Ignoring the obvious

Without local authorities, England has only seen more than 200,000 housing starts three times since the war. So why is council housing being ignored now?

As John Perry argues in Inside Housing, councils are currently building around 3,000 homes a year but they could build 15,000 if they were given more freedom to borrow. ‘A government that is desperate for house building shouldn’t look a gift horse in the mouth,’ he says.

Desperate is exactly the right word for our current performance on housebuilding: just 105,000 starts in England in 2011/12, down from a miserable 112,000 in 2010/11 and less than half the level needed to meet demand and prevent an ever-increasing spiral of rising prices and rents.

Looked at in the context of history, the refusal to free councils to build is even more curious. The last year in which we built anything like the number of homes needed was 1979 (209,000), which was precisely the year that the rapid decline of council housing began.

Only three times since the war have we seen more than 200,000 housing starts without taking account of the contribution from local authorities: 1964, 1965 and 1968. The total of 176,000 starts by the private sector and housing associations in 2007 was the highest for 35 years but that is when the current slump began.

With housing association investment slashed and build to rent slow to get off the ground, that leaves housebuilding and all its associated benefits for economic growth completely reliant on private housebuilders. They have only started more than 200,000 homes twice since the war and since the late 1960s they have only started more than 175,000 once.

So why the refusal to turn to local authorities? The argument within government I’ve heard advanced most recently is borrowing: under current financial arrangements any by councils and almos would count as public borrowing and increase the deficit; but changing the borrowing rules for councils (as already applies in other countries) would raise the spectre of the disastrous borrowing by regional governments in Spain in the financial markets. Both options would conflict with the coalition’s key priority of deficit reduction.

But there is a deeper prejudice against council housing too. In part this is political, since building more of it would conflict with the logic of the rest of the government’s social housing policy, which is clearly to promote a residualised social housing sector for the most vulnerable and near market rents with fixed-term tenancies for everyone else.

And it’s not just the politics of the coalition either. We have spent the last 35 years under governments of both parties moving from bricks and mortar to personal subsidies. It was not just the Conservatives and Sir George Young who believed that ‘housing benefit will take the strain’.

There also seems to be hostility in Whitehall to local government in general and investment by local government in housing in particular. The institutional memory of the mistakes of mass council housing runs deep even though tower blocks and system building were mostly the result of central government diktat. Even as memories of Ronan Pont fade, the inquest into the 2009 Lakanal House fire provides a grim reminder.

Put all of those arguments together and the resistance to council housing is more understandable. Yet each of them is steadily crumbling.

On the economics, the evidence is mounting by the day that the government’s failure to deliver economic growth is increasing the deficit rather than reducing it. Right at the top of the government there is a recognition that housebuilding is one of the best ways of delivering growth because it generates more jobs and fewer imports than the alternatives. Borrowing to invest in new homes makes just as much economic sense as it makes social sense.

On the politics, many of the leading advocates of more freedom for council housing and a change in the public borrowing rules are Conservative local authorities, notably Westminster City Council under its leader and former Cabinet member for housing Philippa Roe. It may be aiming at affordable rent homes for key workers rather than traditional council housing but the point is the same.

On the subsidies, the key argument is that directing them into housing benefit is more economic because all of the money goes to people in housing need. In contrast, subsidising the construction of a home only meets need for so long as the people in it are in need. This argument is shaky enough already since it implies an ever-increasing housing benefit bill and in any case depends on allocation policies. However, there are also some powerful new arguments against it, which ironically come from coalition policy.

In an interesting session of evidence to the public accounts committee last year, MPs asked David Orr of the NHF and David Montague of L&Q and the G15 about the trade-off between bricks and mortar and personal subsidies. David Orr quoted work showing that if you expected subsidy to be used for more than seven to eight years, capital subsidy was more cost-effective for the public purse. Below that revenue subsidy was better.

David Montague added that: ‘We are in the process of modelling the scenarios that David has also modelled, and now our conclusions are that if you take a seven-to-10-year view, revenue funding is more effective, but if you take a longer term view, capital funding is more effective. It depends very much on whether you believe that the homes that we are building should permanently be for people who will need support.’

On that basis, bricks and mortar subsidies for the sort of fixed-term tenancies introduced under the Localism Act and adopted by mostly Conservative authorities are definitely more cost-effective than housing benefit. If the coalition eventually legislates on pay to stay, with higher rents for higher earners who no longer need subsidy, the arguments will become even stronger. Fixed terms and pay to stay are not to many people’s tastes (including mine) but there are plenty of better alternatives out there and any number of options for rents, tenancies and mixtures of investment and they could improve investment for housing associations as well as councils. The point is that 35 years of orthodoxy saying housing benefit good, bricks and mortar subsidies bad no longer makes any sense.

All of which leaves blind prejudice as the only reason for continuing to ignore council housing.  Even that has partially broken down with the introduction of HRA reform. It’s way past time to go further: lift the borrowing caps, consider changing the borrowing rules for homes as well as roads and rail and allow councils and almos to build again. Let prejudice give way to common sense.