Investigation: what caused the collapse of Capital Letters?
Capital Letters was set up with an enterprising plan to help London councils cope with the temporary accommodation crisis. So what went wrong? Stephen Delahunty has pored over the company’s financial records, and spoken extensively to former staffers, the chief executive, and clients and investors to find out
Investigation: what caused the collapse of Capital Letters? #UKhousingCapital Letters was set up six years ago with the laudable ambition of boosting the supply of homes for homeless households and cutting bills for London councils.
With £38m backing from the government, Capital Letters described itself as a pan-London procurement and management company. It offered a new era of collaboration between boroughs in the competition for properties to use as temporary accommodation.
But this April, with the cost of housing homeless households in the capital skyrocketing to £5.5m a day, Capital Letters confirmed its “very difficult but prudent” decision to close by the end of this year.
So why did this much-needed solution to the temporary accommodation crisis in the capital close its doors when it was most needed?
To find out, Inside Housing speaks to former and current staff, pinpoints the organisation’s successes and shortfalls, and examines the internal and external factors contributing to its untimely demise.
Homelessness crisis
Our investigation has found that Capital Letters’ original ambitions, and its plan to grow and increase collaboration between councils, were stymied by government strictures on benefits, its difficulties making deals with landlords and financiers, and the upward spiralling of rent after the pandemic.
In public, Capital Letters appeared to be riding high last year, with the announcement of a £750m deal with Home Safe Housing (HSH) to procure 2,500 affordable homes for Londoners. This March, it was informing staff about their redundancy packages and that the company would be placed in voluntary administration, according to a recording of a meeting heard by Inside Housing.
To understand Capital Letters’ demise, we must turn back to 2019, the year it was launched. London was then in the grip of a worsening homelessness crisis from which it is yet to escape. According to figures compiled by Trust for London, the number of households in temporary accommodation in London grew from less than 36,000 in 2011, to more than 57,000 in 2019.
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Councils were also grappling with the Homelessness Reduction Act 2017, which gave them new responsibilities to help those threatened with losing their homes, on top of existing duties to help those who had already lost them.
Capital Letters was established to meet these rising pressures on affordable accommodation and had the support of London Councils, an umbrella group, and the Ministry of Housing, Communities and Local Government.
Part of this supply challenge was procurement. Councils would often find themselves competing for affordable homes between each other and with other government departments such as the Home Office.
Capital Letters launched with 13 council members, and ambitions to boost its membership to 25 over the next two years. Under its initial business model, the firm would find private landlords with properties to let at Local Housing Allowance (LHA) rates, the maximum housing benefit level the government covered. They would be matched with local authority members, allowing them to discharge their duty to house people by offering them a tenancy.
Speaking after the business was forced to wind down, Sue Edmonds, chief executive of Capital Letters, told Inside Housing the launch was something of a “leap of faith” for its founding council members. Its initial business plan included the “aspiration” that “our member boroughs would transfer their existing PSL [private sector leased] portfolios to us”.
Under council management, rents on these PSL homes were paid by housing benefit. But under Capital Letters’ management, they could be let on assured shorthold tenancies to tenants. This switch allowed rent to be paid by Universal Credit instead of housing benefit.
But no boroughs ever transferred their PSL stock to Capital Letters. Ms Edmonds explains: “We had positive discussions about the possibility of doing so and worked closely with one member borough to develop a toolkit to manage such transfers.
“However, it proved too complex given the issues associated with transferring families from housing benefit [in PSL] to Universal Credit [in the private rented sector] and local authorities’ responsibility to ensure that the rent post-transfer to [the private rented sector] was affordable for the household, particularly for benefit-capped families.
“The other issue was that, increasingly, landlords were exiting the PSL market as they could secure higher rents by letting their properties on the open market, thus the portfolios were significantly reducing.”
Talks with Network Homes in 2019 to take over its portfolio of nearly 1,000 PSL homes fell through. Jamie Ratcliff, who was then Network Homes’ executive director of business performance and partnership, explains that PSL was not its “core business” at the time. “Margins were quite tight so you only needed a few things to go wrong and you were losing money on it.”
On why the deal didn’t quite work at the time, Mr Ratcliff says the homes “all had people in them. [Capital Letters’] business model was to create opportunities to move people out of temporary accommodation into stable accommodation, whereas these were people who were already in it for temporary accommodation. So maybe it wasn’t seen as being additive. I think for all those reasons they [Capital Letters] thought they’d rather scale up organically.”
“Had Covid not happened, it [the business model] probably would have been fine”
Ms Edmonds says the financial risk of transfer was too great for a portfolio of homes that was shrinking, as landlords were exiting the market even back then.
Then came Covid. The pandemic was initially beneficial.
“At the time, a lot of people left London, so there were a lot of properties available to rent, and landlords didn’t have many other choices in terms of who they could let properties to,” says Ms Edmonds. “We continued procuring throughout that period. We did virtual inspections [of properties].”
