The past few years have seen a significant expansion in the number of Local Housing Companies (LHC) being set up and operated by local authorities in England. While their roles vary widely, many Local Housing Companies are now delivering a mix of affordable housing tenures and homes for sale or market rent.

The Scottish Futures Trust has discussed the direct development of homes for sale or market rent with a number of local authorities in Scotland.

The report provides an overview of this model and examines the potential for similar activity to take place in Scotland. In doing so, this paper aims to support our discussions with interested local authorities and their considerations.

Scottish Futures Trust has revealed that all but six local authorities in Scotland deliver homes directly. This is largely done through their Housing Revenue Account in order to provide homes for affordable rent or specific needs in accordance to their Housing Needs and Demand Assessment and the Local Housing Strategy.

Local authorities have also entered into Limited Liability Partnerships (LLPs) in order to support the delivery of homes for Mid Market Rent, notably through the National Housing Trust initiative, which has resulted in the creation of 28 LLPs across Scotland being established, which to date delivered 1,731 homes for mid-market rent. Some of these LLPs do not include a private sector partner, for example Steadfast Homes LLP, which is comprised of Stirling Council and the Scottish Futures Trust.

In order to establish the legal basis for councils to develop homes for non-affordable tenures in Scotland the Scottish Futures Trust sought legal advice from Burness Paull.

Part 3 of the Local Government in Scotland Act 2003 gives statutory power to local authorities in Scotland to do anything which they consider likely to promote or improve the wellbeing of its authority or people within the area, commonly referred to as the power to advance wellbeing, Burness Paull advised.

However, the firm noted that the courts have applied a restrictive interpretation to the power in relation to its interplay with the ultra vires doctrine, which restricts local authorities to do only what they are specifically empowered to do. Unless a clear power can be identified, a court may hold that a local authority’s actions are ultra vires.

Burness Paull highlighted the risk that there is no specific power conferred on local authorities to build homes for sale. Therefore, reliance solely on the power to advance wellbeing to do so may expose a local authorities to this activity being considered ultra vires.

To help ensure that developing homes for sale or rent falls under Scottish local authorities’ power to advance wellbeing, Burness Paull advises that any project or programme justification:

• Refers to Scottish Government guidance on the power to advance wellbeing when making the case to develop homes for sale or rent.
• Clearly determines why the initiative will contribute to the wellbeing of the area and how it will benefit from the regeneration of specific sites through the development of homes for sale or rent. These benefits should be set out clearly and specifically. 

The European Commission and courts have determined that the construction of social housing is an economic activity that can benefit from state funding by virtue of it being a service of general economic interest (SGEI). Where, however, the Council is not building “social” housing, such as housing for sale or market rent, then the Council would need to have regard to the requirements of State Aid law.

Scottish Futures Trust also said that if a local authority in Scotland is seeking to develop homes for sale or for market rent, it may consider following the examples of local authorities in England and do this via an Arm’s Length Organisation (ALEO).

According to Scottish Futures Trust, there seems to be an opportunity for Scottish local authorities to directly deliver homes for sale on the open market or for market rent.

Part 3 of the Local Government in Scotland Act 2003 gave statutory power to local authorities in Scotland to do anything which they consider likely to promote or improve the wellbeing of its authority or people within the area, commonly referred to as the power to advance wellbeing.

In the absence of a specific power to build homes for sale or for market rent, there would be a requirement for authorities to establish and demonstrate that they are progressing such a proposal under the power to advance wellbeing in Scotland.

There appears to be further merit in examining direct delivery of homes, particularly in areas where the following are factors:

• Depopulation or aging population – where a local authority is seeking to attract or retain a higher proportion of working age population through the provision of more or better family homes.
• Slow housebuilding rates – where there is an inactive private sector housing market, with large sites remaining vacant or derelict as a result.
•  Where the nature of the site fails to attract market activity due to prohibitive cost of enabling infrastructure or remediation required.
• Land in Council ownership – where Councils have control of land but are struggling to attract suitable private sector investment or want a different kind of housing product in a settlement to support regeneration or potentially placemaking and low carbon policies.

The full report can be accessed here.