False and dangerous myths?

Why would Inside Housing want to attack the idea of councils having more borrowing power to build new homes? After all it runs campaigns like Grant Britain Homes that call for more investment in affordable housing. Yet it’s just labelled the demands for greater borrowing freedom a False and dangerous myth. The opinion column accompanies a piece of research which used Freedom of Information requests to find out how councils were using their current borrowing ‘headroom’. The data show that councils like Wigan and Kirklees had £45 million of unallocated borrowing power and that many others had not yet borrowed up to the maximum of the ‘caps’ set by government when self-financing began in April 2012.

There seem to be no problems with the data (although individual councils might have issues with how they’ve been reported). The problem is that a story about how the early stages of self-financing for councils are working out has been turned into an opportunity to try to rubbish the case for changing the borrowing rules.

The argument seems to hinge on the fact that ‘most of the £2.9 billion of investment already available is untapped’. That’s to say, in February, just 22 months after self-financing began, councils hadn’t yet borrowed to the maximum they will be allowed to borrow (if nothing changes) for the next 30 years. Well, that’s hardly surprising, is it? Even those many councils who are bursting to build new homes are hardly likely to have got new developments on site in less than two years. The fact that there was an upsurge in council starts in the first quarter of this year is probably still down to earlier grants made available by the HCA, rather than councils’ expanded programmes after self-financing began.

While it’s true that a number of councils don’t yet have firm plans to build, that’s not surprising either. Demand and needs will be different across the country: in some cases demand may be limited, in others investment in the existing stock is the priority, and others may have used up their available supplies of land. Undoubtedly, too, there is a degree of caution in the face of welfare reform and spending cuts that have hit other council services. But neither the purpose of a change in borrowing rules nor the forecasts of possible outcomes depended on all councils using their full borrowing headroom, much less within such a short time.

Strangely, in another article by the same journalist Keith Cooper, this time for the Spectator, with the provocative title Why Owen Jones is wrong on housing, he points out (correctly) that around half of councils have less than £10 million borrowing headroom. The ignorant reader might think this is a lot of money, but of course – even if all spent on new build – it would barely amount to 100 new homes over the course of 30 years, quite apart from finance needed to improve the existing stock. Perhaps inadvertently, he adds to the case that Red Brick and others have long been making, that the borrowing caps are far too restrictive. His other results confirm that, in addition, they are arbitrary in their effects, with some councils having no spare borrowing capacity at all and a large number only having enough for the investment they need to make in their own stock.

But the problem about the Inside Housing (and Spectator) pieces isn’t the detail – it’s the overall message that the need for more borrowing power is a ‘myth’ and those calling for it are ‘misguided’. In a robust response, Tom Copley, Labour spokesperson at the GLA, pointed out that even Cooper’s figures show that six out of ten councils badly want to build more homes, and many are held back by the borrowing caps. Keith Cooper and Inside Housing are to be praised for their detailed research on this and other issues about local authority housing finance, but they should be much more careful how they present their findings. Those who are opposed to building more council houses or who doubt local government’s ability to spend wisely will be only too quick to make use of alarmist articles like those that appeared last week.

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4 Responses to False and dangerous myths?

  1. Keith Cooper says:

    Hello,

    Thanks for your response. You’re quite right that my phrase ‘the borrowing cap is not currently restricting many councils’ efforts to build homes’ doesn’t quite stack up. Written in haste as it was, it doesn’t quite reflect what I have said elsewhere.

    The second comment – that ‘campaigns to lift the caps are largely pointless’ – does capture the point of my previous pieces: that the cap is not what is chiefly holding councils back. And this claim is supported by the research.

    To be clear: the ‘false and dangerous myth’ is that the ‘best way to boost council house building is to abolish the so-called ‘borrowing cap’ (Inside Housing) and that its abolition would somehow allow councils to construct ‘hundreds of thousands of homes’ (Spectator). To accuse me of taking aim at anything else, would be to duff up a straw man.

    Furthermore and as previously mentioned, it is up to the cap-lifting lobbyists to prove your claim that ‘a significant proportion [of councils] already have plans which are frustrated by the borrowing caps’. I’ve seen no convincing, concrete evidence of this; only assertion. And with respect, this is the strategy you appearto have adopted in your response.

    I recognise that this restriction exists in some authorities but this is arguably addressed by existing policies- such as the £300m or so extra funding made available by the government.
    In the end, it’s not me that anyone has to convince about lifting the cap; it’s the Treasury. On balance, from all that I’ve seen, the case is not yet made.