Capital Letters was also buoyed by the government’s decision to raise the LHA rate to the 30th cheapest percentile of homes.
But this temporary reprieve was soon cancelled out, as the pandemic ended and private rents rocketed. London rents jumped 44% to an average of £2,712 a month in early 2025, according to property portal Zoopla. “Had Covid not happened, it [the business model] probably would have been fine,” Ms Edmonds says.
Capital Letters’ business model was also being undermined by the so-called two-child benefit cap, which was introduced in 2017 by the then Conservative government and limits financial support from Universal Credit and tax credits to families with two children. In November 2025, the Labour government caved to backbench pressure and axed the two-child benefit cap in a move set to lift an estimated 450,000 children out of poverty.
Ms Edmonds says Universal Credit would not cover the cost of rentals for families with more than two children. “It traps people in temporary accommodation,” she adds. “We were commissioned to go and find as many two and three-bed homes that met the property standards so we could offer them to our members.”
But while the families who councils needed to house might meet a “test of suitability for a home”, they often did not meet Capital Letters’ affordability assessments. These assessments determined whether families could afford to move into the privately rented homes that Capital Letters had procured.
Caught in the storm of a benefits squeeze and spiralling rents, the councils-owned firm changed tack with what appeared to be a promising new approach.
In late 2021, with the UK out of lockdown, Capital Letters announced that it was in “advanced negotiations” with investors to inject £1.5bn into 4,000 new homes for low-income families in London over four years.
Such a deal could not have come at a better time for the increasingly beleaguered firm. According to its annual accounts for 2020-21, it had missed a key target for the number of lettings due to “fewer negotiators in post than anticipated” and a “higher number of rejections by boroughs and landlord withdrawals”. Against a target of letting 2,017 homes to homeless households in the year, only 1,684 had been let.
Under its new model, Capital Letters would both lease and become the landlord for mostly new build homes, funded by private investors. Around half of these 4,000 homes would be let to low-income families on council waiting lists, with the rest split between sub-market and market rent tenures for key workers, such as teachers or nurses.
‘Trying hard to make it work’
But four years on from the announcement, two of the investors involved in this £1.5bn promise, QSix and Triple Point, appear to have pulled out.
Triple Point told Inside Housing: “We engaged with Capital Letters to explore a potential partnership to deliver housing for local authorities in London. Ultimately, due to market conditions, no partnership was agreed and no funding was provided.”
Inside Housing approached QSix for comment but it would only explain that its relationship with Capital Letters has not been active for several years.
Former Capital Letters staff have told Inside Housing of other deals that fell through, claiming that the firm “dragged [its] heels so much that people walked away”.
They mentioned one possible deal with property developer Common Projects, which Capital Letters confirmed would have involved converting commercial property into residential. Discussions started in early 2023, and concluded in June 2024, but ran into difficulty when a contractor went into administration among other financial difficulties.
“We’d love to have done it because I’m passionate also about finding different ways to meet the housing crisis,” Ms Edmonds says. Capital Letters’ board, however, says “they couldn’t see that the viability of it would stack up”.
Other ex-employees raised concerns about some decisions at Capital Letters, such as its decision to set up a lettings agency.
Ms Edmonds explains that the lettings agency was not a separate legal entity to Capital Letters and was set up in anticipation of letting the market rent properties the firm expected to receive from the Home Safe Housing deal, announced in March 2024.
She adds: “The team offered services to private landlords from tenancy-finding up to and including fully managed services. Once the decision was taken to wind up Capital Letters, we ceased to offer these services.”
One former member of staff says their colleagues “worked hard” and describes Ms Edmonds as “committed, hard-working and trying very hard to make it work”.
John Rockley, who was assistant director of PR and communications at Capital Letters from January 2023 to May 2025, says: “The atmosphere of the organisation was really solid and really hopeful.”
Anna Hunt, Capital Letters’ business support manager from March 2023 to June 2025, describes the culture at Capital Letters as “collaborative”.
“We felt like a family. Unfortunately, when difficult decisions had to be made, it was a worrying and unsettling time and people were understandably upset. Those of us that remained pulled together and fought on to do our part to make it work.”
Former staff members told Inside Housing there were around 100 employees at one point, so it is perhaps unsurprising that there was some disgruntlement and disagreement with management throughout its six years.
But a key turning point in Capital Letters’ fortunes appears to have occurred in 2023, when 11 of its council members quit, leaving just 10 of the 21 boroughs that had joined up by April 2021.
Its annual accounts for that year show that the number of properties offered to its council members plunged from 2,615 homes in 2021-22 to 669 in 2022-23.
Ealing Council tells Inside Housing it left the Capital Letters scheme in March 2023. A spokesperson adds: “Unfortunately, the turbulent financial conditions of recent years have reduced the supply of affordable housing even further, which meant that Capital Letters could not supply sufficient properties to help meet our urgent housing needs.”
