The Failure of Brick by Brick – and Croydon

Croydon has issued a section 114 notice – effectively bankrupt. Its leader as well as it’s chief executive Jo Negrine has departed (with a golden goodbye of 2 years pay).

Much of the blame goes towards “Brick by Brick’ a trading arm designed to develop council owned sites for housing much of it affordable as well as commercial property purchases and a SPV set up for development of Fairfield Halls. Such are not an inherently bad idea, dating back to Chef Planners Joanna Averleys time as Head of Planning at Croydon, yet here it has gone spectacularly belly up.

The report revealed the council had lent almost £200m to the developer without receiving any dividend or any interest. Yet has no council appointed directors and has presented no meaningful financial figures to scrutiny. Yet all the time being bailed out.

“The most recent business plan presented to cabinet states Brick by Brick ‘will offer first refusal on all of our homes to the local authority in order to help address local housing need’. The underlying financial case from the council’s perspective for the purchase of these properties did not address the circular nature of the council taking out borrowing to lend to Brick by Brick to build the properties and then the council taking out additional borrowing to purchase properties from Brick by Brick.”

The blame being due to the ‘slippage’ of its development portfolio, despite buying 6 Croydon owned sites for just 1 pound each.

How did it go so wrong? When council owned development vehicles have succeeded at other authorities like Islington.

It itself stated

Delays on projects have been caused by several factors, including the covid-19 pandemic and lockdown, additional works required on site and supplier and regulatory delays.

Yet its problems were apparent well before covid.

The problems are due to the way it was set up to be a ‘good architectural client’ and to make money like a developer rather than receiving grant funding like an RP.

The developer, …has been praised for choosing to work with small and up-and-coming practices,

Which means it has zero economies of scale and its in house architectural team having to develop individual and bespoke detailed designs for every site, at a time when the housing industry is cutting costs by standardised MMC across whole regions and companies.

What it should have done is entered a partnership with a large rp with its own system of construction and in house archtecture team. Brick by Brick didnt even register a shared ownership provider. Which suggests a certain niavity over the business model of housebuilding.

With different designs for every site it has to manage each site as a separate project, and not being set up with the commercial skills of a project management office failed badly at programme management.

There clearly are lessons for future locally led development corporations in terms of proper appointments to the board and financial reporting arrangements, as well as ensuring ‘being a good client’ follows from a good business model that can properly scale up to dozens of sites.

When considering its debt it is not a going concern. It has no brand value with its dysfunctional central office. Its sites will need to be auctioned one by one.