London councils’ landlord Capital Letters faces closure amid market challenges

Capital Letters, an organisation established by several London councils to tackle the growing homelessness issue and cut costs on temporary housing, stands on the verge of closure, according to Inside Housing.

Launched in 2019, Capital Letters describes itself as a ‘not-for-profit landlord and service provider’.

It was connecting private landlords with 21 member boroughs to provide homes for homeless families at Local Housing Allowance (LHA) rates.

However, the firm now intends to cease operations once its current agreements conclude, with most staff facing redundancy by the end of May.

Inside Housing says that insiders report that the firm’s final leasing pact with Merton Council will finish before the wind-down.

Crunch decision on future

A Capital Letters spokesperson told Inside Housing: “The members are considering the options available to continue the great work of Capital Letters. No decisions have been made.”

A crucial meeting is scheduled for today (8 April), where the company’s board and representatives from London boroughs will decide whether to remove Capital Letters from the Companies House register or keep it as an inactive entity.

Since its inception, the organisation has seen four finance directors and altered its operational model.

Initially backed by government funds, it aimed to alleviate pressure on local authorities by matching tenants from housing lists with private rentals to help relieve councils of their obligations.

Despite securing significant agreements, such as a £1.5bn plan in 2021 to lease 4,000 mostly new properties, and a recent £750m deal with charity Home Safe Housing to renovate 2,500 homes for mixed rental rates, Capital Letters has struggled.

One issue has been escalating rents in London which have deterred landlords from participating at LHA rates, preferring higher private rents instead.

Became a private landlord

The shift to a private sector landlord model in 2023, coupled with a £50,000 annual membership fee, led 11 partner boroughs to withdraw.

This transition yielded only 12 property acquisitions and plans to become a housing association were abandoned due to unmet regulatory standards.

Two years ago, a leaked 2023-28 strategy to The Municipal Journal hinted at potential dissolution if the private landlord approach failed to generate enough revenue by 2024-25.

Last November, the journal highlighted a drastic 90% drop in property offers to boroughs since 2022, attributing it to the widening disparity between LHA and skyrocketing private rents in the capital.

Data up to March 2024 showed offers plummeting from 2,615 in 2022 to just 257, underscoring the acute challenge faced by the agency in a tightening market.