Lifting the council borrowing cap won’t address the biggest housing issue cities face. It’s time for land reform

Mmmm green belt. Image: Getty.

Prime Minister Theresa May danced her way onto stage to the disco sounds of ABBA last month – but the real mood music of Conservative Party Conference was house. Ending the housing shortage is a huge domestic priority for the government, and one of the things May, Boris Johnson and Jacob Rees-Mogg all agree on is that we need to build more homes.

The key policy the Prime Minister announced during her conference speech is that the government would relax restrictions on local government borrowing to build new council homes. However, while this might increase the rate of building and especially benefit those on low incomes, it doesn’t solve the key problem in our most high-demand cities – a shortage of land in the planning system that can be developed.

Getting councils building housing for rent is sometimes considered the silver bullet that will end the housing shortage. The Local Government Association itself makes the case that “the last time this country built homes at the scale that we need now was in the 1970s when councils built more than 40 per cent of them”. The Labour Party also pledged to abolish the same restrictions back in April as part of a plan to build 1m new council houses at social rents.

And, broadly, we should expect the removal of the borrowing cap to increase the amount of building by councils. There’s a key role for the public sector to play in providing good quality rented housing for those on low incomes, which would complement the recent private sector boom for those on medium-high incomes through Build to Rent housing.

But there is no guarantee that councils will use the new freedoms to build more homes.

The new policy assumes that all councils want to build more homes. And while a few councils in cities are keen on the idea of playing a much larger role in supplying homes, many others in and around high-demand cities are not. Different places have distinct politics and views, and simply giving local government the freedom to build more houses is no guarantee they actually will. The current existence and structure of Right to Buy also discourages councils from building – yet so far it remains untouched.

Moreover, it remains unclear how much freedom councils will have to borrow under the new proposals. The government expects councils will borrow up to £1bn a year and they will have to comply with the prudential code, but beyond that details are scarce. If councils borrow a lot more or less than expected, this will jumble up the sums that underpin the policy and force a rethink.


In particular, the abolition of the borrowing cap for housing comes at a point when concern is growing in Whitehall that councils are borrowing too much to invest in commercial property to create new revenue streams rather than foucsing on land assembly. One possible result of the new policy might therefore be a tightening of restrictions around borrowing for commercial purposes, in return for greater freedom for borrowing in residential property.

Nor will the new proposals address the fact that the UK’s central housing problem is a shortage of land for development in particular cities. In fact, they may actually push up land prices across cities.

If councils take on a much larger role in housing construction and also release much more land for development, then the additional building will dampen housing costs and make their cities more affordable to their residents. But if, hypothetically, no more land was released and the shortage of land continued as before, then adding councils as another developer will only push up prices for land as a whole.

Lower housing costs for families on low incomes – coupled with no change in the amount of land released for housing – would come at the cost of increasing housing costs for the rest of the city. This might be preferable to doing nothing, but it’s just not necessary, as we could make housing in high demand cities cheaper for everyone if enough land was released for development and used efficiently.

There are a number of technical changes that could make this happen, but for the keynote at Conservative conference the announcement has to be big enough to grab headlines, while also acknowledging it will take time for any reforms to filter through to the actual market.

A missed opportunity for green belt reform

Instead, what the Prime Minister should have done and do is announce a radical overhaul of the green belt. Grading green belt land by quality would protect the best countryside, while releasing ordinary scrubland and brownfield land for “button development” of dense housing around train stations would tackle a key cause of the housing shortage.

Doing it at one fell swoop would minimise political risk in a Conservative Party which is united on the need to build more homes, compared to the ongoing nibbling at the green belt which agitates local residents and councillors.

The government needs a radical domestic agenda to win the next general election – which could be four years or four months away, given the volatile nature of British politics. Housing will inevitably one of the key debates ahead of that election – the government needs to be bold in making essential reforms if it is to seize the initiative on this issue.

Anthony Breach is an economic analyst at the Centre for Cities, on whose blog this post first appeared.

 
 
 
 

What's actually in the UK government’s bailout package for Transport for London?

Wood Green Underground station, north London. Image: Getty.

On 14 May, hours before London’s transport authority ran out of money, the British government agreed to a financial rescue package. Many details of that bailout – its size, the fact it was roughly two-thirds cash and one-third loan, many conditions attached – have been known about for weeks. 

But the information was filtered through spokespeople, because the exact terms of the deal had not been published. This was clearly a source of frustration for London’s mayor Sadiq Khan, who stood to take the political heat for some of the ensuing cuts (to free travel for the old or young, say), but had no way of backing up his contention that the British government made him do it.

That changed Tuesday when Transport for London published this month's board papers, which include a copy of the letter in which transport secretary Grant Shapps sets out the exact terms of the bailout deal. You can read the whole thing here, if you’re so minded, but here are the three big things revealed in the new disclosure.

Firstly, there’s some flexibility in the size of the deal. The bailout was reported to be worth £1.6 billion, significantly less than the £1.9 billion that TfL wanted. In his letter, Shapps spells it out: “To the extent that the actual funding shortfall is greater or lesser than £1.6bn then the amount of Extraordinary Grant and TfL borrowing will increase pro rata, up to a maximum of £1.9bn in aggregate or reduce pro rata accordingly”. 

To put that in English, London’s transport network will not be grinding to a halt because the government didn’t believe TfL about how much money it would need. Up to a point, the money will be available without further negotiations.

The second big takeaway from these board papers is that negotiations will be going on anyway. This bail out is meant to keep TfL rolling until 17 October; but because the agency gets around three-quarters of its revenues from fares, and because the pandemic means fares are likely to be depressed for the foreseeable future, it’s not clear what is meant to happen after that. Social distancing, the board papers note, means that the network will only be able to handle 13 to 20% of normal passenger numbers, even when every service is running.


Shapps’ letter doesn’t answer this question, but it does at least give a sense of when an answer may be forthcoming. It promises “an immediate and broad ranging government-led review of TfL’s future financial position and future financial structure”, which will publish detailed recommendations by the end of August. That will take in fares, operating efficiencies, capital expenditure, “the current fiscal devolution arrangements” – basically, everything. 

The third thing we leaned from that letter is that, to the first approximation, every change to London’s transport policy that is now being rushed through was an explicit condition of this deal. Segregated cycle lanes, pavement extensions and road closures? All in there. So are the suspension of free travel for people under 18, or free peak-hours travel for those over 60. So are increases in the level of the congestion charge.

Many of these changes may be unpopular, but we now know they are not being embraced by London’s mayor entirely on their own merit: They’re being pushed by the Department of Transport as a condition of receiving the bailout. No wonder Khan was miffed that the latter hadn’t been published.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.