2017 Housing Perspectives #11: ‘Time to make council housing a big part of the solution to the housing crisis’
by Martin Wheatley
The building of new council homes should be a key part of solving our housing crisis, argues Martin Wheatley, from the campaign for social housing (SHOUT), in the latest of our exclusive articles compiled as part of the 75th anniversary of the Beveridge Report.
For the first thirty years after the Second World War, councils were the engines of housing delivery. English councils built nearly 4m new homes, more than half of them in periods of Conservative government, and half of all new housing supply during this period. By 1977, nearly three homes in ten were rented from councils.
In the last 25 years, councils have been able to build just 0.7% of new homes, and more than two thirds of the four million homes which they owned in the late 1970s have either been sold through Right to Buy, with only a tiny proportion replaced, or transferred to housing associations. The Coalition government reformed the financing of council housing and gave some modest support for new build through its Local Growth programme.
However, the renewed ambition for development which that started to unlock has largely been derailed by the 2016 Housing and Planning Act and mandatory rent reductions. The sector now waits to see how the forthcoming White Paper gives effect to the shift in Ministerial rhetoric away from the previous exclusive focus on home ownership.
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So, is this the last gasp for council housing or by 2025 will councils once again be able to contribute to housing the nation? The answer lies, partly, with councils themselves, ever-resourceful in the face of unforgiving national policy constraints, innovating their way into new approaches. There is a growing wave of councils, substantially blocked from developing traditional social housing through their Housing Revenue Accounts, setting up Local Housing Companies. More than a third of councils have now established such vehicles, in a variety of joint venture and other corporate structures, and with the intention of acquiring existing stock and developing in a variety of tenures.
However, it is too early to predict the scale of development which will be undertaken through Local Housing Companies, and, still more so, the extent to which they will be able to provide housing which is genuinely affordable to people on middle to low incomes.
However, there could also be a bright future for conventional council housing, developed through Housing Revenue Accounts and perhaps championed on a larger scale by the new combined authorities. Indeed, there is cross-party consensus in the local government sector that a resumption of council house building at scale is a big part of the answer to the housing crisis. What is clearly needed is for national policy-makers to realise that resuming (and sustaining) public investment in genuinely affordable rental housing at scale makes economic and social sense, for three key reasons.
First, because it helps tackle the crisis of housing affordability and home ownership. The long term trend towards owner-occupation started to reverse soon after the millennium, and has now fallen to 62%, 7% below its 2004 peak. With a slow decline in the social rented stock over the same period, private renting has more than doubled, to more than four and a half million households over the same period.
The shift in tenure has been particularly stark among households in the £15,000-£30,000 a year range, the households whom the Prime Minister has described as “Just about Managing.” In just six years between 2008-09 and 2014-15, the number of such households renting privately has increased by over 60%, to over 1.6m, while the number owning with a mortgage has decreased by more than a quarter, to fewer than 1.5m. Those renting privately experience both much higher costs and much lower security. Alongside more development by the private sector, a new generation of council homes would offer this cohort stable, secure, genuinely affordable rental homes in the short term, with the option (via Right to Buy) of affordable purchase in the medium term.
Second, the government needs to restore a more sensible balance between rent subsidies and capital spending on new housing. For too long Whitehall has ignored the escalating cost of housing benefit for private rented housing, the cost of which has nearly doubled in real terms in the last 6 years.
A key driver of this growth is claims from working households, which have more than doubled in just six years to nearly half a million (an annual average rate of over 15%). Research by Capital Economics for the SHOUT campaign and National Federation of ALMOs showed that a sustained programme of investment in genuinely affordable rental housing would break even for the public finances within 20 years, and produce a net benefit of up to 0.5% of GDP by the end of a fifty year period. Capital Economics said that carrying on with current policy was “fiscal myopia.”
Third, for over 30 years both Labour and Conservative governments have believed that the private sector would fill the gap created by low levels of public sector investment in new housing. Over the last 10 years especially, they have thrown significant policy interventions at it, including reforms to the planning system, easing regulatory constraints on developers, and significant buyer subsidies. The experiment has surely shown conclusively that the private sector alone cannot meet demand. Over this period, new housing development has averaged less than 150,000 a year, less than 60% of the 1948-1978 average. In the last 15 years, it has been lower still, around 136,000 a year. If development is to increase to the 250,000 (or more) homes a year required to match projected household growth, it is surely time to rediscover the policy instrument of public investment which worked so successfully before the late 1970s.
Councils could not, of course, from a virtually standing start, deliver the whole of such a programme, even where they are still landlords. However, on a cautious analysis, they could play a big part in it, alongside housing associations. Even a very cautious unlocking of the huge financing potential of councils’ housing balance sheets would deliver 60,000 homes over 5 years.
One obvious counter-argument is the short run upward pressure on the public finances of initiating such a programme. The Capital Economics report suggested a number of reasons why this should not stand in the way of a resumption in public investment, including the readiness of the markets to distinguish between borrowing for investment and borrowing for current purposes, and the potential to develop off balance-sheet mechanisms which would not score on the Public Sector Borrowing Requirement.
Another concern is that some of the council housing built during the boom years has not stood the test of time, and has ceased to provide an acceptable living environment, to the extent that in some cases complete redevelopment has been necessary. Clearly mistakes were made in constructing and managing some large council estates. However, stock retaining councils have no desire to repeat the errors of the past and have continued to invest in the homes they own. Around 84% of council homes now meet the Decent Homes standard , compared with a third for private rented homes. Furthermore, government surveys show around 40% of council tenants would choose that tenure, even if they had the option of owner-occupation.
The time is right to make council housing a big part of the solution to the housing crisis, via a new programme of public investment so councils can again build at scale. The focus must be on place-making and creating mixed tenure communities, with decision taken locally not by Whitehall diktat. Who knows, by 2025 we may consider it normal for councils to provide homes for their citizens.
Martin Wheatley is an adviser and researcher on housing and public services. He is a member of the board of a transfer housing association, a leading member of the SHOUT housing campaign.
This article was written for the Webb Memorial Trust and the All-Party Parliamentary Group on Poverty as part of the 75th anniversary of the Beveridge Report and is part of a series of articles we will be running in the coming weeks.