Cover Story: Is it time to let councils back on the building site?

Come on, George, let ‘em play

Political policy these past 30 years has left council housing a badly depleted rump, but the tenure has proved a tenacious survivor – so maybe it’s time to bring it back from the brink. You never know, it might even help to save homeownership from collapse, writes Mark Cantrell

 First published in the June 2013 edition of Housing magazine

FOR the Conservatives – the natural heirs, you might say, to Margaret Thatcher’s housing revolution – it must be especially galling to find the ‘property owning democracy’ crumbling all around them, but they are not alone in lamenting its imperilled state.

After all, Britain is supposed to be a nation of homeowners. It’s become an article of faith, to which Labour and Conservative ministers have long paid homage. Yet despite all their efforts over the years, the tenure has effectively undergone a curious kind of residualisation.

First-timers have long-since struggled to access the market. High prices, both before and after the 2008 crash, the difficulty obtaining mortgages, the sheer scale of the deposits needed, have all combined to exclude a rising tide of people from the property ladder. Homeownership peaked around 2001 at 69%; it’s been downhill ever since.

Meanwhile, social housing has experienced its own well-documented problems and issues of residualisation, leaving it sorely restricted in terms of mopping up this added surplus of home-seekers. The property ladder exiles have tended to wash up in the private rental sector – where business is booming as rents bubble up – creating the so-called Generation Rent, and stimulating widespread fears that homeownership is becoming the preserve of the wealthy few.

Simply put, new homes are not being built at anywhere near the rate needed to cope with existing – let alone future – demand. Less than half the 240,000 homes per year are being built, and since 2007 housing completions have dwindled to their lowest levels since the 1920s. Across all tenures, the UK’s housing market has become locked in a vicious cycle of destructive dysfunction; however it’s the issue of homeownership that has perhaps most vexed ministers.

Despite an array of programmes and policy initiatives, not to mention the fortunes expended over the years, neither the last Labour government nor the current Coalition has managed to trigger a critical mass of delivery that might go some way towards stabilising the market.

Indeed, for all the effort made, the dysfunction only seems to gather pace. But there might just be a way to salvage the late Iron Lady’s legacy. Strange as it sounds, maybe the best thing the Government can do to help first-time buyers is to let local authorities build on a large scale once more. Councils are certainly willing. In fact, they’ve been lobbying for the chance to get back to the building site.

Sure, in recent years some of them have started to build again, but their efforts thus far have been necessarily small fry. Reform of the Housing Revenue Account (HRA) subsidy system has allowed ambitions to be dusted off, but for them to have any large-scale impact there’s a further hurdle to clear: lift the borrowing cap so they can work their assets and invest in still more.

“Councils have excellent credit ratings and want to use our assets to help kickstart the housing recovery but our hands are being tied,” said Councillor Mike Jones, chairman of the LGA’s environment and housing board. “At a time when housing waiting lists are rapidly expanding, levels of house building are languishing and the economy is still struggling, it makes no sense for Government to continue preventing local authorities from investing in the new homes the country badly needs.”

The economic case for building more homes, along with other infrastructure investments, is attracting a growing clamour of voices, including the International Monetary Fund (IMF), all hectoring the Chancellor George Osborne to bite the supply-side bullet and let the country build its way to better economic health.

“With thousands of construction workers out of work and interest rates at record lows, there is a growing consensus that investing in improving our infrastructure, particularly housing, would give an immediate boost to the economy, encourage more private investment, and give us a long-term return as we strengthen our economy for the future,” shadow chancellor Ed Balls said recently.

“If the entire infrastructure boost recommended by the IMF was spent on housing over the next two years, we calculate that it would allow the building of around 400,000 affordable homes across the country, and support 600,000 new jobs in construction, including 10,000 apprenticeships, supporting small businesses, helping people aspiring to buy their own home, reducing waiting lists, and easing pressure on rents and housing benefits bills.”

