Councils could boost housing investment but they’ve been straitjacketed

While the prospects of a post-Brexit boost to public housing investment must have faded with Sajid Javid now in charge at DCLG, he could at least have a quick look at the mess that’s been made of council housing finance by departing Chancellor Osborne. In a report out yesterday, CIPFA and CIH show that the self-financing of council housing, which took place just over four years ago and was supposed to generate a huge boost in council house-building, has been systematically undermined by changes made by the Treasury that pay no regard to the promises made at the time.

Grant Shapps, the former housing minister, was much maligned by Red Brick, but at the same time we were always willing to give credit where it was due. Most importantly, he inherited the planned self-financing settlement for council housing from Labour minister John Healey, and he implemented it. Sure, some crucial features were changed, like the plan to let councils keep all capital receipts. But Shapps was strong enough to fight off the worst of the Treasury’s attempts to undermine the deal, and he rightly claimed the settlement was ‘intended to endure for the long term’. Soon afterwards, of course, he was replaced by a series of ministers who seemed to have little allegiance to the promises that had been made. Shapps himself – wittingly or otherwise – started the undermining process by ‘reinvigorating’ the right to buy. But much worse was to come, with a succession of changes to rents policy of which the worst was the latest – a cut of 1% in council rents last April, to be followed by three more 1% cuts at yearly intervals.

fig 6

The report shows how this has massively undermined the investment potential available to councils (see chart). In theory, if all of their spare capacity after 2012 had been invested in new housing, they could have built up to an average of 18,000 new homes per year, even within the borrowing caps that the Treasury imposed. But their capacity has been eroded, so soon after the settlement, to leave them able to build little more than 1,000 homes per year, more or less what they are doing now.

Of course this is a national picture but survey results confirm the trends at local authority level. Some LAs no longer want to build, and are prioritising paying off debt. But many councils, both big and small, are eager to add to the housing stock. Some are resorting to council-owned housing companies, outside their housing revenue accounts, as the only way to do so – but inevitably this means developing a mix of properties of which many will be let at higher rents or offered for sale. Building via housing revenue accounts is the best way to get new houses that can be offered at genuinely affordable rents.

If Theresa May’s government is minded to launch a public investment drive, it will find councils severely handicapped to help. Coinciding with the report, John Healey called for such an investment boost at this week’s CIPFA conference. He said there must be an end to constricting council’s capacity and ‘a change of direction that is both fast and fundamental’. Red Brick couldn’t agree more. The irony is many councils could respond if only their income were not being eroded by Treasury-imposed rent policies. While they would then increase their borrowing, it’s unlikely that they would need to breach the borrowing caps set in 2012. And they wouldn’t necessarily need grant, either. Fundamentally, council housing is still a self-financing business with a healthy income and low debts (much lower per unit for most authorities than is the case with developing housing associations). While councils cannot soon be expected to reach the dizzy heights of new building that many hoped for four years ago, they could certainly build at twice or three times their current level.

Red Brick has no idea if Grant Shapps is on speaking terms with Sajid Javid, but if he is he could pass on a quiet tip: get Phillip Hammond to quietly drop one of his predecessor’s many ill-thought-out policies, and you could spark a building programme by councils that will help tackle housing needs and boost local economies, with minimal impact on public funds.

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6 Responses to Councils could boost housing investment but they’ve been straitjacketed

  1. Pingback: Who will pay to reclad the tower blocks? | Red Brick

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  5. Pingback: Right to buy sales are not being replaced. Period. | Red Brick

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