Work will start today on fifty affordable rented homes in Dunbar that will be built without any government subsidy thanks to a unique finance model developed by East Lothian Council and its partners.

The start of work on the development was marked by breaking ground through the planting of a tree at the site.

Along with pupils from Dunbar Primary School, also located on the Hallhill site, Councillor Jim Goodfellow, East Lothian Council spokesperson for housing and community wellbeing, joined with representatives from Robertson Group and Ross Development and Renewables (RDR) – all of whom were instrumental in finalising the innovative funding mechanism - as well as investors from the Co-op Pension Fund, to plant a tree on the site.

Robertson Homes is developing and marketing detached homes at Fair Acres in Dunbar. The development includes a Section 75 Planning Agreement with East Lothian Council to provide 60 affordable homes.

East Lothian Council worked with Robertson Capital Projects (RCP) and RDR to create an innovative delivery and funding mechanism that would allow the homes to be delivered using the council’s long term affordable rental income to underpin a private sector funding solution.

Fifty homes are being provided for rent at mid-market rates without subsidy, funded using private sector investment, while 10 will be for social rent, funded using the council’s capital budget with Scottish Government grant support.

In order to procure the project, RCP and RDR formed a Special Purpose Vehicle (SPV) to firstly acquire the land then enter into a design with build contract with Robertson Partnership Homes to construct the homes. RCP is providing construction phase finance, with the SPV undertaking a range of project management services to ensure successful delivery of the new homes.

The development has been facilitated by the investment by the Coop Pension Fund via their fund managers, PGIM, and their partners 3H York. The Co-op will acquire and hold the 50 mid-market affordable homes as a long-term investment following practical completion and lease the new affordable homes to the council.

All 50 properties will revert to council ownership at the end of the lease period at no cost to the council.

The first houses will be handed over in March 2019 for social rent. These new homes will be available to qualifying tenants initially from the council’s waiting list at initial rents for a two-bedroom terrace home at £508 per month. The remaining properties for mid-market rent will be handed over in tranches through 2019 and 2020 as development progresses.

The council has used funding support from Scottish Government to deliver much needed new socially rented homes with the innovative private sector funding model enabling the 50 mid-market rental homes in this case.

The innovative funding methodology means:

The move has been welcomed by Scottish Government cabinet secretary for finance, economy and fair work, Derek Mackay MSP, who said: “I am pleased to see work starting today on 60 affordable rented homes in Dunbar. 50 of these units will be built without any Government subsidy, with this innovative funding model accessing an ethical pension fund.

“I am also delighted to see the construction of a further 10 units for social rent by East Lothian Council, which will be supported by nearly £0.6m of Scottish Government Affordable Housing Supply Programme funding, and which will help us meet the target to deliver 50,000 affordable homes by 2021.

“This development demonstrates what can happen when the public sector and private sector work closely together.”

Councillor Jim Goodfellow said: “I am delighted that East Lothian Council has been able to reach agreement with partners on this unique finance model, which means we are able to offer more social and mid-market rental properties in a key location next to good schools, public transport links, amenities and facilities, with a minimal capital outlay for the council.

“The fact that these homes will eventually revert to council ownership too means it’s a sustainable option for the long-term as well as providing security of tenancies for our residents. It’s a shining example of how working with partners can help shape our communities and give more access to affordable housing options.

“Since 2007, more than 1,500 new affordable homes have been delivered in East Lothian, of which more than 700 are new council homes. 700 have been delivered through our Housing Association partners with the remaining 130 intermediate tenures such as discounted sale and mid-market rent delivered through other financial models.

“This project fits in perfectly with our Draft Strategic Housing Investment Plan which sets out an ambition to deliver a further 1,000 new affordable homes.”

Neil McCormick, managing director, Robertson Capital Projects, added: “We have been working incredibly hard for the last two years to make this delivery and funding model a reality because we understood the need for private sector support in order for local authorities to meet their key housing targets. I am confident that it will be the first of many. We are deeply proud to have played such a significant role in what will be deemed as a game changer in the affordable rental housing market for many other local authorities across Scotland.”

Ken Ross, CEO at Ross Developments and Renewables Ltd and chair of 3H York, said: “We are delighted to be working in Scotland with a number of councils using this innovative funding model, which does not require a penny of public subsidy. This means that the private sector takes responsibility for acquiring land, procurement, programming and funding and there is no reliance on grant funding to deliver these new affordable homes.

“The council can therefore accelerate its programme for much needed projects where no alternative funding solution exists, and it also means that the council acquires the homes at the end of the lease for a nominal fee resulting in ownership of a significant asset with no capital cost.”