Ealing to establish development COCO
A west London authority is setting up a development company so it can borrow beyond its debt caps and build hundreds of homes that cannot be sold under the right to buy.
Ealing Council last week approved plans to become the first council to set up a council-owned company known as a COCO in order to develop 500 homes over the next five years as part of the regeneration of the Copley Close estate in Hanwell. This is different to a council-owned community-owned organisation, also known as a COCO.
The model will enable the council to take on more debt than it is allowed under the borrowing caps on its housing revenue account that were imposed by the government as part of self-financing reforms last April.
Labour-led Ealing has a £200 million borrowing cap - under which it has £54 million of remaining headroom. This is not enough to pay for the £58 million scheme.
In addition, the council has further ‘aspirations’ to build over the next five years that would mean it breaches its debt cap.
Under the model, the council transfers land to the COCO which is financed and developed outside its HRA.
Council papers show Ealing would consider financing the company by lending from its general fund at a ‘margin above the underlying council borrowing rate’.
The affordable rent and market rent properties would be developed by the COCO. The council would be the only shareholder, and the company would have no staff.Ealing believes the model will cut the ‘financial risk’ of new ‘affordable rent’ homes being bought by tenants under the government’s revitalised right to buy - which gives London tenants a £100,000 discount.
It said there would also be a ‘positive impact on the HRA’s ability to borrow for future developments and would put the HRA into a good position to absorb future risks’.
Council papers added that the COCO model would reduce the risk that Ealing’s housing benefit income will be hit by holding affordable rent and market rent property in the HRA. However, Ealing will face taxes, annual administration costs of £100,000 and fees for external audits, IT provision and final accounts. The move comes after Ealing brought its arm’s-length management organisation in-house in 2011.