Research carried out last year for the LGA claimed councils could make a healthy contribution, delivering 60,000 new homes over five years if the Chancellor lifted the borrowing cap. Under current rules, councils can borrow no more than £2.8bn to invest in housing: enough to build 15,000 homes. Remove the cap and they can borrow up to £7bn under existing prudential borrowing rules to deliver the larger figure.

Councillor Jones added: “Councils, the markets and the construction industry all agree that the housing borrowing cap is unnecessary and only serves to hinder the housebuilding recovery. The Chancellor has an unrivalled opportunity to create jobs, provide more homes and help the economy without having to find a single extra penny. New homes are badly needed and councils want to get on with building them. The common sense answer is for the Treasury to remove its housebuilding block and let us get on with it.”

There’s more to the economic case than just boosting construction, as the National Housing Federation (NHF) pointed out. A ComRes study it commissioned recently highlighted the difficulties the housing crisis is causing for businesses of every sector in terms of recruitment and investment decisions.

“Our economic recovery is being held back because there aren’t enough homes in England today, and this lack of homes has pushed up prices and rents beyond people’s reach,” said Gill Payne, a director at the NHF. “As a result, businesses are finding it tough to attract workers and expand because many people can’t buy a home or would struggle to pay high rents.

“If things don’t change, employers will simply move – potentially out of the country – taking away desperately needed jobs. Building more homes can kickstart local economies faster than any other industry, create jobs and keep local shops or pubs open. It could be the crucial difference between a thriving community and a dead ghost town.”

The Chartered Institute of Housing (CIH) has backed councils’ calls to lift the borrowing cap as one of its proposals for George Osborne to consider in his Spending Review on 26 June, so the pressure on the Chancellor to deliver is certainly mounting. Of course, he’s been asked to lift the borrowing cap on a couple of occasions before now, only for the request to be shown the cold shoulder. However, it’s a demand that is unlikely to go away should he choose to ignore it yet again.

“The affordable housing sector has a proven track record of delivery – something the Government should be taking advantage of to help tackle the immediate shortage of homes and boost the economy,” said Grainia Long, the CIH’s chief executive. “In the longer term, we want to see all parts of the housing industry stepping up new building so housing is able to make the biggest contribution possible to our economic and social success.”

None of this is a call per se for the launch of a mass programme to build a new generation of socially-rented council stock, but it is somewhat implicit in the idea of freeing them up to deliver tens of thousands of new homes, so maybe it’s an idea that has finally turned full circle and come of age. If so, then it adds an ironic twist to the tale of two tenures that has – in a very real sense – defined the last 30-odd years of the housing landscape.

The ‘property owning democracy’ was launched off the back of council housing with Right-to-Buy. It proved popular – but controversial – as millions of properties came to be sold off. With councils unable to build sufficient replacement stock, so began the rapid decline of local authority housing provision, even as the sell-off boosted the ascent of homeownership.

Later, stock transfer took its own toll. The policy, though introduced within the Housing Act 1988, was embraced by the Labour Government that came into power in 1997. As the programme gathered pace, so it became a second whammy depleting numbers. By then, it had become something of a received wisdom that council housing had had its day. However, the form has tenaciously refused extinction, even as it was residualised to a near-rump, so perhaps it’s time to exploit that staying power.

For sure, it might sound farfetched, even as a conceptual link, but one might argue that Right-to-Buy effectively linked the fate of homeownership to that of council housing. By diminishing the latter, the argument goes, successive governments have undermined the foundations of sustainable mass homeownership.

The great ‘property owning democracy’, then, has come to be built upon sand. So little wonder it’s teetering. Ministers and their policymaking minions have pretty much tried everything else to solve the problems of Britain’s dysfunctional housing market, all to no avail, so why not give councils a shot? Perhaps they are the missing piece of the puzzle.

If nothing else, it’s certainly a provocative thought: that council housing might hold the key to saving homeownership.

The above article first appeared as the cover story for the June 2013 print edition of Housing magazine. It was subsequently republished on the Housing Excellence website, 6 February 2014.