements. Last autumn the GLA launched a £100m fund to kick-start development of housing for low income house holds which it encouraged bidders from both public and private sectors.