Council company’s first housing project expects £132,000 loss

South Kesteven District Council is forecasting a £132,000 loss on its housing company’s first project in Bourne.

According to a now-hidden document before next Tuesday’s Companies Committee, which was listed under exempt items but uploaded to the online agenda, the authority hoped to budget for a £243,000 profit from Gravitas Housing’s Wherry’s Lane build.

But the figure is £375,000 out from the desired outcome, meaning a £132,000 loss is forecasted due to legal and council costs.

Gravitas was formed in 2017 and gained permission for the 20 apartment and five townhouse build in July 2018. Work was officially started in November 2020.

The public report before councillors said that 10 of the apartments have now been sold, with seven reserved. However, none of the townhouses have been sold or reserved and officers have since agreed to reduce the price of them by between £17-25,000.

In a bid to reduce the losses the scheme is due to make, the company has also repaid £900,000 of a £1.9million loan – taking the interest charge from £178,000 to £154,000.

According to the Project Forecast Outturn Profit and Loss Account – which was published with the agenda, but removed after Local Democracy Reporters made contact – the authority is projecting to have made £116,000 more on sales than it was budgeting.

However, it has also spent £397,000 more on building and selling the properties than it wanted – including an extra £377,000 on construction, £21,000 on consultants and £94,000 on finance costs and SKDC recharges.

The document attempts to explain the variance through changes to feasibility designs, market prices leading to increases in construction costs, delays in receipt of income and an increased need for “bridging loans”. COVID-19 also features in the list.

It also repeats the public report’s statements around house price and loan changes.

The document which was originally published in the public domain.

Independent SKDC Councillor Ashley Baxter said the figures raised important questions around why South Kesteven was investing in “unaffordable” private housing over council houses, why the figures were not being discussed in public and what it meant for SKDC’s other companies InvestSK, EnvironmentSK and LeisureSK.”

“The council has a target of building an average of over 100 council houses per year, but in the last three years it has completed only 18 in total and those were small modular units,” he said.

“It is lamentable that the council has wasted so much time and effort playing at being a private sector housing developer while failing dismally to fulfil its obligations to provide affordable homes for people who really need them.”

He suggested Gravitas may not be “disrupting the housing market” as it was pitched, and that the report next week contrasted with reassurances the council had been given that “estate agents have been trying their best to stimulate interest and repeated reductions in price”.

Councillor Baxter has long been a critic of the council creating private companies with two further initiatives DeliverSK and HomesSK so far not moving ahead.

The council, however, is confident the loss-making development will be sold and fill the district’s housing gap.

In a statement submitted post-publication, Chief Executive of South Kesteven District Council, Karen Bradford, said: “Gravitas Housing Ltd was established by South Kesteven District Council to drive the delivery of affordable local housing across the District, looking at sites that often the private sector wouldn’t consider due to the level of return from the developments.

“The site at Wherry’s Lane was in the ownership of the council and vacant, which provided the basis for a regeneration project in the town centre of Bourne.

“This project was designed to accept a lower level of return to enable the site to come forward to deliver much-needed local affordable housing in a town centre location which would also enable many first-time buyers to get onto the housing ladder.

“The project would also support the increase in footfall for local businesses in Bourne town centre, as the properties are close to a wide range of shops, services, facilities and employment opportunities that are all within easy walking distance.

“This development, through a Section 106 agreement, also contributed £454,000 towards the building of further affordable homes off-site in Bourne and £11,100 towards local NHS services.

“The Wherry’s Lane development financing was approved in 2017 and the build was completed in January 2020. The housing market and construction industry has been subject to fluctuations and, due to current market conditions, a revaluation of the properties has been undertaken.

“The Coronavirus pandemic has also had an impact, but we are confident that those properties remaining will be sold and we are working closely with our agents.”