Paul Hunter, head of research at the Smith Institute, writes for Local Authority Building and Maintenance on our report Does Council Housing Have A Future?
Recent housing stories have rarely been positive. Overcrowding is up. The number of new homes built down to record lows. Many young people are excluded from homeownership. And many tenants face ever rising rents. Yet, it is not all gloom and doom. After decades of decline, council housing is back.
The rebirth of council housing started in 2009 when John Healey, the Labour Housing Minister, consulted on reforming the Housing Revenue Account (HRA), which at the time was the means by which central government controlled local authority housing finance. Beyond the technical details, the ‘Healey reforms’ sought to give local authorities greater autonomy over how they manage and invest in their stock.
The media took no notice, but the reforms have cross-party support and were welcomed by many councils as a significant step. The talk in housing circles was of a ‘council housing renaissance’. The extent of this renaissance is at present still small-scale and cautious, but the potential for a step change is still there for the taking.
Since the HRA reforms began the Smith Institute has conducted several studies into what the changes might mean, including the potential investment that could be leveraged in. The latest report surveyed lead councillors for housing in stock retaining authorities. Councillors viewed the HRA reforms favourably (only 9% of those surveyed were dissatisfied). Moreover, the appetite for building is impressive, with 93% stating that they were planning to build new council housing. Indeed, this backs up CLG figures, which show that councils are now starting to build again.
This is certainly good news given the housing crisis is most acute for those on low incomes. The councillors’ priority for more social housing (64% ranked it highest over new build of other tenures and 82% ranked it in their top two) reflects the demand for more sub-market social housing to ease pressures on waiting lists and reduce overcrowding. Moreover, new housing was ranked as a top investment priority for 60% of those surveyed followed by meeting decent homes (18%) and estate regeneration (16%).
However, whilst the ambition to invest was apparent the scale of new council house building remains modest. Almost two thirds of those surveyed were planning to build fewer than 500 homes over a 10-year period. In addition, 60% believed that new-build would not result in net additions of homes due to the impact of Right to Buy, void sales and estate regeneration.
Managing housing debts
Despite HRA plans to borrow to build, councillors were broadly split about how their authority should manage its housing debts. Just over half said they wanted to reduce or pay off their historic debt over the course of their business plan. Only 9% of plans were to see levels of debt increase. This divide is more evident when splitting responses by the number of tenanted homes — those with fewer than 5,000 homes were much more likely to be planning to pay off their debts, whilst those with more homes were less concerned about maintaining or increasing levels of debt.
Nevertheless, three quarters of respondents were in favour of abolishing the debt cap. This may seem puzzling given cautious attitudes over borrowing. It could merely be a matter of principle about granting greater autonomy over housing issues. Moreover, a similar number of those in favour of greater freedoms to borrow said that if their borrowing headroom was to double they would use the extra capacity to build. Interestingly, especially given the poor state of some council homes, only 7% said they would borrow more to invest in existing properties.
The survey captures the prevailing mood on the future of council housing. Many councillors have a clear desire to build more homes yet the financial constraints are holding them back. Some in the sector, whilst happy with the HRA reforms were far from pleased about housing debt allocation. This, and their views on the debt cap, suggest that freeing councils to borrow would deliver more homes and put authorities on more of a level playing field with housing associations.
Whilst there was movement in the Chancellor’s Autumn Statement politicians remain focused on deficit reduction. Indeed although the £300m extra borrowing capacity announced will be welcomed by many councillors (if not the Chancellor’s quid pro quo on selling off some homes), the scale is small considering the number of council properties. It is far from LGA’s estimate of £7bn to build 60,000 homes over five years and small beer compared with bond issues to housing associations.
The survey captures the cautious optimism of councils and the willingness to borrow. However, for councils to seriously scale up house building this is only half the story. Even if councils could borrow more, their debts would still need to be serviced and paid down over the medium-term. Affordable rent is one option (the survey showed most councillors were open to using it) but for many low-income households higher rents are unaffordable. And there is a limit to how much council housing can be financed by cross subsidy either through planning gain or private sales.
The level of new council house building at present and in the short-term is modest — especially compared with the heyday of municipal housing — but it is an important start. It is unrealistic to believe we will see a return to the levels of local authority build of the 60s and 70s (which is perhaps no bad thing given the short-sighted nature of some of the building programmes). Councillors (and the LGA) are keen to do more. Maybe they should have more incentives to do so. Whether this will happen depends on central government really letting go and making housing — and especially social housing — a priority.
The article can be found here