    Keith Cooper

  2. Keith Cooper says:

    Submitted on 2014/07/07 at 09:50 by Keith Cooper

    Hello,

    Thanks for your response to my opinion pieces in Inside Housing and the Spectator’s Coffee House blog. Unfortunately, your comments above appear to misrepresent several aspects of my research and argument.

    Most importantly, you single out just one aspect of my argument, so missing its whole point and motivation.

    In both pieces, the central argument is that the borrowing cap is not currently restricting many councils’ efforts to build homes, as so many lobbyists and columnists claim. And that campaigns to lift the caps are largely pointless while many authorities are not exploiting the borrowing power they already possess.

    With this in mind, the borrowing cap campaign serves as a distraction from the real issues restricting council house building. These issues, identified by my research need to be recognised and dealt with urgently- not dismissed as side issues.

    Your piece states that my research and articles claim that four out of 10 councils have not used their borrowing power. None of my pieces say this. Instead, they state that these authorities have “no plans” to use their borrowing powers. This is an important distinction, as it indicates that many authorities are yet to get to the drawing board, despite having borrowing freedoms for almost two years.

    To be clear, four out of 10 councils have not even planned to use a penny of their borrowing powers, let alone use them. This is all explained in the Inside Housing feature.

    You also point to Tom Copley’s piece which infers that six out of 10 authorities must be using their headroom. While true, this is not quite the whole picture. It is worth noting that several have only planned to use very small amounts.

    It is also worth mentioning that my claims and conclusions are not just based on the figures drawn from the FoI data. They are premised also on several months of research, speaking to numerous councils and their advisers. It is not just the data that supports my arguments; they are also supported from within the industry too, as the Spectator piece suggests.

    All this research has led me to the clear conclusion that councils need some extra help to get back into house building and that this is where the attention must be urgently directed. It also exposes the sheer lack of evidence that the cap is actually restricting councils’ ambitions in this area.

    In fact, as the Inside Housing piece shows, the borrowing cap is being lifted by councils themselves, as they pay off debt rather than exploit their loan capacity to ease housing need.

    If Red Brick, lobbyists and columnists really believe that borrowing caps are restricting councils’ house building ambitions, they are yet to present convincing evidence. This point has already been recognised by at least one council housing umbrella group, which is taking the results of my research seriously. Its members are due to meet to soon to discuss ways of better harnessing their borrowing powers.

    This is the kind of response I was hoping for.

    Keith Cooper
    kijcooper1973@yahoo.co.uk mailto:kijcooper1973@yahoo.co.uk

    • monimbo99 says:

      Keith. The two phrases ‘the borrowing cap is not currently restricting many councils’ efforts to build homes’ and ‘campaigns to lift the caps are largely pointless’ are non-sequitors. While a significant proportion of councils aren’t yet using their full borrowing potential (and may not have plans to do so) a significant proportion already have plans which are frustrated by the borrowing caps, and those caps are therefore already holding back future output even where they have not yet been fully taken up. Regardless of current plans, the caps impose very tight limits on around half of all councils. Whereas your arguments that many councils may need more support to get building plans moving is both true and welcome, it doesn’t remove the need to address the issue of the very restrictive borrowing caps. Why does such an argument perpetuate a ‘false and dangerous myth’?

      • Keith Cooper says:

        Hello,
        Thanks for your response. You’re quite right that my phrase ‘the borrowing cap is not currently restricting many councils’ efforts to build homes’ doesn’t quite stack up. Written in haste as it was, it doesn’t quite reflect what I have said elsewhere.
        The second comment – that ‘campaigns to lift the caps are largely pointless’ – does capture the point of my previous pieces: that the cap is not what is chiefly holding councils back. And this claim is supported by the research.
        To be clear: the ‘false and dangerous myth’ is that the ‘best way to boost council house building is to abolish the so-called ‘borrowing cap’ (Inside Housing) and that its abolition would somehow allow councils to construct ‘hundreds of thousands of homes’ (Spectator). To accuse me of taking aim at anything else, would be to duff up a straw man.
        Furthermore and as previously mentioned, it is up to the cap-lifting lobbyists to prove your claim that ‘a significant proportion [of councils] already have plans which are frustrated by the borrowing caps’. I’ve seen no convincing, concrete evidence of this; only assertion. And with respect, this is the strategy you appearto have adopted in your response.
        I recognise that this restriction exists in some authorities but this is arguably addressed by existing policies- such as the £300m or so extra funding made available by the government.
        In the end, it’s not me that anyone has to convince about lifting the cap; it’s the Treasury. On balance, from all that I’ve seen, the case is not yet made.

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