Plans to build “pocket” flats on public land in Charlton could be approved next week as the scheme goes before Greenwich councillors. It was originally postponed for a site visit that has not taken place due to covid restrictions.
The contentious project has been covered for some time on this site. A rare piece of public land is not being used by Greenwich Council for council homes or utilised by the council’s developer Meridian despite a rising waiting list and rapid increase in people house in emergency accommodation at high cost.
Instead Pocket Living are to build “affordable” homes at 80 per cent market rate – which is expected to mean £260,000 for a very small one-bed flat. The flats are so small that when construction cost is calculated student blocks are used as a comparable measure.
When it came to offering the land to Pocket Living – which has a former local MP on the board and is also supported by Mayor Sadiq Khan – the authority did not consider using their own developer Meridian Home Start to offer homes at lower cost. If developed outright all income could have been retained for public spending.
It appears an agreement is in place to sell the land to Pocket Living for just £176,000. Pocket Living expect overall revenue of £12,780,000. After build costs a profit of £2,655,945 is expected though other costs apparently bring that down to £557,000. Some of those costs seem curiously high, such as interest repayments at seven per cent and possible contingency costs double the rate normally expected.
One reason given for not developing outright or via Meridian Home Start was the cost of land decontamination. A report alongside the application states this cost can be used to offset profits:
“The cost for land decontamination has been inputted as £419,445 based on the
information we have been provided (further detail can be found in Section 5 of this report). It should be noted that developers are eligible to claim remediation tax relief. This works to offset corporation tax liability by a sum equal to 100% of the remediation costs but could be as high as 150% of these costs. On this basis there
may be a net financial advantage to the developer in remediating the site and further clarity from the applicant in this respect is sought.”
The report claims the market value of a 1-bed flat at this site will be £325,000 or £778 per square foot. An “affordable” price would therefore equal £622 per square feet.
Yet full price flats at Trinity Walk (a short walk from Woolwich Arsenal DLR and rail station plus future Crossrail station) are £614 psf.
The report states: “We consider Greenwich Square a useful comparable given its location” when it comes to pricing estimates. Really? A block in east Greenwich near Maze Hill station, Greenwich Park and a World Heritage Zone is the same as this site in Charlton?
A block closer to Charlton station at the newly built Synergy development is also far less at £574 psf. How is the value of flats in this Pocket Living scheme £778 – or £622 after an “affordable” discount?
The market rate for existing homes is far less still. A one-bed in Charlton is currently available for £160,000.
Bear in mind Pocket Living homes are supposed to be sold at 20 per cent market discount and qualify as affordable housing. Despite noting the cost at Synergy (a short walk away) it states: “We note that there is a lack of recent and relevant comparable evidence in the immediate area”.
Despite all this the viability report concludes in regards to an earlier report “Generally, we have found that the values proposed by Montagu Evans for the Pocket Homes are broadly reasonable.”
Future sale prices
So what does that mean? Well, these homes are supposed to be cheaper than market priced flats – albeit very small flats. However this assumption of £778 psf could mean the sale prices actually end up no different to other new build flats, and thus no actual 20 per cent discount is evident in sale prices.
Pocket Living’s profit is likely to be above their stated £567,000 given large contingencies, the ability to offset land remediation costs and a high quoted interest rate on loans taken out to fund the development.
The profit level for Pocket Living is noted as: “The developer profit target adopted by Montagu Evans is 17.5% on GDV. We note that usually a lower developer profit target is adopted for affordable housing”.
We could end up with public land used for private housing supposedly at a discount to market rent, yet priced above similar market flats thus even after 20 per cent “discount” applied there’s little to no actual discount all while millions of public money is being spent on emergency accommodation as ever more people are homeless.
We go back to that Cabinet decision which initially agreed to land sales to Pocket Living and must ask why that option was chosen and others – such as Meridian – were not even listed as an option.
As public building became possible subsequent to the decision due to lifting of a borrowing cap, plus options to partner with Housing Association to spend right to buy income, why was no reassessment made? It’s hard to see who benefits now. It doesn’t appear to the council, taxpayers, those in need of a home nor buyers of flats when complete.