Peter Hetherington writes in the Guardian that more than faith is needed to build council houses, and asks why Scotland manages to build almost as many as England when its housing market is a tenth of the size of its southern neighbour?
The reasons are set out in today’s UK Housing Review Briefing, which updates many of the figures in the annual publication and draws attention to recent trends. One of these is that the 32 councils in Scotland built over a thousand houses last year, and may well build the same number or more this year, while English council house building will probably peak at only a little higher than this, before heading back to the miserable output levels of 2-3 years ago.
So why is this? It turns out that the answer is in the spending rules. Scottish councils have several big advantages over their English cousins.
First, they’ve had local control of council housing finances for years, for the simple reason that Scotland stopped subsidising council housing revenue accounts and so the ridiculous ‘HRA subsidy’ system which is in its last year of operation south of the border fell into disuse in Scotland many years ago.
Second, they have had no rents policy for council housing, which may have been an oversight but has had the happy side-effect of low rents which councils can now raise – if they choose to – to pay for new investment.
And third, a quirk in the spending formula by which the Treasury controls Holyrood means that any extra borrowing is counted as what’s called ‘Annual Managed Expenditure’ (AME) rather than the more tightly controlled Departmental Expenditure Limits (DEL). In England and Wales, the opposite applies.
Even more surprisingly, councils are predicted to soon have the same building potential as Scottish housing associations. This is, of course, because their borrowing is cheaper than new borrowing by associations. It’s counted as public borrowing, though, which doesn’t worry Holyrood but might one day trouble the Treasury if volumes are perceived to get too high.
Even after council housing finance reform in England in April next year, councils will still be restricted in what they can do and won’t be able to emulate Scotland. In theory, English councils can also borrow prudentially, but HM Treasury is placing a cap on their borrowing from April onwards so they won’t be able to use this freedom to the extent they could support from their income. Some will continue building, but most won’t be able to do so on any scale.
There’s a sting in this tale, of course: someone is paying for the new houses and while there is a grant system in Scotland part of the cost falls on rents. So existing tenants are partly paying for the new homes. However, so far there has been no suggestion that Scotland follows England in jacking rents up to 80 per cent of market levels – or anywhere near them. So the pain is probably tolerable and councils must judge that they have tenants on their side.
The odd thing is that it’s in England rather than Scotland that the government is making a big fuss about cutting red tape and freeing up councils to do more. Looking north of the border might be a bit unpalatable since May’s elections, but even so the English housing minister could take a leaf out of Scotland’s spending rulebook.