'Councils finding ways to build but could do much more with support.'
As a new report reveals councils are building thousands of homes through local housing companies, Paul Hackett, director of the Smith Institute, says government must support their efforts to build more.Local government is not waiting for ministers to give them the green light to get building again. Under the banner of localism, hundreds of councils in England are already providing new homes to rent or buy through their own private local housing companies (LHCs). This “quiet revolution” in council-home building could see LHCs collectively delivering up to 15,000 extra homes a year by 2022.
The Smith Institute’s new report, ‘Delivering the renaissance in council-built homes: the rise of local housing companies’, shows that councils of all political persuasions, are going it alone, and without government grant are directly funding their own housing companies to meet local housing needs.
We think there are now around 150 local housing companies, which could easily rise to 200 in a few years. The majority are in London and the South, but there’s more starting to appear elsewhere. A lot of district councils have one, and in cities like Sheffield and Nottingham, LHCs are involved in major regeneration schemes.
LHCs are basically trading companies, wholly (and sometimes partly) owned by the council. They’re mostly funded by the council and usually build on council land – or the council offers land for equity. What’s different is they’re private housing providers operating outside of the social housing regulations. They’re exempt from the Right to Buy (RTB), rent controls and most of the recent housing legislation, and councils that have stock aren’t affected by the borrowing caps. A few are run as purely profit making, but the vast majority are seeking much lower returns than private developers and recycle any profits back into the company to re-invest in affordable homes.
The tenure mix varies, but most of the companies provide up to 40% of homes at sub-market levels. There’s a lot of diversity. Some housing companies, for example, are providing more homes at social rents and others are concentrating on intermediate rent or low-cost home ownership. Some are particularly interested in providing temporary accommodation (which they say is costing them a lot less), others are building homes for older people or students. The majority are just getting started, although some, like Red Door Ventures in Newham and Inreach in Birmingham, are larger scale.
Councils are setting up housing companies because they’re frustrated with private developers and feel boxed in by the government’s top-down policy interventions. They want to “do their own thing” and “take back control”. But, it’s not a uniform reaction. In places like the Wolverhampton and Stoke, for example, LHCs are seen as a means of jump starting the market. In other places, like South Guildford they are focused on key worker housing. In North Essex, they are supporting the development of an entire new town. There’s also a strong desire in some places to use LHCs in the PRS as a way of raising standards. It’s horses for courses, but what most councils want is some “skin in the game”, and their housing company gives them that.
LHCs are not only providing new homes and place shaping, they’re also income generating. They make money and return a dividend to the council. And that income (some of it from the practice of ‘on-lending’) is usually recycled back into the housing pot. The financial incentive is a factor, but the main driver is to provide more housing and more of a mix of housing – and any bonus to the council is gratefully received!
It’s partly “needs must”, but there’s also a desire to innovate and to find different ways of using the council’s assets and borrowing powers. Some critics though claim LHCs could crowd out other housing providers or slow down development. However, our research suggests the compliments about LHCs far out-weigh the criticisms. LHCs point out that they’ve evolved in-spite of government, not because of it, and that ministers needs to recognise that stop threatening LHCs with the RTB. Our report calls on government to do pro-actively support LHCs, including: allowing councils to reinvest their RTB receipts alongside New Homes Bonus money into the LHC; setting up a centre of excellence or learning hub; and establishing a high-level task force to look at improving the policy landscape for LHCs.
It’s still early days and most LHCs are taking it step by step. But, our research suggests there’s real potential for councils to be building again, and not just council housing but a mix of tenures and types. LHCs are not a silver bullet to solving the housing crisis, but (as our report shows) they’re fast emerging as an important part of the new armoury.
Paul Hackett is director of the Smith Institute and author of Delivering the renaissance in council-built homes: the rise of local housing companies
- The full report is available here.