For house building on an economy-saving scale the government should turn to local authorities
Councils could underpin building
As we report this week it seems that the prime minister has been persuaded that increasing the level of house building from its limp state is a relatively quick and geographically widespread means of rebooting the UK economy.
As a result housing association landlords met Danny Alexander, chief secretary to the Treasury, last week. Various ideas were discussed around the extent to which associations felt their access to funding was constrained (as far as traditional bank lending is concerned, it is), but no firm Treasury-backed measures to spark a building boom were agreed. So what ideas would find favour with Mr Alexander and his three senior cabinet colleagues that make up the so-called ‘quad’?
According to former Bank of England monetary policy committee member Kate Barker, the plan mooted this week in the Financial Times for the bank to buy existing housing association bonds as part of its programme of quantitative easing is a non-starter. Ms Barker and housing association finance directors don’t see how this would help, as associations already enjoy record low borrowing costs when raising funds from investors such as pension funds in this way. Even if the bank were to intervene it would look to sell again at some point, potentially driving up the cost of future bond issues.
More likely will be a focus on ensuring the framework for tax-efficient investment vehicles, known as real estate investment trusts, attracts investors. As we have reported, several social landlords are considering putting properties into REITs and attracting institutional investment to be used for house building. Associations can also expect scrutiny of their balance sheets and whether more homes could be squeezed through the affordable homes programme.
While these measures would yield more homes, it is unlikely they would be sufficient to boost the economy. Why not also look at the potential for local authorities to take on more housing debt - perhaps through an arm’s-length arrangement? The average debt per home of council properties is far below that of their housing association equivalents so the scope exists for a big house building programme. Previous large-scale house building programmes have been underpinned by councils and they can be again.