A not-for-profit company created in response to the growing homelessness crisis faces an uncertain future after losing more than half of its member boroughs.
Some 21 councils had been members of Capital Letters - which was founded four years ago to increase the supply of rented accommodation for homeless families in London and drive down costs for members by removing ‘unproductive competition'.
Capital Letters had expected to grow its membership to 26 boroughs by April but 11 councils have since quit, leaving just 10.
The departures came after the introduction of annual £50,000 membership fees from April as Capital Letters becomes a private sector landlord.
An Ealing LBC spokesperson said the company ‘could not supply sufficient properties to help meet our urgent housing needs' while Haringey LBC said Capital Letters ‘cannot act nimbly' and it ‘had not been able to influence the market in the way that was hoped,' with the decision to leave giving the council ‘greater flexibility to use our resources and adapt to the changing market'.
In a statement, a Greenwich LBC spokesperson added it considered itself ‘self-sufficient in terms of the number of homes we secure from the private rented sector for our homeless households' and it believed that using Capital Letters would ‘not have been better value to the council'.
A draft version of Capital Letters' five year corporate strategy for 2023 to 2028, seen by The MJ, read: ‘The introduction of membership fees from April 2023 is an opportunity for members to invest to save, unlocking the benefits of membership and the savings that can be achieved through the transfer of their PSL [private sector leased properties] portfolios.'
Capital Letters said it intended to grow its membership to 19 by April 2028.
The company is looking to ‘deliver sufficient independent revenue' after the Government reduced its grant from £38m over three years (equivalent to £12.7m a year) to £14.1m over two years (equivalent to £7.05m a year).
Capital Letters, which has been grant-funded by the Government since its establishment in 2019, said it was becoming a landlord in its own right to create a ‘sustainable income stream' ahead of its grant ending next year.
Chief executive officer of Capital Letters, Sue Edmonds, said the grant had ‘always been in place for a defined period of time'.
The organisation's published strategy for 2023 to 2028 said it would seek to ‘generate income to secure a long-term sustainable future' and it planned a ‘smooth transition from being grant-funded to financial sustainability'.
However, the leaked draft strategy warned its success or otherwise would ‘become evident during 2024-25' and if its plans failed Capital Letters would ‘need to be wound up'.
The draft read: ‘There will be a number of tests that the board will monitor throughout the strategy period including financial performance, operational performance, number of members to assess the effectiveness of the strategy implementation. Capital Letters' external auditors' view of the company as a going concern in September 2024 will be a key decision point, thus providing sufficient time to close the company's activities responsibly if required.
‘The biggest existential risk facing the company is that there is insufficient support for this financial plan and the new delivery model, and, as a consequence, Capital Letters will be unable to generate sufficient income streams in the short term to provide a financially viable future from April 2025. If this is realised, Capital Letters will be wound up at the end of the first period of this strategy [March 2025].
‘The impact of the failure of this unique pan-London collaboration will also mean the loss of grant funding and the reputational impact on Government's view about London boroughs.'
Ms Edmonds said Capital Letters had ‘no plans to cease trading' but market conditions did not support a ‘wide membership'.
She added: ‘By consolidating our membership, it has meant that the properties we procure are offered to a smaller number of boroughs which mean they secure more homes than would have been the case, increasing our value to our partners.'
