Let councils play a bigger role in housing provision

The role of councils in housebuilding has sharply declined since its heyday in the 1960s and ’70s, but over the past few years councils have been using innovative approaches to start building homes again, driven by the will to create more housing locally and the need to generate a financial return, in the context of austerity and cuts.

London’s boroughs are getting back into the game, but the scale of their contribution has been hard to establish, partly due a lack of data.

Centre for London undertook a desktop survey and an email survey of heads of housing in the 32 London boroughs to understand levels of housebuilding activity that is primarily council-led (outside joint ventures with other partners) in the capital.

We found that over the next five years, 14 boroughs aim to deliver 10,900 homes through direct delivery programmes (on-balance-sheet development of public land using in-house teams) and 17 boroughs aim to deliver 12,700 homes through wholly owned development companies (separate commercial companies owned by councils).

In total, 23,600 homes are to be delivered through council-led approaches in the next five years, representing close to eight per cent of the new London Plan targets over this period.

This represents a real step change in boroughs’ contributions. According to the mayor’s housing strategy, London’s councils built 2,100 homes in 2011-2018, compared to only 70 homes in the preceding seven years.

The 22 boroughs that currently have homes in the pipeline through active council-led delivery models meet 10 per cent of their London Plan targets on average.

If all 32 London boroughs were able to achieve this 10 per cent target on average, we found that a total of 37,300 homes could be delivered across the next five years in London.

However, there are also a number of challenges and complexities hampering councils from increasing their housing delivery to its full potential.

Access to finance to build more housing is a key challenge, owing to restrictions on the use of Right to Buy receipts and constraints on borrowing capacity.

Intra-council barriers, lack of political support, and legislative and regulatory issues in setting up wholly owned companies can also hamper delivery.

Councils in addition face a range of planning and development issues that are exacerbated by a lack of internal capacity and expertise, as it is challenging for councils to attract and retain staff.

Boroughs are ready to play a bigger role in delivering housing and make the most of their existing assets, but policymakers need to do more to support and encourage councils to allow delivery at scale.

The government should release the borrowing caps for councils, allowing prudential borrowing against the Housing Revenue Account, and relax the restrictions on combining Right to Buy receipts with other grant funding and on the time period during which homes must be replaced.

More broadly, the government should recognise the key role that councils can play in delivering more housing.

At London level, the Greater London Authority should develop the existing Public Practice scheme to give more boroughs access to the development staff that they will need as they start building homes again.

Councils themselves need to set a clear vision for their wholly owned companies and be clear on the balance between generating financial returns to the council and providing affordable housing at lower rents.

Sub-regional collaboration will also be key to make the most of scarce resources: the mayor should use his funding powers to support the development of sub-regional consortiums or delivery bodies, but councils should also identify where they could work together better, especially for boroughs that haven’t built their own in-house capacity.

A good example is the Pan-London Accommodation Collaborative Enterprise (Place), a not-for-profit company and delivery structure set up in May this year, where 16 councils are collaborating to build temporary modular housing to tackle homelessness.

As part of his review of build-out rates for the government, Sir Oliver Letwin suggested that broadening the range of tenures and of house builders could make a significant difference to build-out rates.

In London the bulk of housing, including affordable housing, is delivered by a fairly small pool of developers: last year, the private sector represented almost 50 per cent of affordable housing completions through Section 106 according to Ministry of Housing, Communities and Local Government data.

But developers’ concerns about risk and lowering sale prices are resulting in slow rates of delivery.

It is not just councils that need room to build more – London needs to diversify its housing providers to ensure continuity in housing delivery, against the backdrop of a private market slowdown.

Further, as well as providing homes at different tenures, boroughs play a key role in developing infill sites, and could contribute towards achieving the aims of the draft New London Plan on small sites, densification and place-making.

London’s boroughs are starting to build again, and the time is ripe for councils to build more, as not all councils are active. Following the May 2018 local elections, with the mayor of London pledging his support, there is a real opportunity for boroughs to get building again.

Victoria Pinoncely, research manager, Centre for London