Can councils meet the housing challenge?

The numbers may be small, but local authorities are increasingly exploring new ways of delivering homes, writes Simon Brandon. Illustration by Marcus Marritt.

A quiet renaissance is under way in town halls across the land. Local authorities have begun to build again. In the year to December 2016, according to the Department of Communities and Local Government (DCLG), English councils built 2,080 new homes between them.

In the three decades following the Second World War, councils built around half of England’s new homes– a trend which peaked in 1968, a year in which they completed 350,000 new properties. But in 2004/5, English councils built a total of just 100 new homes.

These 2,080 new homes represent a small fraction of the 140,600 homes completed by developers of all stripes in the same period. But they don’t tell the whole story. They are, as the DCLG notes, an underestimation, because they pertain only to social and affordable housing built by councils – council housing in its traditional sense, paid for by local authority housing departments.

And while councils are indeed building more homes that way, thanks largely to a change in the way local authority housing is financed, the past few years have seen them start to look at other ways of delivering new homes and different tenures.

According to Ian Collins, head of employers agent services at consultancy Pellings, the first few steps taken in this brave new world were tentative – but the council housebuilding movement is gaining momentum. Indeed, the government is certainly relying on councils to become a major deliverer, as the private sector has neither the capacity nor inclination for risk-taking to ensure that 250,000 new homes a year get built.

“There is a lot of knowledge around now, certainly with the creation of the local housing companies (LHCs) – a lot of local authorities have been through that process and they are now happy to share their experiences with others,” he says. “Other local authorities can see other people have done it, what the outputs are and what they have achieved, and it gives them an incentive to do it too.”

The numbers tell the same story. Six years ago Birmingham City Council built no new homes; today its LHC, Birmingham Municipal Housing Trust, is the city’s most prolific housebuilder. Its 2,000th home was completed last year.

Permanent dwellings completed in England by tenure, 1946 to 2015

Source: DCLG

New builds completed each year by local authorities in England this century

Source: DCLG

The largest example is taking shape in the London Borough of Barking & Dagenham, where the council aims to build 42,000 new homes over the next 15 years. Many other local authorities are following suit, though there are numerous challenges – from lack of access to funding to lack of skills and capacity. But, according to research carried out by Inside Housing last year, more than a third of councils in England have established an LHC or plan to do so.

Elsewhere, councils are setting up joint delivery vehicles with developers to ramp up housebuilding in their areas. These range in scope from citywide schemes, such as the Liverpool Housing Partnership set up last year by the city council, housebuilder Redrow and housing association Liverpool Mutual Homes (see box below) to partnerships that aim to develop new communities from the ground up (see box). They are also turning to contracting firms as their delivery partners.

These newer approaches seem to be good for everyone: for people trying to get on the housing ladder or off the social housing waiting list; for cash-strapped councils looking to generate new income streams and regenerate their communities; and for their partner developers, who see local authority programmes as a way to spread their risk – by using councils’ visible pipeline of sites, for example – and therefore mitigate uncertainty about the future.

“Clearly there is a limit to how much the big builders can be expected to deliver. They have delivered the majority in the past three years, but we need to look at other sources of supply,” says Steve Turner, spokesperson for the Home Builders Federation (HBF). “Local authorities and the balance sheet they have got is another route to market.

“While the bigger builders probably can’t commit to significant further increases over coming years, because of the risk that would entail, if they can build homes using a model that creates less risk then potentially they can deliver more than they could using the current build-for-sale model.” 

Why did councils stop building?

The reason housebuilding by councils slowed to such a trickle over the past decades was largely down to the way local authority housing departments had to run their finances. All stock-owning councils are required to run a housing revenue account (HRA) to manage their rental income and housing expenditure. HRAs are ring-fenced, a measure intended to prevent councils using rents to subsidise other services.

Historically, any surpluses in councils’ HRAs were either cancelled out in the form of lower housing benefit payments from central government, or – following changes made by the 2003 Local Government Act – were paid straight back to the Treasury to help subsidise those councils running an HRA deficit.

Bell Phillips’ design for the St Chad’s development in Tilbury by Gloriana

In 2012, however, the government overhauled this system. In return for a one-off redistribution of existing housing debt, councils were permitted to keep their HRA surplus and to borrow against it (though the amount is capped).

This is the so-called self-financing model, and it has given councils the freedom to build their own housing again. The appetite among stock-owning councils for development is growing: according to a report commissioned by the Association of Retained Council Housing (ARCH) in 2013, almost three-quarters of stock-owning councils intend to start building homes this way. ARCH estimates this could result in 5,000 more homes built each year – and if the borrowing cap were removed, this number could rise to as high as 60,000.

