With a bit of help we could kickstart a new era for council house building

Cllr Jonathan Glanz, Westminster City Council’s Cabinet Member for Housing suggests some reforms that could recast the role of local government in the building of new housing. He has written a new paper, written in conjunction with the Home Builders Federation

Ed Balls was telling anyone who would listen last week about his grand plan to build 100,000 new homes with a pot of gold he has found at the end of a mobile phone spectrum. In spite of the fact that the Shadow Chancellor seems to have forgotten that the UK’s ‘Triple A’ credit rating is under real threat from a burgeoning public debt and that the £3-4bn raised from the sale of the bandwidth could be used to
secure the UK’s balance sheet, the Opposition’s new policy lacks any creativity.

The answer, especially in these straitened times, need not always be about more money. Mr Balls should know that from the historically low house building rates seen during the years in which he was briefing journalists that he and Gordon Brown had created a new, permanently booming, economic cycle.

The current government has achieved a lot in difficult circumstances. By finally following through on the reforms of the Housing Revenue Account that had been proposed for many years, introducing the first real incentive for new house building in the form of the New Homes Bonus and creating the affordable rent model as an alternative to old style social housing, local authorities now have more incentive and greater flexibility to oversee development in their areas.

The new Housing Minister, Mark Prisk, should tap into the potential for local government to help deliver some of the Government’s bold house building plans. This need not involve councils bidding for funding or becoming a major builder of housing but thinking creatively about what we have to offer at a time when First-Time Buyers are at record low levels and close to a fifth of women and a third of men between 20 and 34 are still living in their parental homes.

The role of local authorities has undoubtedly changed compared with the 1970s when councils were building up to 100,000 new homes per year but last year local authority house building almost trebled compared with 2010. Local Government alone will not be able to solve the housing crisis the country finds itself in but I firmly believe that councillors and councils have an important part to play in addressing local housing challenges but we could do so much more with a bit more support from Whitehall.

Idea 1 – Localising an element of Stamp Duty:

In recent days the Mayor of London has asked for control of proceeds from Stamp Duty. The Treasury will likely oppose anything this radical. Instead, we have suggested that local authorities retain an element of the Stamp Duty proceeds from properties above the new £2 million threshold introduced in this year’s Budget. Booming local property markets, sometimes driven by foreign investment decisions, are pricing out long-term residents and could lead to social division.

This is seen mostly in central London but in parts of Dorset, Cumbria, Herefordshire and Cornwall only the very wealthy or the poorest who qualify for social housing can afford to buy homes when average prices are nine or 10 average local earnings. Our proposal is for just 15% of the receipts from the new threshold to be retained locally and ring-fenced for either affordable rent or shared ownership schemes aimed at those with a connection to their area.

At a time of sluggish economic growth, this small reform could help build 2,250 new homes a year, sustaining 3,400 jobs and helping to bring communities together by giving them a benefit from the
strength of the local housing market without resorting to the introduction of a so-called mansion tax.

Idea 2 – More freedom without increasing public debt:

Recent reform of the Housing Revenue Account (HRA), although welcome does not sufficiently align investment need with borrowing capacity meaning that many councils will not fulfil their development
potential. I can see why, in the current climate, the Chancellor is reluctant to increase borrowing caps on the sector but fairly simply and without increasing overall borrowing levels, the Government could develop a marketplace for local authorities to trade HRA headroom and maximise the number of new homes being built.

Each authority has been assigned headroom so those with a projected surplus could trade their ‘spare’ capacity allowing a council with greater investment need the opportunity to improve their stock or build new homes to create new income streams. Maximising the potential of the headroom could help build nearly 9,000 new affordable homes

Idea 3 – Using public money more creatively to improve viability of sites:

The traditional public investment in affordable housing involves a subsidy per unit. Since the credit crunch, however, higher borrowing costs for developers and lower property values in some areas have led to many developments around the country stalling as builders question the viability of sites. Instead of providing an up-front grant, public investments can be made on the basis of an equity share in the development, repaid by the developer with proceeds from sales and a share of any ‘super-profits’. Combining this with an incentive for the developer to deliver ahead of schedule would also help to increase the potential benefits to the taxpayer.
 
If you’re around at Party Conference we will be discussing some of these issues and more at an event this evening sponsored by Barratt Homes in the Media Suite of the ICC on Monday at 5.30pm. Join us for an interesting debate and a glass of wine afterwards.