Let councils build

For local councils, this week’s spending review brought a further 10% cut to their budgets. The news was not unexpected but was no more welcome for it.

Councils have already borne the brunt of the cuts, in part because they are very good at driving out inefficiencies, but also because it lets ministers off the hook: by maintaining the myth that the cuts can all by absorbed by paying chief officers less and by cancelling the tea and biscuits, Whitehall can blame front line service cuts on profligate and antediluvian councillors. That urban local government has seen the biggest cuts helpfully means that many of these are Labour councillors, of course.

The spending review also included a much-vaunted and long-overdue infrastructure investment package. Alongside road building and money for High Speed 2, the Coalition announced a capital fund for social housing, totalling £3.3bn over three years. It was billed as the biggest public house building programme of the last twenty years, even though the equivalent number for the last Labour spending review was £8.5bn. Still, the investment is welcome, given that Britain has been building far too few houses – affordable and market alike – for decades.

Ramping up house building is important if we are to catch up with this supply shortfall. But it is also a good way to generate the jobs and growth that our economy desperately needs. House building is far more effective than grands projets like HS2 in creating employment, because it is local and creates roles across a range of skills. It is also a faster route to getting spades in the ground, driving economic growth now, not in ten years’ time. The growth effects come both from actually building the homes and in the ancillary economic activity it facilitates. There is good evidence that an undersupply of housing inhibits economic growth: that was the point of 2004’s Barker review and Labour’s subsequent drive to build 230,000 homes a year.

We failed in that ambition, although we did much better than the Coalition has subsequently achieved through its overhaul of the planning system and its wrong-headed NewBuy Scheme – a much better way of inflating prices than encouraging builders to build.

And there is the nub of it: Labour failed in part because – like the Coalition now – we relied on the big builders to deliver the houses, thinking that if we could just get the incentives right, all would come good. But in truth, only subsidy, in cash or in supporting infrastructure and site assembly, encouraged the market to provide. Some simple economics should have made this clear. The under supply of housing suits the producers, most of whom are looking to make a 30% return on their investment: they have no interest in increasing the number of homes built, if that reduces the unit price.

Better, surely, to entrust house building to someone with an interest in seeing supply match demand, in meeting housing need and reducing the Housing Benefit bill, and in stimulating local economies.

Local councils have done it before: back when the UK built over 300,000 homes a year, local government played a key role and are capable of doing so again. Either alone or in a joint venture with a housing association or a developer, active council building could be the catalyst for the kind of up-tick in supply that we have needed for a decade or more, increasing the availability of affordable housing and creating local jobs now.

But it needn’t stop with social housing. There is no reason why councils, through joint ventures, couldn’t develop housing for market sale, supporting additional economic development and creating revenue streams to reinvest in housing and services. The legislation is there, as are the funds – in the spending review’s capital pot, in a repurposing of the NewBuy money, in a redefinition of the New Homes Bonus, and in releasing the capital value of land and assets owned by councils.

It’s not often that triple wins line up so neatly. By simply refocussing housing funding on councils as key development partners, we could hit three policy priorities: closing the housing supply gap; boosting jobs and growth, and opening up new income streams for hard-pressed councils.

Adrian Harvey was Head of Policy at the Commission for Architecture and the Built Environment and is a former Policy Adviser to John Denham at the Department for Communities and Local Government.