The Conservative government is now threatening supposedly ‘nimby’ local authorities with central government action if they don’t “build enough homes in their area”. Failure to meet the targets will, apparently, mean that councils will lose control of the right to decide where new houses are placed in their area. This is patently absurd since councils cannot control the number of homes built in their area, especially when they are not building any themselves. The whip hand in relation to development lies with the developers and builders who control the pace of building when they have planning permission. There has been ample experience in Swindon of central government overturning rejection of planning applications on the grounds that the council is not achieving their house building target. Yet it is the developers/builders who are controlling the pace of construction essentially to maximise their profits. Read on below or download a PDF here plannignetc

Even the Conservatives in the Local Government Association can recognise this. None other than Gary Porter, Tory Chair of the LGA, ridiculed the idea that councils were the main culprit holding up home building.

It is essential that we get back to that” (large scale council house building)

In the last year, councils and their communities granted nearly twice as many planning permissions as the number of new homes that were completed. Councils approved more than 321,000 homes in 2016/17, while there were around 183,000 new homes added in the same year. More than 423,000 homes with planning permission are still waiting to be built.

The truth is that councils are currently approving nine out of 10 planning applications, which shows that the planning system is working well and is not a barrier to building. Nearly three-quarters (73%) of planning refusals are upheld on appeal, vindicating councils’ original decisions.

It is completely wrong, therefore, to suggest that the country’s failure to build the housing it desperately needs is down to councils. The threat of stripping councils of their rights to decide where homes are built are unhelpful and misguided.

The last time the country delivered 300,000 homes was in the 1970s, councils were responsible for more than 40% of them and it’s essential that we get back to that.”

What he is talking about in the final paragraph is council housing. He makes the point which all historical experience tells us is correct:

Ultimately the private sector will never build enough of the homes the country needs on its own. The government must back widespread calls, including from the Treasury Select Committee, for council borrowing, and investment freedoms to spark a renaissance in house building by local government.”

The only thing I would disagree with him on is the question “borrowing to build” (of which more later).

Whilst the Tories in the LGA can recognise that a large scale council house building programme is necessary, the government is currently refusing to provide any funding. May did announce that an extra £2 billion would be available for “affordable housing” but there is no indication that this will be for council housing with ‘social rent’, as yet. Even if it were the funding would only help to build 5,000 a year which will go nowhere near addressing the council housing shortage. Indeed, that is below half of the number of homes being lost to Right to Buy every year, whereas it appears that Mr Porter is suggesting the need for more than 100,000 new council homes a year (more than 40% of 300,000).

Where Porter is wrong is his focus on giving councils the freedom to “borrow to build”. This completely ignores the fact that council Housing Revenue Accounts have been burdened with fictitious debt under the new ‘self-financing’ system introduced in 2012. We have explained elsewhere why loading up with more debt is no solution to the shortage of council housing (See “Borrowing to build” is no solution to the council housing shortage 1).

Those councils that still own housing stock are burdened with £26 billion of debt which they have to service. Around 26% of their income is spent on debt and interest charges.

Council HRAs have insufficient funds to maintain and renew existing stock never mind take on more debt. This is especially so because as a result of government policies such as the 4 year rent cut that councils are taking in much less income than planned for in 2012.

Government grant needed

A large scale council house building programme cannot be funded without central government grant. When May made her speech in which she announced £2 billion more for “affordable housing” the Department of Communities and Local Government gave the example of £80,000 grant per property for building ‘social rent’ homes. They said the money could be used for this though it would only build 5,000 homes a year. As yet there is no commitment to this money going to funding ‘social rent’ homes. Even if if it did, 5,000 a year would barely scratch the surface.

To build on the scale of 100,000 council homes a year, with that level of grant, would require £8 billion a year. This is easily findable if the emphasis on funding shifted from home ownership to council housing. The circumstances of local authorities could also be transformed if the fictitious council housing debt was cancelled. These two things would enable councils to maintain their existing housing stock and renew key housing components to improve the quality of the stock and begin an annual building programme which would increase stock numbers.

The third crucial policy change would be ending Right to Buy. If homes sold are replaced one for one that would only maintain the status quo which in England is only 1.6 million council homes. What would be the point of a large scale building programme if homes could continue to be sold off?

Contrived scarcity”

The fundamental flaw with the government’s argument that they need to “make the housing market work” is that it can’t. It cannot provide the homes that are needed because house building dominated by commodity production serves only to maximise profits and dividends to share holders. It will not build for those who cannot afford a mortgage. They operate a system of “contrived scarcity” to maximise their returns (See “Major house builders and ‘contrived scarcity’ in housing2)

The key to resolving the housing crisis is restricting the scale of house building as commodity production by increasing the building of council homes for need. Whilst the post-war Atlee government is remembered for its large scale council house building programme what is not widely known is the fact that it made private builders apply for permits to build homes for sale, and restricted the number number for market sale to roughly one in five of all homes built. The rest were council homes.

Today Labour is unlikely to repeat that policy. But what it can do if it decides to fund a large scale council building programme is force back the reach of the market. If RTB were ceased and 100,000 council homes a year were built then the surfeit of people who currently are forced to try for a mortgage or to live in the private rented sector would decline as a larger availability of council homes would mean that hundreds of thousands of people would be able to obtain a council tenancy. This would almost certainly drag down prices of homes for sell and rents in the private rented sector as they would cease to be the sellers market that they currently are.

Martin Wicks

March 15th 2018