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Simon Smith: There are no guarantees councils will build again

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Based on experience, the majority of local authorities have the appetite to build more homes but significant obstacles remain.

While the housing white paper made some welcome noises about bringing councils back into the housebuilding fold, the government needs to commit to genuine action.

Specifically, local authorities need the following to happen:

  • Debt caps abolished or revisited
  • Certainty around rent policy
  • More land being made available at nil or low value
  • Changes to the right-to-buy to make it more flexible
  • Certainty around the ‘high value voids levy’

But even by addressing these key issues, there is no guarantee that local authorities will build again. Here’s why.

Despite the local economic boost housebuilding can provide and the pressing need for more affordable homes across the country, a council will ultimately base its decision on its ability to fund it, it’s willingness to commit available funds, or whether the numbers stack up financially.

In times of austerity and faced with significant funding cuts, local authorities are looking to optimise key assets such as land for short-term financial gain. The question they have to ask themselves is: What are the returns on investment for building new social housing, especially when the right-to-buy acts as a disincentive and the ‘one-for-one’ replacement is nothing of the sort?

Dispiriting as it may be, but by lowering the percentage of required affordable housing on a site makes more business sense as it help to increase its value. This also explains the approach adopted by councils setting up local housing companies to fund multi-tenure sites where, in some cases, affordable housing is the lowest common denominator.

For those local authorities committed to building, more certainty is desperately needed around their HRA (housing revenue account) finances. Since ‘self-financing’ was introduced we have seen a continual interference with rent policy, right-to-buy and welfare reform which creates uncertainty, particularly in relation to large build schemes.

Meanwhile, councils that have land in their general fund have to transfer the value of the land between their respective debt position (i.e. HRA debt goes up, general fund debt down), which means there are no useable receipts and, of course, the HRA debt going up counts against the debt cap.

The debt cap itself is another reason why council housebuilding has been so restricted as it prevents local authorities from borrowing significant sums. This is unfortunate in the current environment where Public Works Loan Board rates are so low and VAT will no longer be applied on future maintenance and repairs.

Despite these obstacles, it’s my view that local authorities want to do more and have the capacity and expertise to do so. All they ask for is the government to back them and clear the barriers that have stood in their way.

Simon Smith, associate at the Housing Quality Network which provides advice, support and training to councils, Almos, housing associations, and other housing providers

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