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Ministers prevent council homes but stand by as councils risk their futures on property

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Sajid Javid on Sunday issued what sounded like a bold appeal for the government to borrow to ease the housing crisis.

He had a point: the younger half of the adult population is increasingly priced out of the market, disillusioned by an economy that works against their interests and forking out an ever greater proportion of earnings in rent. Dramatic action is required.

However, the communities secretary’s comments were not necessarily all they initially appeared. His focus was more on “the infrastructure that leads to more housing”; he was not advocating a turnaround of decades of diminution of social housing. And it is hard to believe anything short of this will end the misery of overcrowding and rising rents (and rising housing benefit bills as the state is forced to support those otherwise priced out).

The cap restricting councils from borrowing on their housing revenue account needs to be urgently lifted to facilitate a social housing revival. Council housing is built to meet the needs of the local population rather than those of developers, is cheap for residents and offers councils a reliable rental income that, once the borrwing has been paid off, can be invested in more homes. Investing in housing infrastructure alone brings none of these benefits, and all too often private provision alone has proved deficient.

There is some irony councils are largely barred by ministers from borrowing to fulfil the government’s biggest priority, housing, when they are free to make potentially far riskier investments in commercial property; investments that do not necessarily offer such undisputed social good.

LGC this week reveals how councils are investing £2.4bn in property to provide themselves with an income stream to offset grant cuts. The danger is that they get burnt in a market in which they are not the most expert players.

There are many reasons to be sceptical about investments in retail and office property in the digital age. The less prestigious second tier regional shopping areas are falling out of favour as shoppers no longer need to venture further than their settee to splash cash. Similarly, improved broadband speeds will remove many barriers to home working, surely impacting on the viability of office developments.

There is no such thing as risk-free investment but diversification across different sectors and geographical areas is wise. It is therefore worrying to see a small minority of councils place too many of their eggs in one basket. And all too often this basket brings neither well-paid jobs nor industries that will withstand rapid change.

The danger is that far from safeguarding the future of services, some councils, especially districts, are tying their fortunes too closely to a property market that is more volatile than they appreciate.

It is notable that while ministers have forgotten the past-performance of council housing – heavy investment meant there was no housing crisis – they are far less interventionist when some property-investing councils appear blind to the disclaimer that past performance is no indicator of future results.

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