One ex-employee says councils had felt “strung along for quite a significant time” as the company struggled to procure them properties. Another says its council members were undermining its work. “One thing that niggles me, especially when you hear councils complaining about the service, is that they were being underhand and undercutting Capital Letters and approaching landlords directly and offering them a higher incentive to go straight to the council.”
A year before this membership exodus, Capital Letters had introduced a new business plan which, following consultation with its council members, planned to introduce annual membership fees of £50,000 from April 2024, before government funding was no longer available.
But its original ambition to grow to 25 members had been rendered “unviable” by the pandemic, Ms Edmonds says.
“We’d already recognised that we needed to contract both staffing numbers and membership, and that was the conclusion. Initially we didn’t make redundancies, we just weren’t recruiting to vacancies, Ms Edmonds tells Inside Housing.
“They [the members] were not exiting in droves because of shock horror. At that point, it’s still a free service, and we were saying, ‘We can’t deliver what you need.’ So, we ended up with 10, which is what we wanted. The 10 who stayed thought there was something worth staying for.”
Capital Letters’ annual accounts for 2023-24 show a further big drop in the number of properties offered to its shrunken membership. Just 257 properties were offered to member boroughs in 2023, compared with 699 in 2023.
“This represents a fall of just over 90% in the total number of properties that Capital Letters was able to offer to member boroughs compared to only two years ago (2022: 2,615) as the gap between LHA rates and private rents continues to grow,” the accounts read.
Dashed hopes
But then in 2024, a glimmer of light appeared with the announcement of yet another promising-looking deal. That May, Capital Letters announced a £750m partnership with the charity HSH to buy and refurbish 2,500 properties across the capital to be let out at LHA rates within that financial year.
Given the plunging number of lettings and with government funding running out, the success of this deal could not have been more crucial to Capital Letters’ survival.
“We continued in anticipation of the HSH scheme coming good, which included 30% market rent properties and the opportunity to sell services to other landlords to generate income to cross-subsidise other activities; it was set up to be self-sustaining, covering its own costs,” Ms Edmonds says.
But in one final and apparently fatal blow to this beleaguered council-run firm, the HSH deal faltered and sealed Capital Letters’ fate. “It was a lifeline. If we’d have been able to make the money work, we would not be having this conversation as it would have saved our bacon,” Ms Edmonds says.
She says the deal fell through because HSH was unable to raise money from investors, due to market conditions.
But for HSH, the deal with Capital Letters is not over, its founder and chief executive Jared Fox tells Inside Housing.
“While the economy has become more volatile and capital markets more difficult to transact in, it is still HSH’s intention to acquire homes to fulfil its obligations under the supply contracts before the expiry of the availability period in March 2027.”
HSH is arguing that Capital Letters is still legally obliged to fulfil the deal. But Ms Edmonds says: “Capital Letters’ members’ decision to place the company into members’ voluntary liquidation is a company event of default under the agreement that we have with HSH, and this event will result in the termination of the agreement between the parties.”
“We helped 17,000 Londoners into safe, secure homes, saving boroughs over £200m… and left a proud legacy”
Much of Capital Letters’ legacy will be felt by the thousands of homeless families it helped councils to rehome in its six years in operation. It allowed 61% of those families to stay in their home borough, compared with a London average of 41%.
“We helped 17,000 Londoners into safe, secure homes, saving boroughs over £200m, created a collaborative partnership that worked whilst the market was stable, reshaped thinking at a national level, and left a proud legacy,” Ms Edmonds says. “I remain so sad that factors beyond our control meant a long-term sustainable future was out of reach.”
The chief executive explains that there will be no impact on the tenants for whom the firm procured homes, as they have individual assured shorthold tenancies with their landlords.
“We managed 18 properties under a one-year contract for the London Borough of Merton under an interim management order; the tenants were fully informed of the changes to the management of their homes prior to the end of our contract,” Ms Edmonds says.
Leases for another 12 tenants have been assigned to housing association Chisel, with no impact on their tenancies, Ms Edmonds adds.
Capital Letters is described as “an incredible ally” by the Empty Homes Network.
Maggie Rafalowicz, a director at consultancy Campbell Tickell, says it is “counterintuitive for it to [close] now when the temporary accommodation crisis keeps on getting worse”.
But London Councils casts doubt on any realistic prospect of reviving the Capital Letters model, which it helped to set up in 2019. “London’s housing situation worsened even further in the subsequent years, making it very difficult for a pan-London initiative to succeed,” a spokesperson says.
Whether Capital Letters’ achievements were worth the £24m of public money that was spent on it remains to be seen. Ms Edmonds told Inside Housing that the Treasury commissioned a strategic review of its performance, but is refusing to release it.
The government told Inside Housing the report would be released “in due course”.
When this report is finally released, it may settle the matter of how much of Capital Letters’ ultimate demise was a result of its own shortfalls, of government housing benefit limits, or of a housing market way out of its control.
Update: at 4.34pm, 8.12.2025
This story originally stated that £38m of public funding was spent on Capital Letters. This was the original provision for the company over four years; it spent £24m over six years.
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