Can councils build their way out of the housing crisis?

London councils are beginning to build again and take back control of housing. But is it enough to stop the capital’s housing crisis spiralling out of control?

‘It’s time to put the social back into housing,’ said Boris Johnson recently.

Except of course he didn’t. Campaigners who view London’s mayor as one of biggest threats to social housing resorted to a sardonic spoof to greet his address at the annual Mipim property shindig.

Copies of the London Standard Evening were distributed outside the event emblazoned with the headline ‘Boris in shock housing U-turn’. His ‘quotes’ became a wish list for those determined to turn the tide on the housing crisis that’s engulfed the capital, a progressive property tax to pay for new council housing and a cap on market rents among them.

For the less radical out there, a more logical stance from the mayor would suffice in the face of eye-watering property prices, rising rents and shameful homelessness statistics. Some 344,000 people are on London’s housing waiting lists.

While debate continues to rage over whether the London Plan’s target of 42,000 new homes a year is sufficient to meet rising demand, it’s the make up of those properties that’s critical. Around 40% are expected to be defined as affordable, which in the case of homes built for affordable rent (AR) is anything up to 80% of the market rate. With latest figures showing London’s private renters now shell out an average of £1,466 a month, exactly who is AR affordable for?

And yet social landlords are now being pushed by the mayor and the coalition government to build homes for AR – rather than social rents around 40% of market rate – while London’s overall social housing stock continues to dwindle, largely thanks to a revitalised Right to Buy policy. On top of all this, welfare reforms have seen a growing number of private renters on housing benefit competing for properties. They’re not just competing with each other but with councils who are forced into the market to find temporary accommodation for the homeless.

Pressure to build

There’s a growing consensus that local authorities should make a return to house building, the most recent example coming in Sir Michael Lyons’ housing review for the Labour Party. Given London boroughs are also dealing with the consequences of the housing crisis, with demands on their services growing by the day, it would seem a logical move and a way to exert greater control and influence. With some major housing associations being accused of embracing AR at the expense of those most in need, councils have a stewardship role to play in London more than anywhere else.

But after more than 30 years of largely being out of the game and at time when resources and capacity have been depleted by austerity, are they really up to the job? Current policy presents them with few incentives to build. Little if any help is on offer to build genuine social housing and DCLG figures for April-June show for every council home built, London boroughs are losing around half a dozen via Right to Buy (RTB). Those sales brought in £300m last year but there are strict constraints on how much of the RTB receipts can be spent by councils on new housing with the bulk going back into Treasury coffers.

Should we be feeding the aspiration for home ownership by selling off

social housing when a third of a million people are on waiting lists?

Then there are the borrowing constraints of the housing revenue account (HRA) through which boroughs would most likely fund new homes. The National Housing Federation, Chartered Institute of Housing and even Boris Johnson have called for the HRA cap to be lifted, but the government – and the opposition – have so far resisted. On the face of it, local authorities have limited borrowing capacity and Right to Buy negates any ground gained through new house building.

On top of that, high profile regeneration projects have done much to damage council reputations when it comes to social housing and the fate of existing tenants. When redevelopment scatters residents far and wide and leaves communities with substantially fewer social homes than they started with, accusations of gentrification and social engineering are inevitable. The response from most councils is they want to break up mono tenure to create mixed developments. It’s the total amount of social and affordable homes across the borough that matters, they say. But for that argument to hold any water, they need to get that total up – and fast.

Government statistics show 3,580 homes were built for social rent in London during 2013-14 while 3,190 were sold by boroughs during the same period – around 90% of which were through RTB. When you take into account social housing sold by non-council landlords, it’s clear we’re not even running to stand still. And the situation looks set to get much worse. Since the government increased the discount for tenants exercising RTB (it’s now capped at £102,700 in London) and relaxed eligibility, the rate of take-up has accelerated, with last year’s sales exceeding the previous five years combined. They are still way short of the levels seen in the late 90s and early noughties but anything remotely close to those numbers could take the housing crisis to a new level.

Should we be feeding this aspiration for home ownership in London by selling off social housing when there are a third of million people on waiting lists?

The councils taking back control of housing

In March nine boroughs challenged the mayor’s insistence on affordable rent by arguing in the High Court for the right to set lower rent limits on new housing at 30-40% of market rates to ensure homes were affordable to local people. They lost. But the judge effectively left the door open to councils lobbying to set their own rents on individual projects, particularly those built without funding from the mayor.

It was an important ruling because without the ability to set genuinely affordable rents, local authorities may have questioned the point in building new homes. The situation in one of nine boroughs, Islington, highlights the challenges they face. Lack of subsidy means of the 2,000 homes it is planning to build by 2019, just a quarter will be for council rent at a time when it has 19,000 people waiting for social housing. At the end of October, Islington announced plans to devote £6m a year to buying back ex-council properties. Small beer in the scheme of things, but it will increase council housing stock and any homes acquired will be exempt from RTB.

London’s largest local authority landlord, Southwark, was also among the nine boroughs that challenged the mayor. Last year it announced plans to build 11,000 homes over the next 30 years using a new borough-owned company to draw in and coordinate investment. It will enable it to borrow independently of the HRA, free from many of the restrictions that entails.

‘It’s a big challenge and the environment of austerity is increasing the numbers coming forward to the council for housing,’ says Richard Livingstone, cabinet member for housing. ‘Setting out a 30-year vision for housing is something that local authorities have tended not to do in the past. We have to do it if we are serious about tackling the housing issues in the borough.’

The government’s stance on local government borrowing for housing investment not only stifles councils’ ability to address supply, he says, it is unnecessarily cautious. He believes government should loosen the reins to allow councils to ‘borrow sensibly and pay back through the rental stream that we are getting further down the line as a result of that investment’.

