LGA housing report – the good, the bad and the ugly

Councils already play a vital role in housing supply as planning and housing authorities, as partners with house builders and registered providers, as direct builders, as providers of homes for the most vulnerable and as local place leaders. However, the planning for the “new normal” provides a unique opportunity for the sector to release its potential to do much more. It is therefore imperative as part of the response to the pandemic that Government considers what steps, measures and reforms would support councils to work towards delivering a new generation of 100,000 high quality social homes per year.”

Read on below or download a PDF here

Here’s an initial examination of the LGA’s report “Delivery of Council housing – developing a stimulus package post pandemic.”

1. “Bring forward and increase the £12 billion extension of the Affordable Homes Programme announced at Budget 2020 with an increased focus of social rent homes.

They call for an increase in grant levels per home (good) though they don’t propose a specific amount, such as the Labour manifesto’s commitment to £10 billion a year for council housing. They do refer to the National Housing Federation’s proposal of £12.8 billion a year but they don’t make a definite demand on the government. They don’t call for a specific amount for council housing. There is no indication of the balance between council and housing association homes.

2. There needs to be a consistent approach to rents policy and no wider policy changes that would compromise the major investment commitments of councils.”

They call for “a long term rent deal for council landlords to allow a longer period of annual rent increases for a minimum period of at least ten years. This should include some flexibility for councils to address the historic anomalies in their rents as a result of the ending of the ‘convergence’ policy.”

This is very problematic. It is an appeal to be able to put up council rents above inflation. Bear in mind that the current government has introduced 5 years of above inflation rent increases for council tenants through their formula of CPI + 1%, which Labour failed to oppose. Although this figure is presented as a maximum, since Housing Revenue Accounts are short of funding most councils will increase rents to the maximum.

Because of New Labour’s ‘convergence’ policy which aimed to drive council rents up to housing association levels (which were historically higher than council rents by around 20%) and coalition and Tory policies since then, tenants have faced years of above inflation increases. So much so that council rents are now too high for some tenants. In Swindon some people on the waiting list who come 1st in the bidding process are being a refused a tenancy because the council officers think they cannot afford the rent. If working class people cannot afford a council rent what can they afford?

3. Provision of additional capacity and improvement support for housing delivery teams within councils and their delivery partners. They should ensure that there is a suitable and sufficient mix of professions able to deliver housing projects for councils.”

This is recognition that there are insufficient resources and skills in councils to be able to prepare and manage ongoing council house building projects, rather than the piecemeal small-scale building that has taken place for a long time. Putting together these teams depends on regular and sufficient government grant to be able to plan annual building programmes.

4. Provide lower Public Works Loans Board rate.”

This is obviously a positive proposal. The lower the rate of interest then the quicker that the new homes begin to create surpluses i.e. the rent income passes the cost of servicing any debt associated with the new build. So long as the cost of servicing the debt is higher than the rent income then the difference has to be covered by the housing revenue account which means that there is less money available to cover the cost of maintenance and improvement of existing homes.

Traditionally interest rates are connected with the market rates of borrowing, and have significantly increased the costs of servicing debt, and hence the overall cost of building. This connection should be broken.

5. “Allow councils to retain 100% of receipts from the sale of homes through RTB with no restrictions on their use.”

We want Right To Buy ended. It has been one of the principle reasons for the shortage of council housing. So long as it still exists then obviously we are in favour of councils being able to keep all the receipts. Although the LGA document talks of “no restrictions on their use”, it contradicts itself by proposing easing of the existing restrictions rather than ending them. For instance, councils can only use RTB receipts to cover 30% of the costs of a new home. This means that they have to cover the 70% with their own resources, borrowing, and/or charge the higher “affordable rent” (up to 80% of market rents) and convert some existing social rent homes to “affordable rent”. The LGA calls only for a level above 30% which is “suitable and it relative to their financial models, need and place making ambitions”. This is pathetically timid to say the least.

6. Allow the transfer of RTB receipts to ALMOs and/or housing companies as this would give greater flexibility as to how new council housing is delivered.”

This is completely unacceptable. It is stealing receipts from the HRA, which should be used for council housing stock, instead of which they would be handed over to these private companies. These council owned private companies would not have been set up but for the fact that there was very little grant for council house building. Some councils interested in building new homes saw these private companies as a vehicle for building housing, with the advantage that RTB does not apply. However, the government has already indicated that it has intentions to apply RTB to them.

Council housing should only be built in the framework of the HRA, with central government grant to support new building.

7. Reduce the discounts available and/or allow them to be set locally within reasonable parameters….As a minimum requirement, the discount should not be set at a level which means that a property is sold below replacement build cost or where it exceeds the amount received in rent.””

