Council Housing – Back to the Future? A New Role for Local Authorities in 21st Century Social Housing

April 21, 2009

Anna Turley, Deputy Director, NLGN
Shelter Housing

Even before this current economic crisis, social housing was in desperate need of radical and comprehensive reform.

Local authorities were already facing a severe and chronic shortage of homes. The number of households nationally has been increasing at over 200,000 a year, yet the number of homes being built has been in decline since the 1960s.

Today, social housing waiting lists continue to grow. There are currently 9 million social renters, and waiting lists have grown by 57% over the last 5 years, to 4.5 million people (1.8 million households). Recent reports have predicted that the recession will send waiting lists rocketing further as a growing number of homes are repossessed, and fewer people are able to get mortgages to buy private homes. The National Housing Federation expects the total number waiting for accommodation to reach a new high of around two million households by 2011.

Not only must we meet this need, but the current shortage of supply means council homes are only available to those most in need. Council housing has become the ‘tenure of last resort’. We cannot afford, financially or morally, to perpetuate a system, where housing stifles rather than encourages aspiration and happiness. Social tenants are currently the least happy with their accommodation compared with those in any other tenure and far more likely to suffer from problems such as crime, poor health, worklessness and poor living conditions. Despite the urgency, we must continue to build sustainable and mixed communities, neighbourhoods and homes, not simply properties.

Yet construction is slowing, with the number of houses registered with the National House-Building Council falling by 56% between September 2007 and September 2008. Limited availability of finance, a tightening of mortgage markets and increasing demands on developers have all contributed to this. Increased public subsidy for the social housing element may be required to ensure private developers continue some developments. Yet even if section 106 requirements are reduced, the developer will not make a profit unless homes can be sold at the end of the project, and therefore will be reluctant to build.

We are heading towards a crisis of housing availability unless we ensure that all possible steps are taken to start looking beyond the immediate downturn and that the potential for local strategic leadership in housing is harnessed now, to drive us towards the upturn.

What is the future?

So despite this gloomy landscape, there is a moment of opportunity here. Central government’s public response to the downturn is one of intervention, investment, and stimulation of markets. Prime Minister Gordon Brown has pledged to do all he can to ensure recovery, and this ‘all hands on deck’ approach could mean central government is prepared to reassess some previously untouchable New Labour housing shibboleths.

Not least the role that local government can play in revitalising the housing sector and in building new homes.

At this year’s New Local Government Network Conference in February, Gordon Brown said:

“I believe that councils should be given greater opportunities to play a bigger role in housing…If local authorities can convince us that they can deliver quickly and cost effectively more of the housing that Britain needs, and if local authorities can build social housing in sustainable communities that meets the aspirations of the British people for the 21st century, then we will be prepared to give you our full backing and put aside any of the barriers that stand in the way.

We believe there is a real opportunity for councils to play a leading role in housing, and that this should start now to ensure that local authorities can play their part in leading their local communities out of the downturn.”

Many have interpreted this as an inviting return to the mass local housing developments of the twentieth century. After the Second World War house building increased steadily, peaking in 1968 when 353,000 dwellings were completed. Of these, 58 per cent were built by private enterprise and 42 per cent were built by the social sector, primarily by local authorities. In 2007, by comparison, there were 175,000 completions, of which 87 per cent were by the private enterprise sector, and just 250 homes were built by local authorities.

Nearly two decades of conservative government had appeared to sound the death-knell for local authority built housing. Rules introduced by the Thatcher government prevented councils subsidising their housing from local taxes, channeled grants for construction of new social housing to Housing Associations and allowed council tenants the Right to Buy at a large discount which led to the sale of over 2million public sector homes. This, combined with cost-cutting initiatives in local government and a housing benefit scheme that was more generous to housing associations than local authorities, led to many councils transferring out their housing stock.

Under the New Labour government, there was no desire to return to the days of vast, municipal housing blocks, and the focus was on raising the standards of existing homes, through the Decent Homes programme and the development of Arms Length Management Organisations. Yet insufficient attention was paid to housing supply to match the escalating demand.

So why might now be the time for local authorities to return to building council homes? Initially this seems an inviting proposal. They have land to build on, and there are builders and construction companies ready to go. Local authorities are a safe and stable investment vehicle, and can invoke their prudential borrowing powers. They seem to be well placed to step into the breach and fill the void currently being left by private sector developers.

Yet substantial barriers remain, and unless central government is bold enough to undertake serious and substantial reform as a matter of urgency, then this could simply be a good opportunity to ensure a multiplicity of provision, that never gets off the ground.