When we leave it to developers

they don’t always provide the housing we want.

Southwark has come under fire for the way it has handled the regeneration of the Heygate estate. Stung by accusations it is driving out tenants, the council recently issued a rebuttal saying it was taking bold action in difficult circumstances.

The vision is to create tenure blind communities so that no one can distinguish between social rent, affordable rent and owner occupied homes, says Livingstone. ‘There’s an opportunity to develop things in a way that serves communities better and in a way that hopefully integrates communities better… we not talking about creating exclusively rich or poor parts of the borough.’

Another of the nine, Lambeth, announced in October that it would be retaking control of housing and dissolving its arm’s length management organisation (Almo) Lambeth Living next year.

Having completed its Decent Homes programme, it made sense for the Almo to end, says Matthew Bennett, cabinet member for housing. ‘It allows us to look and think differently about housing – we know it fits in with a number of the problems we face. It makes no sense in having housing separate from everything else.’

Lambeth has initial plans to build 1,000 homes and Bennett says that while RTB makes life more difficult, ‘there’s quite a lot that we’re doing with existing policy’.

He adds: ‘No one else is going to do it. We’ve got 20,000 people on our waiting list and 1,600 in temporary housing. We have absolutely got to build. We’re using £25m from our own capital to develop homes for council rent.’

One example is 300 homes for rent being built at Somerleyton Road in Brixton, which the council has effectively taken out a 30-year mortgage to finance. It will be run as a housing co-op with 40% at social rent and the remainder split between intermediate and market rents.

In outer London, rents and property prices are lower but the pressure is on to build. Like Southwark, Sutton Council has set up a company to build homes on land owned by the local authority.

‘It’s a proactive approach to encouraging development,’ says Jayne McCoy, chair of Sutton’s housing, economy, business committee. ‘When we leave it to developers they don’t always provide the housing we want. We have an assessment of need, we know what families we have got. So we needed to do it ourselves.’

She says there has been much interest from developers since the company was announced. And with control of potential development sites and better access to finance, it puts the council in a stronger position to negotiate and ensure the borough doesn’t ‘end up with one bedroom properties that are out of most people’s price range and aren’t what we need’. It also means any properties built via the company – as with Southwark – will not be subject to RTB.

Could councils do more?

Matthew Warburton, policy adviser at the Association of Retained Council Housing, believes most, if not all, London boroughs have the potential to exploit the huge value of their assets to greater effect. Some have the financial clout to build homes outside their own patch if necessary, he says, with boroughs already having built homes in places just beyond the fringes of London – like Harlow – in the past.

Some will want to sell land off so they can build homes elsewhere in or outside their area, he says. And for those who accuse local authorities of attempting to gentrify social housing estates, he asks: why wouldn’t you want more of a mix?

‘I always want to dig below the argument that this is just gentrification because the fact of the matter is a lot of the large scale housing had been huge concentrations of poor people for many years and I don’t think you should cling to that.

‘I think it’s entirely reasonable that councils should be looking at mixed tenure developments in the inner city areas. It would be better to have some better off households in the areas but it’s got to have a mix of tenures. It’s about balance and not going too far – so genuinely mixed.’

Warburton expects more councils to set up housing companies to give them added flexibility but believes many have sufficient headroom to build a significant number of homes within the HRA. John Perry, policy advisor at the Chartered Institute of Housing, agrees – but thinks the cap on borrowing is unnecessary and that councils should be able to borrow against their asset base to build homes in the same way as housing associations.

He is concerned that in the current climate London’s local authorities will view it as one barrier too many. ‘The impression I’m getting is councils are under tremendous pressure to re-house people and therefore want new homes but some councils’ politicians fear committing resources because everywhere else is having to be cut, for example planning,’ he says.

‘So there’s a paradox in that HRA has flexibility and there’s headroom to borrow but some councils are conservative about spending because of the prevailing climate.’

The way ahead

Labour’s housing spokesperson at the Greater London Authority, Tom Copley, has authored a number of reports outlining solutions to the capital’s property crisis. Top of the list are reforms to HRA borrowing and a cut to RTB discounts along with covenants to ensure homes that are bought by tenants aren’t then rented out in the private sector.

The latter trend has put some boroughs in the ludicrous position of having to sell properties at below market price only to rent them back further down the line to make up the shortfall in council housing. But bolder action is needed, he says.

Earlier this year he outlined proposals for a London Housing Corporation to both accelerate housing supply and improve standards in the private rented sector. It would be run by a new body called Homes for London – effectively the housing equivalent of Transport for London. He’s currently working on more detailed proposals for the corporation and says it would take ‘a pan-London view and ensure City Hall takes a major interest directly in provision’.

But in all likelihood, those on low incomes will need to look to individual boroughs and other social landlords to build the housing they need. The trend among councils towards setting up municipal companies suggests the appetite and drive is there.

However, some would argue that many already have investment vehicles in the shape of Almos.

‘We did have a very big Almo sector in London but that has changed quite significantly over time,’ says Chloe Fletcher, policy director at the National Federation of Almos. ‘Some are now being brought back in house. It’s a shame for tenants and the organisations themselves.

‘They [councils] do own these vehicles 100% – it’s their local delivery vehicle. Oddly, some who have taken them back in house have set up a new company to build homes outside the HRA. The Almos are readymade vehicles for any of those housing purposes. They are flexible and fleet of foot.’ Fletcher declined to speculate as to why councils would opt to axe an Almo and set up a new venture.

The most likely explanation is that in an era of unprecedented cutbacks when councils’ influence and ability to deliver is being curtailed, this is one area that they can take unilateral action over. In the broader scheme of things it could be seen as a statement of intent and the first signs that some London boroughs mean business when it comes to housing.

• Read more on our series of articles on housing: