Will Labour invest big time in council housing?

14th November, 2013 4:08 pm

Back in 2009 John Healey, the then Housing Minister, consulted on reforming the way council housing was funded under the housing revenue account (HRA). This technical sounding reform was not on the party’s pledge card and never likely to get people marching in the streets. However it has since heralded a rebirth of municipal housing. The extent of this renaissance is at present small but has enormous potential.

Under a future Labour government councils all over the country could be building again at scale.

Until the end of the last Labour government council housing was seen as part of the problem. The Tories decimated the social housing sector with the introduction of Right to Buy (with few funds available to replace lost stock). New Labour’s preferred providers were housing associations who had freedoms to leverage in private finance while the policy focus was on ‘decent homes’ rather than new build.

The HRA reforms have started to reverse this trend, allowing council’s greater autonomy over their housing stock and freedoms to borrow to build. In our new survey (with Housing Voice) of councillors leading on housing, the HRA reforms have gained strong support (only 9% of those surveyed were dissatisfied). Moreover, the appetite for building is impressive with 93% stating that they were planning to build new council housing. Given the chronic undersupply of housing this should be a good news story, especially given that many of the most ambitious building plans have emanated from Labour controlled councils, such as Southwark and Manchester.

However whilst most councillors in the survey viewed building new social housing as the top priority, the numbers of homes local authorities plan to deliver still remains small compared with housing associations. The majority of councillors envisaged building less than 500 homes over the next ten years, and 40% thought that new build would not compensate for loss of stock through Right to Buy, void sales and estate regeneration.

The challenge then for Labour’s shadow team is how best to support councils to supply more homes at sub-market rent. Under the reformed HRA councils can only borrow up to a certain limit (far lower than housing associations, who can borrow billions off the public books through the bond markets). Maybe it is time to level the playing field?

Although much of the talk since the financial crash has been about deleveraging, for council housing the opposite is true. The problem is that a future Labour government will have to keep an eye on the deficit. Allowing councils to borrow more could provide much needed homes (78% of councillors said they would build additional new homes if the debt cap over council housing was to double) but equally by doing so it will push (as things stand) up public sector borrowing. This is, of course, a matter of political will and priorities, but movement on the cap would undoubtedly help increase supply. Moreover, it could potentially help reduce the Housing Benefit bill in the expensive private rented sector, provide new jobs and help dampen market rent increases. The extent of the gains is unknown, not least because a consequence of undersupply is overcrowding. Reducing overcrowding would come at a cost of increased Housing Benefit claimants and higher rents (i.e. moving from a two bed to three bed property). Nevertheless the economic and social gains seem compelling.

OBGR council estate

Increasing the ability to borrow clearly follows the line of reasoning of greater localism which was behind the reforms. But subsidised council housing will still need subsidy! If councils could borrow more those debts would still need to be serviced and paid down over the medium term. At present, sub-market rent levels fail to cover the build costs, with many social landlords turning to ‘affordable’ rent (up to 80% of market rent) and councils using planning gain (levies on private development) to cross subsidised new housing at social rents. There is a limit to the latter (and the former remains highly controversial) meaning new build housing requires grant funding to cover the shortfall.

Despite the Coalition’s talk of investing in infrastructure, grant for social housing (as opposed to ‘affordable’ housing) has been cut dramatically. Labour has pledged to invest more on housing, but how much more is unclear.

Labour councils are leading the way in delivering new council housing. However, the levels are unlikely ever to match the heyday of municipal housing, not least because of the mistakes that were made with system built tower blocks. However, councils have the potential to do much more if they have additional freedoms over borrowing. To expand still further, and to deliver genuinely affordable homes, will also require further public investment. The evidence shows many (Labour) councillors have a strong appetite to build subsidised council housing, but the extent to which this happens will depend largely on how much of a priority it is for central government.

Paul Hunter is Head of Research at the Smith Institute – their survey ‘Does council housing have a future?’ can be viewed here

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  • DanFilson

    “At present, sub-market rent levels fail to cover the build costs” Now is this really so? I doubt it.

    The land costs may be the killer, but taken over a number of years the revenue from rents may be sufficient to cover both land and building costs. It depends on the aggregation effect of the HRA. The rents coming into the HRA will be in respect of some properties whose construction was decades ago and the cost of which is long past, and others more recently built where the costs are still being paid for. Provided there is a constant stream of new build and the overall stock is not diminished by right-to-buy or similar measures which loot the stock without sufficient recompense, the cost of new properties can be met from the pooling effect.

    The key to a major new build programme could be how government subsidies are injected. I would favour the government meeting a high percentage of the interest charges, say 75% for the first 10 years, and possibly even part-subsidising land purchases. The council would still have to seek best value for its borrowing and land purchases, which would of course be secured on the existing housing stock. Right to Buy would have to end. Rents would still be ring-fenced within the HRA. Would tenants object to their rents in part – it would only be a small part – paying for future dwellings? Possibly not, if it was explained to them that the cost of their dwelling was borne by the tenants there in other dwellings before their particular dwelling was built.

    With an HRA all rents in the authority are pooled and all outgoings likewise. If an authority or ALMO has pooled rents only at an estate level, in effect creating a myriad of sub-HRAs, then bearing costs of new build out of HRA pooling becomes more difficult. I hope, incidentally, that a new Labour government will review the concept of ALMOs, which seem to me a pointless exercise in distancing responsibility away from those in power.

    • treborc

      The issue is of course, can labour say council or social housing, I truly believe the land my council is passing over for affordable housing and it’s really cheap , could have been used to have social housing on.

      But my local council sold it’s stock and it has stated it will not now start again, it said it did not want to sell but the pressure from new labour was massive and they have no intention of rebuilding and they see the answer in helping housing associations.

      I truly do not think Labour has got rid of it new labour roots yet not with Blair and progress in the back ground, and I do not think council housing sit well with the Labour party

      • DanFilson

        I’m not clear if your council is Labour or Tory hands, though from what you write it seems to be a strange kind of Labour control. If that’s what your local Labour councillors are like, what are the local Tories like!. Certainly Tory councils want out of being landlords at all, and would happily get shot of all public sector housing (and Hammersmith & Fulham, where I previously lived, are doing just that with whole estates) if they only could do so without racking up a horrendous homelessness housing bill.

        For a Labour council, a Labour council, to sell off willingly its housing stock is unbelievable. Passing it into the hands of an arms’ length management organisation is not the same thing, though it may depend on whose arms are at the other end.

        Does social housing sit well with the Labour Party? – I think it does. And I would not blame Progress as some kind of malevolent force for all this.

        • treborc

          I put up a bit with all the details did not get through so here we go again.

          Authorities with Stock Transferred:

          Neath Port Talbot: Positive ballot result announced 16th March 2010 – 61.6% turnout, 56.6% of those in favour of stock transfer to NPT Homes. ‘NPT Homes’ established in March 2011

          Gwynedd: Positive ballot result announced 31st March 2009 – 65% turnout, 72% of those in favour of stock transfer to ‘Gwynedd Community Homes’ in 2010

          Blaenau Gwent: Positive ballot result announced 23rd July 2009 – 55% turnout, 73% of those in favour of stock transfer. ‘Tai Calon’ established July 2010

          Merthyr Tydfil: Positive ballot result announced 27th March 2008 – 57% turnout, 50.3% of those in favour of stock transfer.’Merthyr Valley Homes’ established in March 2009

          Ceredigion: Positive ballot result announced 18th November 2008 – 70% turnout, 58.3% of those in favour of stock transfer. ‘Tai Ceredigion’ established 30th November 2009

          Torfaen: Positive ballot result announced 16th March 2007 – 68.1% turnout, 59.2% of those in favour of stock transfer. ‘Bron Afon Community Housing’ established 31st March 2008

          Newport: Positive ballot result announnced 16th November 2007 – 63.3% turnout, 83.8% of those in favour of stock transfer. ‘Newport City Homes’ established in March 2009

          Conwy: Positive ballot result announced 26th November 2007 – 61.7% turnout, 50.8% of those in favour of stock transfer. ‘Cartrefi Conwy’ established in September 2008

          Monmouthshire: Positive ballot result announced 17th November 2006 – 67% turnout, 60.3% of those in favour of stock transfer. ‘Monmouthshire Housing Association Ltd’ established in January 2008

          Rhondda Cynon Taf: Positive ballot result announced 22nd November 2006 – 55% turnout, 57.9% of those in favour of stock transfer. ‘RCT Homes’ established 10th December 2007

          22 council in Wales 11 council have no council housing at all.

          but out of that eleven four are going to have another vote and it’s likley they will transfer the houses this time.

          But only three council have decided they want to keep the council housing, but the numbers they now own is nothing like they did , because the Welsh Assembly only de3cided this year to end the sale of council housing, in my area at least ten council houses a a month were being bought

          yes I see your point about labour and the Councils love affair with housing…

          • The_Average_Joe_UK

            Democracy in action, high turnout high % in favour. What’s not to like?

            Why get fixated with ideology surrounding public ownership???? Its what the electorate want that’s important.

          • DanFilson

            Plebiscites are dodgy if the public do not quite understand what is involved. Why does public ownership matter? Well, in part it is a question of accountability to the community, not just the current school community whose vision may understandably be simply focussed on their children.

          • The_Average_Joe_UK

            I would rather trust a large group of people to make the right decision than an ideologue. The ideologue will of course always suggest the electorate need protecting from themselves when they disagree with that electorate.

          • DanFilson

            But these are presumably Arm’s Length MANAGEMENT organisations, I am not sure, indeed doubt, that the property title also goes over to them, and it is up to the council whether ti takes the properties back from an ALMO though I don’t know whether the process requires another ballot.

            The figures do however seem to indicate a dissatisfaction with council management of the housing stock – either that, it was transfer to an ALMO for fear of something worse (quite what, I don’t know). Don’t ask me to defend Blairism. His government did much good stuff but some utterly daft stuff too.

          • treborc

            Gosh yes all land titles are of course handed over to the association this allows them to borrow.

            This is from our dearly beloved Prescott when the question was asked what happens if an association went under, would the housing stock be handed back to the council, he was kind enough to state it would not and if the administrators could not find another housing association to take over the housing stock would be sold off. But only after all avenues including helping tenants set up their own associations.

          • DanFilson

            I’m shocked then even more. What is more, the borrowing does not count as public sector borrowing so there is an element of falsification of much the public debt really is if part of it is hidden away as borrowing of quasi-autonomous bodies. As with my disapproval of PFI, I don’t approve of this ‘pretend we are not indebted as much as we really are’ game.

  • JoeDM

    And where will the money come from? Higher Council Taxes? Or yet more borrowing and yet more public debt to pass on to future generations !!!

    • DanFilson

      This is not a constructive contribution to the debate. Where did the money come from for the housing built in the 1950s and 1960s or to buy your home? It was borrowed and paid off.

      If an asset is purchased by borrowing, the balance sheet rises on both sides – the assets held grow and the debt on the liabilities side grow. What is more, some of the million or so unemployed might get jobs, pay taxes and national insurance and thus contribute to the economy in three ways – by paying into the Treasury, by not claiming benefits off the Treasury and by not moping at home, getting depressed and adding to their families’ and our general misery.

      What is not helpful is borrowing to fund revenue expenditure. At the moment that is what the present government are doing. They have a revenue deficit and each year that increases the National Debt. Talk of “paying down the deficit” illustrates the economic illiteracy of the Tories for whom I suspect you might be a troll.

      • The_Average_Joe_UK

        This is true. With a well managed scheme we could build a huge number of homes.

        The issue we have is that labour councils of late have not been trust worthy enough to get VFM. and with a Tory Government you’ll never get a centalised initiative.

        No win scenario.

  • George Morgan

    A quick point regarding system built tower blocks and the levels of supply from the 60s, system building has come a long way since those days. Rebranded as modern methods of construction, it typically mostly uses timber rather than concrete, and is the most reliable way of delivering homes that meet stringent energy/eco standards because it’s easier to control tricky areas like junctions of different elements than with traditional construction.

    Most of the ugly student housing from the likes of Unite (the developer rather than the union) is built with MMC and developers use it increasingly on housing too. (The uglyness isn’t related to the MMC – it can be really lovely in schemes for RSLs like Peabody.

    As well as looking at procurement (and planning), looking at methods of construction will help us deliver the homes that are so desperately needed. John Prescott’s £50k homes project brought the technology along in a really helpful way, and it’s now ready to be rolled out.