Potential Obstacles

The first barrier is capacity, which central government has been quick to point out. The question asked is whether local government is up to the job. Do they have the capacity to deliver on housing delivery? Over the last few decades, local authorities have been gradually denuded of their architects, builders, and planners. Careful attention would have to be paid to what a modern council housing delivery team would look like. Local authorities would need to consider how to build these teams up from scratch or whether to outsource selected aspects where capacity is low.

Another barrier is funding. It is very much the case that Housing Associations with their large borrowing potential still reign supreme, since cash that associations borrow on top of grant does not count as public borrowing. Perhaps it is time for the government to put councils on an equal footing with Housing Associations in terms of access to greater borrowing, and exempting them from some borrowing rules. Some reports suggest the Prime Minister wants to change the public sector borrowing requirements we would hope he will allow councils to use prudential borrowing to build more homes. Ideally the government would also allow them more access to grants. Moreover, the role of the HCA and how they will distribute their grant funding still remains to be seen – there could be some potential here for money to go to local authorities taking the lead in delivering local housing.

Margaret Beckett has spoken of government determination to ‘keep house-building going in the current climate’ and recently launched a consultation on the barriers to councils delivering more homes. It set out an indication that councils will be given the green light to keep the rental of any new homes they build and the receipts of any home sold through right-to-buy. However, only properties excluded from the HRA subsidy system (new build or newly acquired properties) are currently eligible for the 100% capital receipt exemption as well. Local Authorities, in addition to the changes CLG suggest, should be allowed the capital receipts on all RTBs. Enabling councils to keep 100% of capital receipts from Right to Buy would provide an extra £1.5billion that could fund new affordable homes.

This is a start, and also an acknowledgement that the restrictive Housing Revenue Account is still acting as a barrier when it could be used as an incentive to drive more home building. If local authorities could keep the money they pay to the Treasury for all rents through HRA, it would mean an additional £450 million per year for councils to invest in better homes for their residents. It could enable a concerted approach to alleviating local housing pressures and responding to local need.

However, this is predicated on government agreeing to reduce treasury income in a recession when government borrowing is substantial, and so substantial reform may not be imminent.

The extent of local appetite for councils building more homes also remains unclear – among both politicians and senior officers. Some councils are already embracing this agenda. Birmingham, with its proud history of innovation in municipal house-building – has recently outlined plans to build 500 homes a year. It has identified 40 hectares of brownfield land which would previously have been sold to private developers. It has set up a trust – Birmingham Municipal Housing Trust to circumvent the restriction of the HRA. This is paid for through prudential borrowing and through their innovative Bank of Birmingham.

However, not all local authorities will have the capacity or willingness to embrace this agenda. Some may be keen to do this in partnership. There ought to be plenty of opportunities for councils to form partnerships with developers or RSL partners to bid for money. There ought to be a more flexible approach to development with a variety of models and coalitions.

There should also be recognition that conventional use of Section 106 will not provide the same quantities of affordable housing as it has done – Local Authorities and Government should look beyond this to new housing delivery mechanisms. The amount of affordable housing delivered via Section 106 agreements has been greatly reduced in the past 2 years. We have moved from a situation whereby half of all new affordable housing, at a cost to developers of around £2bn per year, was being provided via Section 106 to one in which whole developments are stalled because developers cannot meet their Section 106 obligations. This makes the need for councils to build even more imperative and Local Authorities should intervene to redress this imbalance. Local Authorities should look to use planning legislation in new ways and partnership working with developers to give the drive for new council housing greater impetus. Section 106 agreements or funds raised from the Community Infrastructure Levy from non-housing developments could be prioritised/ring-fenced for new council house building projects. This additional capital could augment other funding streams (discussed above) and make council house building more viable.

Other local authorities are using imaginative ways to kick start house-building in their local areas. Sheffield City Council are planning to form a Local Housing Company to build 2,500 homes over the next 10-15 years.

Westminster’s ALMO Citywest Homes won £36million of social housing grant last year, which will see it build 500 new homes, including 246 council homes over the next four years. The project was managed by a charitable subsidiary set up by the ALMO.

Moreover, Islington has recently begun building about 40 homes funded by £8million it raised itself by selling about 200 commercial properties in 2007.

To encourage more activity, central government should consider some greater incentivisation to encourage local authorities to undertake large housing developments. Government should think creatively about what these could look like. It could take the form of a reward grant or a higher Comprehensive Area Assessment score perhaps for those councils who build and develop good housing in sustainable communities.

