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Getting councils building again

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University College London’s Dr Janice Morphet examines what methods councils are using to kick-start housing development

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While successive governments have attempted to close the gap between the requirements for additional new housing and the supply provided, a stubborn gap of approximately 100,000 homes per year has remained. In the recent Housing White Paper, many new policy interventions were proposed. While the future of this White Paper is uncertain following the general election, tucked away at the back was a reference to local authorities providing housing again. Although little noticed and discussed, local authorities are already engaging across the country. Why and how are they doing this, and will their actions provide enough supply of homes to meet this long-standing gap?

While the numbers of new homes being completed by local authorities remains small, it is also the case that more than 125 are in the process of, or have created, housing companies. These companies are established under the Localism Act 2011 Sections 1-7, whereby local authorities have the same legal authority as individuals.


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New accountancy rules

Added to this, councils are now operating within new International Financial Reporting Standards, which mean that their accounting methods are the same as the private sector’s. This means local authorities can build housing in the same way as the private sector, using the general fund and outside any Right to Buy provisions. It also means they can build for all tenures, including for sale and market rent as well as affordable, the latter using Section 2 of the 2011 act to set rents under well-being powers. They can also build outside their own areas.

Why are councils deciding to re-enter the housing delivery arena and do they have the right skills? The reasons for engaging in housing again are varied. For some councils, there is a focus on homelessness and the quality and cost of accommodation available from private landlords. By providing housing directly, the local authority has an asset, can support the family in need and receive income in rent.

The second reason emerging is that of creating an income stream to deal with the changes in local government finance after 2020. Here, local authorities are starting to conceptualise their role as patient investors, funding housing but also purchasing other assets to create longer-term income streams to support council services.

Other drivers are also emerging. Some councils want to improve the quality of design of housing, in comparison with volume builders. Others want to change the perception of their place by providing diverse types of housing to create change and encourage investment. Finally, some are frustrated at the level of unimplemented consents, vacant sites waiting for an uplift in value or abandoned buildings that have long blighted areas and are a constant source of complaint from residents.

“Councils are creating an income stream to deal with the changes in local government finance after 2020.”

Finally, there is a more fundamental driver emerging from council leaders, more than 50% of which are committed to establishing housing companies: that after a prolonged period of austerity, they want to be active and to do something rather than sitting to wait for the next round of cuts.

So how are local authorities engaging? Councils have long lost the development expertise they had until the mid-1980s. Now, they are using services from within their council but also from the private sector. The London Borough of Croydon has established an architectural practice that primarily acts as a client while also being able to take on work outside the council.

Some councils are also using private sector property, legal and finance skills on specific developments. While councils appear to engage with housing initially from a problem-led approach, they are developing a range of approaches to deal with issues and sites.

Some start with the experience they have in development through the Housing Revenue Account (HRA) and Nottingham City Council is extending its arm’s-length management organisation into a development company. Nottingham is also joint owners, with Igloo, of Blueprint, a development company backed by Aviva.

Where are the funds coming from to engage in this housing activity at a time when local authorities are hard pressed to run services? There are several sources being used. Councils are taking loans from the Public Works Loan Board, which are being offered at a very low rate of interest and passing these on to their housing companies at a commercial rate. The payback from the company provides income to the councils, as do rents and payments for the use of council services.

Diverse strategies

Others are making use of Section 106 and Community Infrastructure Levy payments to provide housing in a systematic way and local authorities such as Wandsworth are being successful at provision. Some are acting with housing associations or the private sector in partnership using their own land. Others are using estate regeneration to pursue hidden housing programmes for garage redevelopment, additional floors and end extensions using HRA funding. While some are also using Right to Buy receipts that are currently very high, many councils are just returning them to the Treasury as they cannot develop within the time available for their use, recognising the lost opportunity.

Will this new flurry of activity help to meet the 100,000 homes deficit that is required to be filled each year? Starting numbers are small but growing. Birmingham City Council has provided 1,000 homes, with a greater number expected next year. Croydon is building on sites of all sizes and councils are using smaller sites as much as large ones. Other councils all over the country are building small but increasing numbers from the North East to the South West and as more demonstrate their achievements, more local authorities will follow them.

In research being undertaken at University College London and funded by the National Planning Forum and Royal Town Planning Institute, this issue is being probed and, by the end of 2017, there will be findings that show which councils are active, how many homes are being planned and delivered, and what contribution local authorities are making to provide housing.

Dr Janice Morphet, visiting professor, University College London

 

This article was written independently and was commissioned as part of a package sponsored by Durkan

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