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May’s speech and what it means for building council homes

How will the government’s funding for social rented housing work in practice, asks Steve Partridge?

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Immediately prior to the Prime Minister’s speech to the Conservative Party Conference, one could have been forgiven for misreading the headlines. Theresa May was to announce a new generation of council house building – had someone in Conservative Party HQ picked up the wrong manifesto?


When the announcement came, there was indeed more money to build sub-market rented housing - £2 billion to build 25,000 homes to be precise. More money for social and affordable housing, of any amount over any period of time, is something that the housing sector will of course welcome. But will this herald the next generation of council housebuilding and if not, what role might there be for England’s local authorities?


What we have learned in the days since Mrs May’s speech is slightly different to the initial headlines. The funds are to be added to the Homes and Communities Agency’s (HCA) existing Affordable Homes Programme (AHP), taking to funds available for London and the rest of England to almost £9 billion. The Communities and Local Government department has said this will mean the new funds can be bid for by councils and housing associations and the exact number of homes built will depend on the bids received.


This means, in focusing on boosting affordable housing provision in the ‘areas of greatest need’, the extra £2 billion will fund social rent as well as a range of other tenures, including affordable rent.
On the face of it, this looks like an allocation of grant per home of up to £80,000 – a significant amount, and a significant departure from HCA grant policy within the rest of the programme.


This suggests that the government may have accepted that homes at social rent might, in many areas, be the only homes that are affordable to low-income households. And that demand for those homes is not being met by the delivery within the current AHP of homes at Affordable Rent or for Rent-to-Buy or Shared Ownership.


What of the reference to areas of greatest housing need? We await details of the criteria around this new part of the programme. While it is not hard to envisage that bids from providers in London and the south east will predominate, the government and the HCA will need to consider how the criteria will be applied.


At Savills we know there is need for social housing across England. In virtually all local authorities there are high-value areas unaffordable to low-income households, even at Affordable Rents. But providers may not need grant of £80,000 per unit to make new social homes work in the north and midlands. Conversely, in London, that might be light. In primarily what is a numbers game, how this plays out and the funding distribution between the HCA and Greater London Authority will be interesting to watch.


The devil will, of course, be in the detail. The AHP bidding process might suggest that value-for-money considerations could reduce the average grant per unit, depending on the extent to which other resources from bidders could be brought to bear.


And therein lies the conundrum for councils keen to build more housing: what are the prospects for being able to lever additional resources? And how will the HCA assess value for money when the rules for councils and housing associations are so fundamentally different?


Housing associations borrow privately; councils via the Public Works Loan Board. Assuming de-regulatory measures remove housing associations from the national balance sheet shortly, councils will continue to face the barriers that:


• Their borrowing counts as ‘public expenditure’, and is artificially constrained by a debt cap
• The input of Housing Revenue Account (HRA) or other council land counts as a public sector cost
• The spending of Right to Buy and other capital receipts counts as public expenditure and receipts from recent sales cannot be input alongside other forms of grant funding


If local authorities are to be able to bid successfully at scale for the extra £2 billion, these barriers will need to be overcome or removed. As a result, at present, a return to the volume building of council housing by a Conservative government a la Harold Macmillan in the 1950s remains unlikely.


Virtually all local authorities have the appetite to boost house building and are already doing so through a variety of means, including local housing companies and using their access to cheap debt.

 

But for local authorities to do more, there would need to be much more detailed work on updating the rules.


Steve Partridge is a director at Savills Housing Consultancy


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Changing tides Changing tides
Prime minister promises £2bn for housing including social rent Prime minister promises £2bn for housing including social rent

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