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Labour's new housing plans – the devil is in the detail Matthew Warburton - 26/09/2013

EdMiliband_300It was good to hear Ed Miliband give a clear commitment that a Labour government would raise housebuilding to 200,000 new homes a year by the end of the next Parliament. Not quite as many as the 250,000 homes that estimated to be needed, but still nearly twice as many as are currently being built.

Refreshing to hear, also, that Labour recognises and is willing to confront some of the major obstacles that stand in the way of meeting their target - developers' unwillingness to develop unless market conditions are just right, and the need for large new settlements in some parts of the country. A "use it or lose it" ultimatum to developers has been recommended by both the IMF and the EU as necessary to unlock undeveloped sites. It seems that Labour is listening.

Jack Dromey's confirmation, in an interview with Inside Housing, that the main - but not exclusive - emphasis in the new housebuilding programme would be on homes for social rent was more good news. Some of the other remarks reported in the interview, however, were somewhat confusing and slightly worrying.

Dromey said Labour had commissioned pilot projects in a number of areas to explore the development of a "dynamic partnership" between councils and housing associations, and with housebuilders and developers, which could help deliver the 200,000 homes target. These could include the establishment of new local housing companies which could borrow against assets, as proposed by David Orr at the National Housing Federation Conference last week. These, said Dromey, would be "stand-alone businesses, largely controlled by councils".

There are some issues here that need to be teased out. Councils can and already are setting up arms-length companies under local authority control, sometimes with a remit to acquire and develop land for housing. Under current rules, if these companies are controlled by the council - and that means a majority shareholding or even under some circumstances a shareholding of as little as 30% - their borrowing counts as public borrowing and is subject to the prudential Code.

The good news is that borrowing that can be justified under the Code is available at interest rates well below those available on the market, for example to housing associations. The ARCH AGM on Monday this week heard a fascinating presentation from Barbara Brownlee, Director of Housing at Thurrock about her Council's plans to use such a company to kick start a stagnant development market and get building started on unused land to deliver new housing for sale and rent.

Because any borrowing to fund the company would come from the General Fund, HRA debt caps do not apply, although the prudential Code does. However, some of the homes developed by the company could end up being acquired by the council's HRA as homes for social rent.

But what David Orr has in mind is rather different. His companies would also be local authority-controlled, but there the resemblance ends. His proposal is to scrap ALMOs in favour of companies which would own homes and be able to borrow against this asset base. His idea is that Treasury Chief Secretary Danny Alexander would be more willing to consider lifting debt caps for organisations more explicitly at arms length from councils.

There are two difficulties with this. The first is that it flies in the face of public accounting conventions and all previous Treasury thinking about local authority-controlled companies. The public accounting conventions already classify council landlord operations as public quasi-corporations because the HRA ring-fence makes them financially independent from the rest of the council.

This convention already concedes that they are effectively as much at arms length from councils as a formally separate - but council-controlled - company. Conversely, the Treasury view has always been that borrowing by council-controlled companies should be treated in the same way as borrowing by councils themselves.

The second problem is that existing housing stock could not be transferred to such companies without tenants' giving their consent in a ballot. Far better to avoid this diversion and continue to make the entirely reasonable case for debt caps to be lifted to allow councils - without the need for another round of stock transfers - to borrow against the assets they already own.

It is therefore just as well that Labour has appointed Michael Lyons to head a Housing Commission which will look at these issues, and more. ARCH looks forward to submitting evidence to it.

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