When it comes to building new homes, councils still face rocky ground

Whatever happened to that new generation of council housing we were promised? Despite some welcome changes in the last couple of years, a new report reveals local authorities still face obstacles that are holding them back

By Mark Cantrell

THE heyday of council housebuilding is long gone, but the dream of recapturing something of those lost glories lives on. This isn’t about nostalgia, though; it’s about mustering every means available to ramp up the delivery of the homes needed to tackle the housing crisis.

For decades, councils were obliged (right to buy) or encouraged (large scale stock transfer) to divest themselves of housing, and were pushed into adopting a more strategic, hands-off approach that all but ended their days as housebuilders. As the housing crisis deepened, however, it gave strength to voices calling for the rebirth of council housing.

Councils – and others – lobbied long and hard for shifts in national policy that would enable this, seemingly only for such efforts to fall on deaf ears. In 2012, however, the ground began to shift and there were high hopes for the dawn of a new era. In practice, however, it proved somewhat premature.

That year the Government finally relented and ended the unpopular housing subsidy system, and introduced a financial settlement, that allowed councils to start eyeing up their prospects as housebuilders again. However, there was a snag – the borrowing cap limited their ability to borrow to build. Once again, local authorities were held back from contributing their fullest to the Government’s declared housebuilding targets.

Councils had to wait for late 2018, when Theresa May’s government scrapped the cap; a move the Treasury indicated would soon see councils being able to build up to 10,000 homes a year. This is a far cry from those heady days of the 1960s, when they were contributing well over 100,000 homes annually, but for all that councils have embraced their freedoms to build as best they can, that Treasury projection remains largely aspirational.

For all the gains, barriers to greater output remain. These factors were explored in a report released in January 2020 by the National Federation of ALMOs (NFA), the Association of Retained Council Housing (ARCH) – both of which represent stock retaining councils – and the Chartered Institute of Housing (CIH).

The Government should be “applauded” for lifting the HRA borrowing caps, but more “can and should be done” said John Bibby, chief executive of ARCH.

“The report highlights some of the remaining constraints on local authorities and we hope very much that the new government will look carefully at this report and act quickly to remove those constraints to allow councils to build a new generation of council housing for those who need it. “We recognise that homeownership is a genuine aspiration for many, but it is not the answer for everyone, and in many areas of the country house prices and rents in the private rented sector are unaffordable for those on modest incomes.

“The Government’s housing white paper of February 2017 recognised that the housing market is broken, and the Prime Minister said in his New year’s message that he wants to ‘unite and level up’ the country. If he is to achieve this, then stock-retained councils must be allowed to play their full part in fixing the broken housing market by building more council housing, which is necessary to meet local housing needs.”

Right to buy remains a considerable constraint on councils’ willingness and ability to build, but it’s not the only one (see box). There’s also a question of certainty and stability over rent levels over the next few years, and the availability and access to government grant. Land shortages and planning also play a part, as does the capacity of the construction industry, which is wrestling with a skills gap. Councils, too, face shortages of skilled staff.

“This [report] is solid evidence from the front line of housing demand. It highlights all that we have been trying to put before successive housing ministers over the last five years,” said Chloe Fletcher, policy director at the NFA.

“The lifting of the HRA debt cap was fantastic news to the sector and a very necessary reform of the system, but it is not enough on its own. Finding land on which councils can afford to build is a huge concern, as is the current right to buy regime, which both depletes housing stock and siphons public money out of the system.

“We have been arguing for years that right to buy doesn’t necessarily have to end. However, it must urgently become a sustainable homeownership offer that sits comfortably alongside our very desperate need to provide more homes that more people can afford to rent.

“With the right support, councils and their housing management ALMOs are ready to do that, but they need the wholehearted support of Government. And Government needs local authorities – the national housing crisis is a problem that the private sector simply can’t solve on its own.”

John Perry, the report’s author, added: “Councils and ALMOs are ready and willing to take on long-term investment programmes, but stability is vital: there needs to be a consistent approach to rents policy and no wider policy changes that would compromise the major commitments which councils are now taking on.

“And given their very diverse approaches to building new homes, councils need more local powers and flexibility on key issues such as right to buy, access to grants, and local rent levels to deliver what their local communities need.”

Gavin Smart, chief executive of the CIH, added: “This report shows that councils are stepping up to the challenge of building more homes, and with more help they could make a significant contribution to ending our housing shortage. But a combination of factors is stopping them. If the Government wants councils to play their full part, it needs to take on board the points raised in this report and give councils the flexibility they need to really get building the homes their communities need.”

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What’s in the way?

Rents: Councils have welcomed the new five-year policy, but there is a need for 10 years of stability on rents. They also need some flexibility to tackle “historic anomalies” in their rents left over from the ending of the ‘convergence’ policy.

Right to buy: Sales are “severe disincentive” to building new homes as they might have to be sold after only three years, possibly at less than the cost of building them. This could also prejudice loan repayments.

RTB receipts: Under the current rules – which the report notes are due to be revised – councils face a “severe impediment” to building new homes. Issues include the proportion of money from sales taken by the Treasury, rules about the re-use of receipts, and a bar on using receipts with grant or Section 106 money in the same scheme.

Grant: With margins tight, the availability and level of grants, especially as programmes expand, are key issues. This is particularly an issue for those councils that want to build social rent homes.

Land and planning constraints: Almost all councils face “severe limitations” because of the physical availability of land and the cost. Planning procedures can hold up development, even if councils are running the building programmes. Councils need powers to intervene more effectively and quickly to get the land they need.

Building industry constraints: With the construction industry facing its own skills and recruitment issues, it represents a further potential constraint on councils. The report says that more help is needed through the apprenticeship levy and the wider use of modern methods of construction.

Staff shortages: Councils face their own recruitment issues, with difficulties finding the right staff. However, those in London found fewer difficulties than elsewhere. Continued help from Homes England is considered vital as programmes expand.

Competing priorities: Councils also have a commitment to invest in their existing stock; a major challenge for some, post-Grenfell. The long-term viability of each council’s HRA depends on them being able to make this reinvestment, as well as on factors such as rental income.

Public Works Loan Board (PWLB): The recent increase in the cost of loans may fall within the margins most councils have allowed for, it nevertheless tightens the finances for newbuild within the HRA.

NH

This article first appeared in the print edition of Northern Housing magazine, #7 March 2020

 

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