  • swatnan

    Prefabs, are the solution to 1m homes. i record quick time. Postwar type prefabs, but built with todays modern eco friendly materials and design.

    • The_Average_Joe_UK

      Might be something in that but they have to be homes that people would be proud to live in and cherish. I think the answer is a series of best practices that can be rolled out as a plan.

      Where to build
      what to build
      how much it should cost
      Amenities required
      A law that says idiots (Bill) cant have one. If you don’t look after it you’re out.

      This can work.

      • swatnan

        All people want is a roof over their heads, and a place the can call home. Give them the basic amenities in Starter Homes, at an affordable price or rent. And if they are to be affordable they shouldn’t expect more than the basic amenities. Once they’ve established themselves and saved a bit more money, they can upgrade. But give them space, and not be housed in a monstrous block, like containers stacked up at Felixstowe.

    • DanFilson

      You assume plentiful land for low or low-ish rise buildings. In London I am not sure we can afford that luxury. If as Joe says they are of good design and have enough internal space, fine. The system of building is less important than the will to build.

      • MrSauce

        If London is too expensive then get out of London.
        Or don’t go there in the first place.

        • DanFilson

          Not a helpful contribution to the 9 million or whatever Londoners some of whom have been in London all their lives. Akin to Norman Tebbitt’s “get on your bike and look for work” remark. Unfeeling.

          • Quiet_Sceptic

            Well reducing over-crowding by shifting people out of London was the central aim of much post-war housing policy – Garden Cities, New Towns, all shifting people out of London and into the home counties.

          • DanFilson

            It has to be remembered that before the Clean Air Act London was an incredibly dirty city and that during the War an immense number of homes were either destroyed or damaged. The slums had one-brick thick walls, were damp and quite frankly appalling, far worse than anything today. The garden city movement was in response to all that. In those days small industries could set up and get going , especially on greenfield sites, without much difficulty if they could access labour, which for right through to the 1960s was in relatively short supply (the much-unloved Selective Employment Tax of 1965 was after all an attempt to “shake out” labour to alleviate this problem – those were the days when full employment was a problem! -rather than the alternative of employer-driven competitive wage inflation).

            But the evidence of the last 30 or so years is that simply moving people out of cities in the hope that jobs will be created to give them employment is a bit simplistic. Witness Skelmersdale rather than a South-East new town. And shifting people into the Home Counties assumes the counties there will cooperate. Apart from the golden valley to Reading, the resistance to growth is quite strong in rural areas (NIMBYISM in part, but also recognition of how infrastructures are not necessarily there to accommodate significant growth).

            So in my view London itself must grow, and it has shown it can do so, with well-designed higher-density building. The evidence of Thames riverside development and Docklands is that such housing, if well designed, well-built and close to good public transport is accepted even by the higher paid. The challenge is to switch from forever building for the better-off and relying on a kind of trickle down process to enable the poorer housed to benefit, to building deliberately for social housing tenants at genuinely affordable rents rather than “affordable” rents, a euphemism if ever I saw one.

            I think over the next few decades it is likely that what we pay form net income as a percentage on housing and allied costs will have to rise. We have become accustomed to most of our living costs slowly shrinking as a percentage of income, making way for the so-called luxuries of life (which often seem to become necessities, for example fixed line telephones were once a luxury, as were televisions, washing machines, and microwaves and now smartphones and whatever are the latest gismos). I think that era is coming to an end as we face the dual attack of acute housing shortage as our population continues to soar for whatever reason (and most of it is not immigration but reducing death rates) and the arrival of China as a world economic power that will beat us on manufacturing cost if not innovation (on which it is currently weak).

            So we must all accept tightening our belts for that reason (but not for the austerity reasons foolishly inflicted upon us during a recession) – I would begin by recognising that our role as a world policeman is over as we cannot afford it, and adjust our so-called ‘defence’ spending accordingly. But we should also stop worshipping at the motor car altar which costs us millions in imported fuel, imported cars, road building and maintenance. In future our spending has to be focussed on housing the population adequately, giving them good education for all, ensuring good health and so on. Housing, education and health – these should be the Labour platforms. That and sound economic management, the skill of which has escaped the coalition who have Magggie’s handbag economic mentalities.

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