Former chancellor George Osborne “effectively abandoning” targets to restore government finances to a surplus by 2020 could be a golden opportunity for the public sector, according to a report by the House of Lords.
Local authorities and housebuilders should be allowed to use more relaxed lending and budgetary rules to begin building social housing again, according to the Building More Homes Report by the Economic Affairs Committee.
The report identifies a number of concerns with the housing market (see box), including that the Conservatives’ target of building 1m more homes by 2020 has been “abandoned” amid post-referendum uncertainty.
However, it says relaxed budgeting “could pave the way for releasing restrictions on local authorities and enable them to boost housebuilding activity substantially”.
The report comes amid increasing concerns that the private sector cannot supply enough homes overall, or enough social and affordable housing.
“This is an opportunity for the government to step back and re-evaluate how it can work better with local authorities and developers to tackle the housing crisis in our country,” says Mark Williams, Southwark Council cabinet member for regeneration and new homes.
“The business model of the large developers looks to profit margins rather than volume,” says the report, which describes the top eight house builders, which supply 50% of the market, as “oligopolistic”.
Before the referendum, housing supply had still only reached 170,000 units per year.
The report’s authors, who include committee chairman Lord Hollick, and former British Land non-executive director Lord Burns, say the government will not meet its target of 1m homes by 2020, and that due to systemic undersupply, that number will no longer be enough anyway.
The report says: “To achieve its target, the government must recognise the inability of the private sector, as currently incentivised, to build the number of houses needed.
“Government action is required to address this, including helping local authorities and housing associations to increase their housebuilding.”
While large grants are unfeasible, a relaxation of the Housing Revenue Account could allow more social house building.
The recommendations were welcomed by local authorities.
Southwark’s Williams says: “Our commitment and pragmatic approach to getting homes built must be matched by other councils and supported by central government with affirmative actions that allow local authorities to determine what mix of housing is needed in their communities, rather than a centralised policy.”
Reaction from the private sector was more muted. Charles Mills, partner at Daniel Watney, says: “One of the prevailing issues is that we keep asking local authorities to do more without providing the resources they need to do it. Some councils are well-resourced, but others are less well-off, and it is vital central government recognises this and addresses the issues.”
Matt Willcock, at PRS operator Platform, adds: “The question is not just about funding, it is also about skills. Allowing councils to borrow so they can build out their own assets is not a silver bullet.”
The government should focus on releasing more public sector land to increase the financial viability of council-led schemes, the report suggests. The authors recommend public land release becomes the responsibility of the cabinet, while a national infrastructure commission oversees housing numbers.
But will the new prime minister and her cabinet really allow borrowing, reversing 30 years of policy that has not seen councils building since the early 1980s?
“There is a housing shortage in the UK and the private sector alone is not delivering enough housing to meet demand,” says Marnix Elsenaar, partner and head of planning at Addleshaw Goddard.
“An obvious solution is for the public sector to take a more proactive role and there is no reason why this could not include using public funds to build new homes.
“There is of course a fine line between facilitating and building, and in reality we are more likely to see the public sector role doing more through public private partnerships which have been successful, [such as] in Manchester and London.”
The problems identified
The private sector
- Has proved unable to replace the public sector in housebuilding.
- Is oligopolistic, with the eight largest builders supplying 50% of homes.
- Shows a lack of innovation in building types.
Local authorities
- Prevented from building by tight controls.
Planning
- System is slow, complex, costly and excludes small builders.
- No new town developed in 30 years.
- A third of homes given permission are not built.
Tax
- Stamp duty changes make market less efficient and reduce churn.
- Tax and reliefs have stimulated demand, not supply.
Government schemes:
- Focus on home ownership and do not help those most in need.
- Rental gains have been meagre despite institutional investors, and have caused a swelling housing benefit bill.
- Constant tinkering undermines the position of the private sector.
