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Building homes: a new era

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The prime minister’s pledge to “put aside any barriers that stand in the way” of councils building houses has rocketed the issue up the political agenda.

With councils’ potential to tackle housing issues clearly registering on Gordon Brown’s radar, the sector has an opportunity to demonstrate that it can both tackle the spiralling social housing waiting list and leap to the aid of the beleaguered building industry.

In theory, it looks simple. Local authorities have the land to build on and there are plenty of builders crying out for the work. Moreover, councils are safe bets for lenders - a British local authority has never gone bust - so they can invoke their prudential borrowing powers to raise the required funds.

In the wake of Gordon Brown’s speech, housing and local government professionals were unanimous in commending the change in mood music from Westminster. But lurking ominously in the shadows was the arcane and much maligned housing finance framework - the ultimate barrier standing in the way of council house-building.

The process to unwind the Housing Revenue Account (HRA) subsidy system is under way. Councils were last month were given the green light to keep the rental income of any homes they build and the receipts from any house sold through right-to-buy (LGC 22/01/09) .

Moreover, reports suggest Mr Brown wants the Treasury to change the public sector borrowing requirement so that money lent for building houses is not treated as public debt. He also is said to want to redraw the rules so councils can apply for the£17bn of grants to be given out by the Homes & Communities Agency .

With many calling on chancellor Alistair Darling to consider a public works programme as a means of providing jobs and driving the economy through the recession, speedy reform is being demanded.

“There needs to be a recognition that this is not business as usual,” said Chris Leslie , director of the New Local Government Network (NLGN). “Drafting and prolonged consultation are a luxury that we cannot afford. Ministers want action today and officials need to try and facilitate that.”

Quickest off the mark has been Birmingham City Council , which has a history of innovative housing policy. The council was responsible, it claims, for the first large scale wave of municipal home building in the 1920s and 1930s and cabinet member for housing John Lines (Con) has now outlined plans to build 500 homes a year.

The council has already identified 40 hectares of brownfield land, which would previously have been sold to private developers. Across the entire country, just 375 council houses were built last year - a statistic that shows the magnitude of what Birmingham is trying to achieve.

The council is to set up a different entity, the Birmingham Municipal Housing Trust, which will run the project. By having a separate entity, the council can circumvent its main HRA account, which had a negative subsidy of£58m this year.

“We have already identified the land so I am hopeful that we can be up and running with the plan by the beginning of the next financial year. Obviously we will not be able to build 500 homes a year from the off but that is the longer-term target,” said Cllr Lines.

Cllr Lines said the new homes would be funded through a variety of means, including prudential borrowing and the innovative Bank of Birmingham, which the council has proposed to bypass the lack of credit from conventional lenders.

Hot on the heels of Birmingham came Sheffield City Council’s announcement that it is stepping up plans to form a local housing company (LHC), which it hopes will see 2,500 homes built over the next 10-15 years.

LHCs are a relatively new public/private venture which sees a council put forward land and a private developer builds the homes. While any plans to build will be welcomed, the LHC structure is new and complicated and may not necessarily bear fruit as quickly as is required.

There is considerable debate among housing experts as to what role councils should play.

Julie Cowans, a government adviser and director of housing consultancy the Place Team, is bullish. “It is a very welcome announcement and not before time. An enormous amount of surplus commercial property could be converted into housing, and empty properties rehabilitated and brought back into productive use; local authorities are now in an excellent position to do that.”

Ms Cowans also said that by encouraging councils to sell housing, the aim of achieving genuinely mixed communities becomes far more achievable.

“Over time, pockets of deprivation have arisen in council housing. Until now, councils have been reluctant to tackle this by selling off houses, because 75% of the capital receipt went to Treasury.

“These new measures now mean that they can selectively sell off homes in these areas to break up concentrations of deprivation. The income this generates will enable them to fund the building or purchasing of new social housing in mixed communities,” said Ms Cowans.

However, not everyone is advocating councils take such a hands-on approach. The Chartered Institute of Housing’s head of policy, Abi Davies, said that, rather than looking to turn house-builder, councils should take on a more strategic role.

Ms Davies said: “I don’t think that we are going to see councils building large numbers of houses this year. There has been a desperate need for affordable homes for a while and councils have not been able to build.

“But councils are in a unique position where they can take a local leadership role and pull everything together, acting as a matchmaker, to bring together land owners and developers.”

For Local Government Information Unit chief executive Andy Sawford , the key rests with convincing sceptical minds at the Treasury to let councils borrow.

Mr Sawford said: “If the Treasury was to put forward between£5bn and£10bn - a fraction of the bank bail out - councils could make a real difference.

“We need to pull together ideas for a framework that gives the Treasury some assurance, such as an aggregate limit on local authorities borrowing against the public sector borrowing requirement.

Mr Sawford added that he was unconvinced the LHC model was an appropriate response. “LHCs and other special purpose vehicles will just add another layer of bureaucracy. We just need to let councils get on with it,” he said.

A final consideration is purely practical. Because councils have not been large-scale house-builders for the last couple of decades, they simply do not have the expertise and in-house capacity.

“Councils no longer have in-house architects or other skill sets that would be required. These teams would need to be built from scratch. This is an area where councils should approach the government and get some support,” said the NLGN’s Mr Leslie.

But whether it is more councils looking into plans to build, like Birmingham, or councils playing a more strategic role, the options are there - and, moreover, the political will is there. The ball is firmly in local government’s court.

  • Case studies from both Birmingham City Council and Sheffield City Council will be delivered at LGC’s Housing conference on 19 March, along with representatives from TSA and Audit Commission. Visit

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