Ensuring new communities are sustainable is vital. Local authorities should understand that the old twentieth century ‘one-size-fits-all’ approach to mass municipal housing is in the past, and central government needs to trust that local authorities recognise this. The place-shaping agenda and the new CAA means they will have to have a far greater regard for sustainability, an understanding of ‘place’ and more mixed communities. They could build in support for those needing skills or other support such as child-care facilities, drug and alcohol, and mental health provision. New communities should be designed around promoting health and well-being, they should design-out crime and they should encourage mixed communities.

Other roles for local authorities

There is also the potential for councils building more homes to engage in the private market. They could potentially sell to the private sector, creating more mixed tenures, and helping to reduce the stigma of local authority housing. Currently 75% of the capital goes to the Treasury if councils sell off housing. If this changed, and the government bought in the right for councils to keep the money, as they have suggested with the Right to Buy sales, it might encourage councils to sell off more homes to private tenants and achieve more mixed communities.

Aside from actually building new homes, there are plenty of other important roles councils could play in shaping local housing markets and this could include buying up empty properties. Many councils are already taking steps to reduce the number of empty properties in their areas, such as reducing or abolishing tax exemption. Manchester Council, for example, has recently warned 44 empty homeowners that it will issue an EDMO unless they take steps to re-use the property. But there is more that councils could do to buy surplus commercial properties and convert them into housing, rehabilitate them and bring them back into productive use. Inside Housing have predicted the number of empty homes will reach 1 million this year.

Both the Conservatives and the Lib Dems have recently announced proposals to encourage the reuse of empty homes. The Lib Dems have proposed a £40million fund for short-life housing, and a reduction in the VAT for renovating homes to put it on a par with the VAT for building new homes. The Tory proposals would relax design and quality standards to enable vacant homes to be used as social housing. The HCA is currently looking at whether it can use its budget to support local authorities in taking enforcement action to bring empty homes back into use.

There is also the opportunity for local authorities to act in a counter-cyclical way and invest while there is a dip in the market for land and property. Councils could, in essence, buy up land-banks, and then work in partnership with private sector developers. This would mean moving more towards an LHC model – a relatively new public/private venture where councils put forward the land, and a private developer builds the homes. This is a new and relatively complicated process, and also relies on developers wanting to build, which could be problematic right now. In terms of a long-term investment vehicle for local authorities, however, this could be a thoughtful move.

There is also the option for local authorities to play a role in stimulating the housing market, by buying up unsold private properties. If sufficient flexibilities were allowed, local authorities and housing corporations could use money earmarked for new affordable homes construction to buy unsold homes originally built for the private market. There are fears that without such investment the housebuilding industry will grind to a halt, and shed capacity and so be in a poor position to take advantage of the market when it eventually recovers.

There is much that local authorities could do to support individuals, moreover. While the Government’s Mortgage Rescue Scheme is welcome, in that it enables local authorities and RSLs to provide equity loans and to take on mortgages where homes are at threat, there is more that local authorities can do. Local authorities could play a more proactive role in stimulating local mortgage markets by offering loans themselves as they used to. There would be issues to overcome such as capacity, expertise and willingness to take on risk, but a campaign from NLGN last year resulted in the government reducing the Standard National Rate if interest and allowing councils to borrow at a preferential rate.

Figures published in February by the Council of Mortgage Lenders (CML) showed the number of repossessions in the UK soared by 54% to 40,000 in 2008. All too often, local authorities are left to deal with the consequences of repossessions; more pressure on waiting lists, emergency housing requirements, as well as the social implications of repossessions: long-term poverty, poor health and well-being, and impacts on the emotional state of children and their schooling. In short, repossession can have serious social, economic and emotional implications for those involved. As NLGN highlighted earlier this year, there should be a greater role for local authorities in forestalling repossessions by, for example, lenders should be compelled to notify the local authority when a home is on the brink of repossession, enabling them to step in and proactively offer financial support.

Conclusion

Local authorities need to seize this opportunity to play a leading role in the delivery of social housing. Central government cannot afford to be dogmatic about who provides housing, when the need is so urgent. It needs to untie the hands of local authorities to enable them to compete on an equal footing with the private sector and with Housing Associations, so that they can choose to play their part. They are ideally situated to shield their communities where homes are at threat, but also to prepare for the upturn so that they can stimulate, and then play a full part in, the recovery of local house-building.

Whether local authorities chose to build themselves, or play a more strategic role, working with other investment and development vehicles, it is vital that they are at the heart of planning and delivery so that housing becomes part of a wider, more sustainable approach shaping streets, neighbourhoods and communities.

For further information on Shelter’s recent Ground breaking report click here:
http://england.shelter.org.uk/news/july_2009/ground-breaking_ideas_from_shelter


Explore More