Individually, these are small schemes. In Harrogate, for example, the council has used its HRA surplus to build on pockets of land it owns, such as garage sites – perhaps not economically viable for big housebuilders, but potentially a lifeline for smaller builders, argues Turner.

“It’s difficult for them to access finance and sites they can build out,” he says. “Local authorities have got a key part to play in that, in terms of providing sites that small builders are able to develop.”

But the future for traditional council housing is uncertain. In 2015, the government announced a 1% rent cut per year for four years on all social housing in England. Over the life of the 30-year business plans councils must produce under the self-financing regime, these cuts will compound into a sizeable reduction in rental income, and therefore the amount they can borrow against that.

Levitt Bernstein’s homes for Barking & Dagenham’s Gascoigne East

A report published last year by the Chartered Institute of Housing and the Chartered Institute of Public Finance and Accountancy (CIPFA) estimated that cuts to social housing rent could significantly hamper councils’ capacity to build under the self-financing model by up to 90% over the next 30 years.

The government also intends to extend the Right to Buy to housing association tenants as well as council tenants, and aims to fund this by forcing councils to sell their most valuable stock as it falls empty. It’s a proposal that threatens to hit some councils much harder than others.

“Because Harrogate is a relatively high-value area in a relatively low-value area of Yorkshire and the Humber, we would have to sell over 50% of our properties as they became vacant to fund housing association Right to Buy,” says Madeleine Bell, head of housing and property at Harrogate Borough Council. “That was a huge concern to us and the uncertainty around it is constraining our development at the moment.”

There is uncertainty too around the future of LHCs. The government’s Housing White Paper, launched in February, suggests affordable housing built through LHCs could become subject to Right to Buy, in line with council and housing association homes.

And of course there are the looming unknowns around Brexit. The construction sector is already a “contractors’ market” thanks to a labour and skills shortage, says Collins – a situation that Brexit threatens to exacerbate.
He remains optimistic that this new era of council housebuilding is not about to end, however. “There is an increasing appetite [among councils],” he says. “I can’t see that stopping.”

Widening the view from Tilbury

Thurrock Council’s LHC is opening up the area’s housing possibilities

Gloriana is a local housing company (LHC) set up by Thurrock Council in 2015. It has just completed an award-winning development of 128 four and five bedroom homes (pictured) in Tilbury, the borough’s biggest town.

“It really does show what can be done with some different design and a few different materials in an area that needs a bit of uplifting,” says Helen McCabe, Gloriana’s development manager.

Named after the barge on which Queen Elizabeth I sailed down the Thames to give a famous speech to her troops at Tilbury as the Spanish Armada was on its way, it was set up in part to kickstart housing development in areas where commercial development is more economically viable.

Gloriana aims to build 150 units a year in a mix of tenures. The homes on its first development, St Chad’s, by Bell Phillips Architects, are for market rent (the council is the landlord) and affordable rent. Future schemes include homes for sale, with receipts reinvested by the council.

Why set up an LHC? Why not just build through the housing revenue account? “The scope is much wider through Gloriana,” says McCabe. “As long as we get the borrowing and land transfers approved by cabinet, we are not constrained by any financial limit. We would be limited through the HRA; you couldn’t build a 128-unit scheme that way.”

The land on which Gloriana builds is owned by the council and sold to the LHC at market value. At present, Gloriana has a three-year pipeline of land.

Full of eastern housing promise

Four councils in Essex are setting the pace for large-scale local housing solutions

In north Essex, local councils are thinking big. Essex County Council is collaborating with three district councils – Braintree, Tendring and Colchester – on a scheme they hope will provide 40,000 new homes in three new communities over 30 years.

The four local authorities have formed a new company, in which each has an equal stake, called North Essex Garden Communities (NEGC). The scheme falls under the umbrella of the Town and Country Planning Association’s (TCPA) New Communities Group, set up in 2009 along with the DCLG, to offer support and guidance to a total of 17 local authorities and development corporations across England that aim to deliver 150,000 new homes between them.

The scale of the north Essex scheme – one of the largest – is key to its successful implementation, says Jonathan Phillips, a spokesperson for NEGC. “Doing things on a large scale gives you the critical mass to deliver the roads and schools that people want alongside the homes,” he says.

“We don’t want to build large housing estates where people have to travel long distances to work; the idea is to build holistically planned settlements that include business space and the green space that is so important to people.”

Later this year, NEGC hopes to establish three delivery vehicles – one for each community – with representatives from the council and the building industry – which will begin to examine the challenges unique to each site.

“We have a real opportunity to be an exemplar for housing delivery across the country,” says the NEGC chair, Councillor John Spence of Essex County Council.

Main illustration based on AHMM’s William Street Quarter for Barking & Dagenham