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Building new homes – a key role for councils Matthew Warburton - 01/06/2012

housing_graph_300Current government incentives are insufficient to stimulate more new house building, claimed two leading property firms this week.  Jones, Lang, LaSalle predicted a fall in the number of new homes built in Britain this year. Their survey of 100 major land buyers revealed little confidence that planning reform would have a significant impact, citing finance as the key constraint.

Estate Agency Knight, Frank, similarly, concluded that government incentives are likely to have little impact on house numbers. Both called for more radical action from government and, indeed, there has been widespread speculation that the government is considering a significant new stimulus to get development moving again.

Radical action is certainly needed to tackle the chronic housing shortage and ensure a greater supply of new homes for sale and rent, including social rented housing. Local authorities have a central role to play, both as strategic enablers and commissioners of new development, and because the homes they own are an asset too important to ignore in any plans to increase housing supply.

Self-financing opens the door for councils to build again. But, in some areas at least, its full potential is blocked by council debt ceilings. So, if the government is persuaded that action is needed to increase housing supply, why not remove them, and leave councils free to borrow up to prudential limits?

This would have much the same effect as the proposal recently advanced by the House of Commons CLG Committee that borrowing for housing should be taken "off balance sheet" in the public accounts, in line with practice in other European states.


So why not? The case for changing the public accounts is that housing should be treated as a trading activity and public borrowing for housing as investment in an asset that will bring a return over a number of years, and can, in principle, be sold.

The argument against is that this return - in the case of social housing - will always include a substantial call on future taxation in the form of housing benefit or, in future, Universal Credit. Yet, in this, council housing is no different from that provided by housing associations or, for that matter, private landlords.

No matter who builds new homes for rent, low-income households will need help with their rent to pay. But - as current plans for welfare reform demonstrate - governments present and future have the power to decide just how much help will be provided.

So, if the government is persuaded that the economic benefits from a new stimulus to boost housing construction, coupled with the social benefits from housing those in need, outweigh the impact on future benefits costs, there is no logic in excluding councils from fully contributing. But first, the argument for boosting house building must be won.


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