HQN blog – The housebuilding promise – fingers crossed?

Prime Minister Theresa May used the first conference season of her new government to make housing one of her two top priorities (the other being fuel bills). She promised an extra £2bn over the next five years, which she estimated would produce 25,000 homes.

Any new money for housing is of course welcome. That the government now sees this is top priority is both laudable in that it is very much needed, and troubling in that a great deal more is also necessary. The 25,000 extra new homes should perhaps best be seen as the start of something. The commitment to allowing councils to build, rather than the actual amount of money, marks the most remarkable turnaround, after decades of governments trying every which way to avoid the possibility of new council houses. Other aspects of housing policy that restrict local authorities remain, but the change of approach could potentially have wider ripples.

The basics of the announcement

The extra £2bn is to be spent in ‘areas of greatest need’, which will presumably mean those areas mainly in the south and east where housing costs are highest and waiting lists longest. Councils and housing associations can bid, and must show additionality – the numbers are important. Social rented units can be included, as well as affordable housing.

The £2bn top-up package will increase the HCA/GLA affordable homes programme 2016/2021 up to £9.1bn until 2021 according to government, and it will be used to lever further investment of £5bn. At an average grant rate of £80,000 per home, the government estimates this will produce 25,000 new homes – though some doubt this can be achieved, and clearly the lower the rent to be charged, especially in high cost areas, the greater unit subsidy is required. Bids will be allowed for social rents that are well below affordable and market rents – rent levels of 30-40% of the market rent have been referred to.

Much rests on the sector having the capacity and willingness to deliver the programme. That is why the new rent settlement was announced at the same time. A return to Consumer Price Index (CPI) plus 1% rent rises for five years after 2020 will offer welcome stability and should help local authorities build the headroom on the HRA they will need to service borrowing – and which has been badly lacking under the current rent cuts. Nevertheless, the sector must first get through two more years of ‘austerity’.

The new money in context

An extra 25,000 homes, particularly if let as ‘social rented’, would represent a big boost to the social sector in high pressure areas. Figures for 2015/16 show that only 930 new social rented homes were started that year across England, with 20,600 for affordable rent, via the HCA/GLA programme. The average grant under the 2015-18 programme for affordable rent was a little over £27,000, according to UK Housing Review. At a forecast average £80,000 subsidy per unit, the new money should produce substantially lower rents than in the recent past.

However, local authority Right to Buy sales continue to outstrip the provision of new council housing. More than 13,000 council homes were sold under RtB in 2016/17, with similar numbers since the policy was revitalised in 2013. (Numbers this year to date are substantially lower.) In the same year, only 4,624 replacements by either new build or acquisition were started under the government’s replacement policy.

Though it seems a long time ago now, the sale of high(er) value council housing to fund RtB for housing association tenants only became law via the 2016 Housing and Planning Act. Payments are not required in the current financial year but the future remains uncertain. What is certain is that ministers have lost their appetite for the scheme despite it being a 2015 Conservative manifesto commitment.

Then there is the government’s subsidy for buyers. The extra £10bn for Help to Buy Equity Loans announced only days before the £2bn for the social sector suggests the government has not lost its belief in homeownership.

The desperate need for more social housing cannot be doubted. According to the Evening Standard, 1.2m households are on council waiting lists in the UK, with 230,000 in London alone. But the Treasury remains reluctant to lift the local authority borrowing cap, and the prospect of rent rises to ease balance sheets is still some way off. Some politicians continue to believe that the social housing sector is reluctant to build. One MP at the Conservative Party conference said housing associations’ balance sheets should be targeted if they do not build more homes.

Practical issues for the housing sector

The housing sector has said it wants more flexibility and ‘creativity’ over how the new money will be spent. Local authorities are campaigning for bespoke deals to use the new funding and more generally as a mechanism to be allowed to borrow more.

Getting on to the front foot certainly seems sensible so authorities and their partner organisations should look to imaginative ideas that lever in as much funding as possible and create value for money.

Authorities that are not certain they will qualify as areas of ‘greatest need’ but want to and can use a share of the extra cash should prepare their case early. Here, the government planning consultation which includes a new a standardised approach for assessing the amount of housing required in an area will be relevant. This will be the subject of a separate HQN briefing shortly.

Commentators in the housing sector have pointed out that in order to deliver an increased new build programme local authorities will need to have the ability to borrow to invest in new council housing, to keep 100% of Right to Buy receipts and to have certainty over future rents. The rent increase announcement (CPI + 1% for five years post the rent reduction period) will add extra capacity in social landlords’ business plans but beyond that most organisations are prudently planning for CPI-only rent increases.

Housing associations will want to be involved, particularly in local authority stock transfer areas. The recently issued Homes and Communities Agency consultation on the new VfM standard includes measures of new homes built or acquired, as a percentage of the stock in management – see our recently published HQN briefing.

Generally, the social housing sector has welcomed the new funding announcement, especially as it appears that the government is moving away from only a homeownership programme to one that includes significant numbers of traditional social housing, but at the moment the details behind the new initiative are not known. The HCA guidance, when published, will be critical. This may coincide with next month’s Budget, so prospective bidders will need to be ready for an early bidding round.

HQN will continue to monitor developments and bring the details to members as soon as they are available.

By Janis Bright and Ian Parker