So long as RTB exists then obviously reducing the discounts is supportable since it would reduce the number of sales. Though the only way to stop the haemorrhaging of stock is to end RTB.

8. “Enable councils to acquire public land identified as surplus or redundant by the current public sector owner in their area, to provide public facilities, including housing, at the valuation determined by the District Valuer based on current use….Councils to have first refusal on any public land for sale.

The document goes on to suggest a system that enables “a greater proportion of the land value uplift to be capture by councils”. This could include amending the Land Compensation Act to enable councils to acquire land through Compulsory Purchase Orders “at close to existing use value for sites that have been designated for infrastructure, including housing through the local plan.”

Under the current system developers/builders buy land cheaply in anticipation of the huge increase in the value of the land which results from a planning application being agreed. This is one of the key reasons why house prices are as high as they are. The post-war Labour government enabled councils to buy agricultural land cheaply, at use value. This helped facilitate large scale council house building programmes.

Whilst the LGA document does propose that councils should get a greater proportion of “land value uplift”, this should not just apply to public land but private land too. Developers should not be allowed to profiteer by buying land cheap and selling it dear.

9. Streamlined compulsory purchase powers to enable councils to buy and assemble land where development has stalled.”

Councils should certainly have powers to “buy and assemble land where development has stalled”. This is particularly important because of the tendency of developers to hang onto land where planning application has been granted in order to maximize its value and hence increase the profitability of their projects.

10. Support to increase the capacity and retention of the building sector to deliver for both public and private developers.”

They say they need a skills and jobs strategy in place now. “Delivery of council/combined authority multi-agency local skills and job taskforces to coordinate local and national careers advice, employment, apprenticeship skills so Government Departments and agencies, local government, sector and trade bodies can coordinate and mobilise a response which ensures national skills and jobs investment lands well on the ground.”

This is necessary, however, there is something missing. So long as house building is dominated by commodity production then the building industry will tend to be “feast and famine”. A large sale council housing programme has always produced an element of stability in the building industry.

Whilst the LGA document implies the need for councils to have the teams necessary to plan the work it completely ignores the issue of who does the new build; the assumption being their friends the big builders. In order to stabilise the situation and to undermine profiteering at the expense of councils and their tenants we need to build up the in-house workforce (historically known as the DLO – direct Labour Organisation) both for the maintenance/renewal work of existing stock and, potentially for new build.

11. More support should be given to councils to provide them with greater assurances that would enable them to bring forward Modern methods of Construction at scale, whilst at the same time helping to provide the data to improve investor confidence.”

This is problematic. The motivation for MMC, including timber frame homes, is to drive up profitability. As is well known the size of British homes is notoriously small. British history has many examples of council housing being done on the cheap, e.g. McMillan’s “People’s Home” which was much smaller than Bevan’s and the dash to high rise of which Ronan’s Point was illustrative.

Council housing should be high quality homes both from an environmental standpoint, and in terms of the space and facilities that tenants have been given, rather than an opportunity for the big builders to squeeze the maximum profits from their work for the private sector.

12. A fiscal stimulus package that would include improving the existing housing stock both for safety and fire safety reasons and to meet carbon targets. Government to urgently bring forward its commitment for a £3.8 billion capital Social Housing Decarbonisation Fund.”

That’s fine though £3.8 billion would provide less than £2,500 per property for council homes in England.

13. Improved energy efficiency and increased use of renewable energy to be part of any revised Decent Homes Standard. This would provide a national stimulus to kick start the deep energy retrofit of all homes by investing in an energy revolution in social housing.”

Sounds good. But an “energy revolution” would involve getting rid of the current gas boilers and putting in some variety of heat pump. In order to achieve the greatest efficiency the property has to be upgraded to a sufficient standard not to leak heat.

Initial conclusions

It is positive that the LGA is calling for 100,000 social rent homes a year. There are other positive proposals mentioned above. However, the main problems with the document are:

  • It does not call for a specific sum of government grant to invest in council house building.
  • It appears to favour rent increases over a decade which are likely to make council rents unaffordable for more people.
  • It proposes tinkering with RTB rather than ending it.
  • It proposes to allow councils to pass on HRA RTB receipts to private companies.

In terms of Labour’s response to these proposals the party should be demanding of the government now, that it do what Labour’s Manifesto proposed: provide £10 billion annual ring-fenced grant for 100,000 council homes a year, and end RTB rather than tinkering with it.

In addition Labour should oppose above inflation increases in rent for council (and housing association) tenants, to stop council rents becoming unaffordable for more and more people on the waiting lists.

Martin Wicks

June 25th 2020

PS. Let us know what you think.

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