Council housebuilding – is it due for a revival?

“Whether you rent or buy, everyone needs the security of a place to call home,” Theresa May told The Sunday Times last weekend. “That’s why we will fix the broken housing market and support local authorities and housing associations to build a new generation of council homes right across the country.”

For the sheer ratio of effort expended to results achieved, there can be few issues in British politics as remarkable as housebuilding. Since before the Second World War, housing ministers have appeared on radio programmes and on TV promising to solve the problem. Yet in 2017 the problem doesn’t just remain unsolved: it has become more critical than ever.

It goes without saying that opinion is divided with regards to who is to blame for the current crisis and how to fix it. What is certain is that since the early 1980s, housebuilding by local authorities has fallen to a fraction of its post-war peak. Therein lies what many argue is the problem.

Indeed, Mark Knight, northern divisional managing director at Keepmoat Homes, believes the public sector will be “paramount” if the government is to stand a chance of hitting its own housing targets.

So what is holding councils back from getting stuck in and building the affordable homes the country so desperately needs?

In 2003, noted economist Kate Barker was tasked with investigating the shortfalls in the housing market and setting an annual target for new units. The resulting report has set the political agenda ever since: Britain needed to build a minimum of 240,000 new homes each year to prevent the affordability crisis from worsening.

Whether you rent or buy, everyone needs the security of a place to call home - Theresa May

Of course, no government has come close to delivering that volume of new homes in the last 14 years and affordability has indeed worsened. In fact, the country has rarely built sufficient homes without major intervention in the market from central government, according to Helen Evans, chief executive of housing association Network Homes.

“Research that Network Homes carried out in 2016 showed that the last time [more than 200,000 homes were built] in a single year was 1989,” she says. “The only period when housing supply was consistently above 200,000 homes a year was when the government invested heavily and directly in social housebuilding in the decades after the Second World War.”

Perhaps the most notable aspect of the government’s housing white paper, published in February, was that the shortfall was at least acknowledged, rather than being swept under the carpet.

Moving from acknowledgement to delivery, however, is something that Chartered Institute of Housing (CIH) chief executive Terrie Alafat says cannot be achieved without first considering the role of local authorities and housing associations, something the prime minister appeared to recognise in her comments last weekend.

“The statistics speak for themselves,” says Alafat. “The reality is that if you look at what we’ve been delivering, it’s nowhere near the numbers we need. The last time we were anywhere near the numbers we need, local authorities were much more active. If you look at the private sector in recent times, it’s never been able to get to those numbers.”

Council housebuilding in decline

At Britain’s housebuilding peak in the mid-1960s, by far the bulk of the delivery - some 350,000 houses a year - was done by councils. By the 1980s, local authorities had all but stopped building and the private sector had not picked up the slack.

One of the reasons councils no longer build homes to any significant degree, says Richard Blyth, Royal Town Planning Institute (RTPI) head of policy and research, is to be found in what is known as the ‘Thatcherite consensus’ on housebuilding - in short, that the public sector’s role should all but disappear.

“The assumption was that private housebuilding for sale and rent would take up the slack left by the end of council housebuilding. It hasn’t,” he says. “Housebuilders have not built cheap homes for sale for a wide variety of reasons, including having to pay landowners high prices for land.”

We now need more organisations building at price points people can afford - Geeta Nanda, Thames Valley Housing

And as Geeta Nanda, chief executive of Thames Valley Housing, explains, having an ultimate obligation to shareholders “takes precedence over solving the housing crisis”.

“Large housebuilders can deliver housing at scale, but we built the most homes when councils were building and we now need more organisations building - small and large and public and private - at price points people can afford,” she adds.

In a market in which private developers deliver the bulk of the stock, they also hold most of the cards. And this, says Jack Airey, senior researcher at think tank Localis, has been a major factor.

“We are too dependent on the private market for the provision of submarket affordable housing,” he says. “Developers are able to negotiate down their planning obligations via viability assessments.”

Local authorities stepping up role

However, not everyone agrees that private developers are at fault for failing to build the homes that the country needs. The Home Builders Federation (HBF) planning director Andrew Whitaker says that far from the housebuilders being to blame, an impasse in the relationship between builders and planners has stifled the market.

“Because we have a planning system, we don’t have a free market,” he says. “If we did, there would be a true supply-and-demand system. What we do now is we ration land through the planning system. We haven’t released enough land over the past 50 years and for a long time we have required the private sector developers to cross-subsidise the cost of affordable housing.”

Whether housebuilders could do more is a highly contentious issue. However, there is a growing consensus that councils have a bigger role to play.

Within the confines of current government policy, they are already finding ways to build the homes their residents need, however. The latest figures from the National House Building Council reveal more than 42,000 registrations for new homes in the first quarter of this year, and while the majority of these came from the private sector, there are some standout examples of local authorities taking more of a role.

We haven’t released enough land over the past 50 years - Andrew Whitaker, HBF

Blyth says there are “significant programmes of development under way” by councils in Croydon, Birmingham and Nottingham, the latter of which was named Outstanding Strategic Local Authority of the Year at this year’s UK Housing Awards in part for its work as a direct deliverer of affordable housing.

Other initiatives are also getting under way. In April, for example, Hackney council announced it was establishing a new body with a brief to deliver 3,000 new homes over the next decade, having taken inspiration from Thames Valley Housing’s Fizzy Living.

There are currently 12,000 households on the waiting list for council houses and a further 2,800 households living in temporary accommodation, and the council hopes that the new body will help relieve the situation.

So there are examples out there of councils working within the existing system and managing to deliver homes, although as Paul Wickenden, associate director in Cushman & Wakefield’s residential team, notes, their contributions towards increasing delivery “will not happen overnight”.

A role for central government

To accelerate the process, central government intervention may be required. This is something that the government appears to recognise, with May noting that she is considering reform to the compulsory purchase order (CPO) regime to make it cheaper for local authorities to assemble sites.

Such reform will no doubt take some time to come into force - any reform of the CPO system that lowers the price paid to landlords is certain to be controversial - so in the meantime Wickenden suggests that councils get more actively involved by, for example, “gap funding sites that suffer viability issues and cleaning up brownfield land”.

If the government is to empower local authorities to build more it may also have to look again at changes made under the coalition in 2012 to the way local authorities’ housing revenue accounts work. The reforms were intended to free up councils to build more homes, but according to Alafat they had the opposite effect.

“It impaired councils that were planning to build more housing over a long-term period,” she says.

“It was quite a shock across the social sector and it’s had a big effect on building. It meant lots of councils taking a step back from their plans.”

Growing recognition

It is likely to take time before many councils get back on the front foot and start delivering significant numbers of new homes.

But there is at least a growing recognition that councils need to get involved if the UK is to deliver anything like the number of homes it so desperately needs. That should eventually drive reforms and encourage councils to get building again.

May’s intervention last weekend could one day come to be seen as the moment when the government grasped the nettle and the Thatcherite consensus began to unravel.

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