The industry reacts to councils potentially selling off their property stock

The situation is getting desperate. Thurrock council, Woking, and Birmingham have all declared effective bankruptcy recently[1]. Croydon’s council, representing among the largest boroughs in London, has been forced to declare bankruptcy three times in two years[2].

Worryingly, we may only be at the starting point. Nearly a fifth of council leaders in England say they’re likely to declare bankruptcy over the next year or so[3]. In fact, across the UK, it’s hard not to find regions with public debts of less than a few hundred million[4].

There is no quick fix for this. But, notable efforts are being made to balance the books. According to an i news exclusive[5], the government is set to push councils to sell off billions of pounds worth of property assets to cover their debts, and keep local services going.

This could mean that some of the £23.2bn of property assets owned by councils may be sold to keep them afloat, as opposed to relying on taxpayer bailouts. But, seeing billions worth of real estate come to the market could impact the wider property scene.

“Supply will still lag far, far behind demand”

Paresh Raja, our own CEO, shared his thoughts on what this impact could look like.

“From one perspective, this is a positive move,” he said.

“The UK’s housing shortage is well-documented – it’s a major societal issue, and at Market Financial Solutions we’ve long argued that more could be done to take empty or rarely-used buildings and find ways to get them back on the market. So, this scheme could help inject some much-needed supply.

“However, it’s also important that the right buildings are chosen to sell, and that local communities don’t lose out. Our research[6] shows that homebuyers and renters alike place great value on accessible and nearby amenities when choosing a property to live in, such as leisure centres and libraries.”

Mr. Raja highlighted that councils must ensure that important features of local neighbourhoods are not lost in the pursuit of balancing the books. Meanwhile, if councils are in a rush to sell, they must also guarantee that they are selling their assets at a fair price to maintain value for money for the taxpayer. These were shared sentiments among all those we talked with.

“From a market perspective, it’s unlikely that the move will instigate significant price fluctuations,” he added.

“Supply will still lag far, far behind demand, which should limit the impact that any new supply might have had. For investors, meanwhile, the initiative will provide some intriguing investment opportunities, particularly for those willing to take on more significant renovation or conversion projects.”

Given the turmoil we’ve seen in the political world over the last few years, it’s understandable that many have reservations about these plans. Across the property scene, it appears there’s a healthy level of scepticism.

“This is short-term thinking in action”

Juliet Baboolal, partner at Gunnercooke, also expressed concern over exactly what properties will be sold, and what it could mean for local communities.

“One of the main concerns raised is the possibility of a ‘fire sale’ of public assets, which could lead to the loss of valuable community resources,” she said.

“Public assets such as libraries, civic halls, swimming pools, and community centres play a crucial role in supporting the objectives of local authorities and enhancing the quality of life in communities.

“Selling off these assets without considering their long-term impact may have negative consequences for the communities they serve.”

Timing may also be an issue. It was pointed out that many property experts and commentators do not feel the current market is particularly favourable for sellers. The economy, while recovering, is tricky to navigate at the moment. Councils may end up selling their assets at undervalued prices, which could exacerbate things further.

“While the proposed flexibility may assist some councils in unwinding risky investments made using taxpayer-funded borrowing, there is evidence to suggest that many of these assets are currently worth less than what councils paid for them,” she continued.

“The impact on community buildings is also a significant consideration. Once these assets are sold, it is unlikely that councils or the government will repurchase them in the future.

“This raises concerns about the long-term sustainability of relying on one-time capital receipts to address ongoing revenue challenges.”

Ms Baboolal cautioned this could simply be a short-term fix for an ongoing problem. Similar sentiment was shared by Hannah Duncan, a freelance writer and journalist who regularly covers the property market.

“This is short-term thinking in action,” she warned.

“What are councils going to do when they have no assets and no money left?

“It’s pretty common knowledge that selling off all the council-owned houses is what got them into this mess, doubling-down on the same bad strategy is not going to get them out of it”.

“Councils selling properties could bring to market a lot of opportunities in this space”

Still, Chris Sykes, technical director and senior mortgage broker at Private Finance, shared that this could bring much-needed supply, and opportunity to the property market.

“Property investors now seem to be looking at their future investments a lot more commercially, with certain residential assets not having the same level of profitability as in years gone by,” he said.

“Often, projects and opportunities to add value – like converting commercial buildings into residential, converting houses into flats, etc – prove tempting.

“Councils selling properties could bring to market a lot of opportunities in this space.”

Mr Sykes noted this could deliver new residential properties to these local markets – a critical need across the UK. Many of our current housing woes stem from the fact that the UK does not have enough suitable supply to meet demand. Converting council-owned assets into desirable flats and homes could go some way to amend that.

“However, this will be very dependent on what councils will want to sell, if the properties currently are in use, etc,” he added.

“It will also depend on if they are selling properties with planning/the statement of intent to give planning for certain uses, or if they are just going to sell as is.”

Early resistance

Indeed, questions may already be being raised about how suitable these plans are, and the willingness of some councils to engage.

Already, the government has granted some councils “exceptional” permission to meet revenue shortfalls from their capital account[7]. What this means is that councils are selling car parks, galleries, and museums to cover their short-term debts.

But, some are simply refusing to cash in. Southampton City Council, for example, initially planned to raise over £121m from the sale of certain assets. This almost included an 800-year-old Tudor House and Gardens, and the building which houses the John Hansard Gallery. The council has now confirmed it is no longer considering selling either building.

Reportedly, councillors of various political backgrounds feel it would be “disrespectful” to sell items that are part of their city’s heritage, and were often presented as gifts.

It remains to be seen how these plans take shape. The property market may end up flooded with assets that can easily be converted. But, we may also end up with a big, fat nothingburger, with councils that refuse to sell their properties, regardless of the state of their finances.

If the former comes to be, however, we will be there for property investors who spot an opportunity, and want to jump on it. Utility is the name of the game, and we can facilitate a range of strategies.