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Let councils build Matthew Warburton - 03/03/2014

LyonsReview300Support for the idea that councils should play a much greater role in house building has come from some expected - and less expected - quarters, in submissions to the Lyons Housing Review

ARCH, CIH, LGA and the National Federation of ALMOs have all argued for lifting HRA debt caps to allow councils to borrow to prudential limits.  No surprises there.  But support for the public sector to play a bigger role has also come from the Council of Mortgage Lenders, whose submission points out that new build activity has only exceeded 200,000 once in the past 30 years, since councils stopped building on a large scale.

ARCH's submission argues that, while Labour's aspiration to deliver 200,000 homes a year by the end of the next Parliament is realistic, the long-term ambition should be to reach at least 250,000 new homes a year, of which a third need to be affordable homes at sub-market rents. This would involve expanding private sector output by about 60 per cent over current levels, but by only about 15 per cent above what was being achieved before the recession. The output of affordable housing, by contrast needs to be doubled, to a level of output never achieved since housing associations took over the main responsibility for new social housebuilding.  There is an obvious case for letting councils build again.

In another submission to the Review, the G15 group of London's largest housing associations said a 'big increase in the government subsidy budget is a pre-requisite for a big increase in affordable housing production'.  Not if HRA debt caps were removed to free councils to build. 

Council HRAs have the financial capacity without external subsidy to support an additional £20 to £25 billion in investment, enough to support the construction of perhaps 20,000 homes a year over a sustained period.  The only obstacle that needs removing is the prejudice that council borrowing on the HRA should be subject to the same constraints that apply to general government borrowing even though it will be repaid from rent income and not taxation.

The ARCH submission reviews other approaches to the delivery of new housing in which councils are involved, including wholly-owned council companies, such as Gloriana Thurrock, and partnerships of various types between council and private sector partners, often involving housing associations as well. 

It argues that such initiatives have an important role to play, but can be legally complex and time consuming to manage.  A simpler alternative would be to provide more flexibility for councils to build for sale and market rent in the HRA. 

The submission also reviews the contribution to the supply of affordable housing available from so-called s106 agreements on new private developments, and more recent Government initiatives including the Community Infrastructure Levy and New Homes Bonus. 

It concludes that there is more potential to fund infrastructure and affordable housing through planning gain than these new measures seem likely to deliver.

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