Theresa May's promise to let councils build is a big step forward for housing policy. But more action is still needed

The New Era Estate, Hoxton. Image: Getty.

Theresa Mays recent conference speech shows how housing continues to rise up the political agenda: the Prime Minister said that, “solving the housing crisis is the biggest domestic policy challenge of our generation”. For a number of Conservatives, who look anxiously at their approval rates amongst younger voters, having a meaningful housing policy offer is looking like a necessity if the party is to retain power.

Coming at the end of a conference dominated by Brexit and party management, and which saw little by the way of policy announcements, the contents of Theresa Mays speech on Wednesday afternoon came as a surprise to many. Not least to those in the world of housing policy who have welcomed the news that councils are to be free to borrow in order to build housing once more, with a mixture of both glee and disbelief.

So, what does it mean that councils will now be able to build? Due to central government policy, local councils are prevented from borrowing prudently against their Housing Revenue Account (HRA) to build genuinely affordable housing. This was always an ideologically driven, dysfunctional policy which was strongly contested by local authorities who wanted to do their bit to address the drastic shortfall of affordable housing.

IPPR and many others have argued for a long time that the borrowing cap imposed on local authorities should be lifted, so Theresa Mays announcement should therefore be warmly welcomed. It is certainly a major shift in the governments approach to housing policy. However, it is worth noting the limits of the policy.

It will take time for councils who have not developed new housing for some years to build up their capacity, meaning it may take time before the impacts of this change can start to be felt. Once up and running though, councils will be able to deliver around 15,000 homes a year according to propery consultancy Savills; the government estimates a more conservative 10,000 a year. 

But while this will be a key source of affordable housing, alone it will not meet the current shortfall. As such, councils must be seen as a part of the solution to and should not be unfairly expected to solve the affordable housing crisis alone.

At the same time, it will be essential that local authorities are putting their balance sheet to best use, ensuring that the homes that they are building are genuinely affordable. In the last few years, affordable rented homes, where rents are set at 80 per cent of market rates, have dominated supply. IPPR research has shown that, across the country, these so-called affordable rents are simply too expensive for many households on low incomes. Therefore, councils need to build homes at social rent.

Finally, existing policy may also undermine the ability of councils to develop new housing. Significant cuts to council budgets may limit the ability of local authorities to build up the staff needed to deliver new housing projects. Meanwhile, the continued existence of the Right to Buy may prove a significant barrier to council-built projects. As Peter Apps, the news editor of Inside Housing, notes, with up to 13,000 Right to Buy sales a year, even with new delivery the shortfall of new council homes could be up to 3,000 a year.

Overall though, the freeing of councils to borrow is a wider signal that the government has shifted from its ideological aversion to social housing and state provision. Those who argue that only radical solutions are sufficient to challenge the scale of the housing crisis are leading the debate. This opens up the opportunity for more ambitious reform to the housing system.

However, housing policy remains still too siloed, failing to take stock of the systemic issues which cause the housing crisis. For example, a lack of action on our dysfunctional land market could present a further challenge to the ambitions of local authorities.

On average in 2016, the price of land had risen to more than 70 per cent of the price paid for a house, and new IPPR projections suggest that, on current trends, this will rise to 83 per cent over the next 20 years. The high cost of land will be a key barrier to local authority building projects.

Government should complement the ability for councils to borrow with reform to new powers over the land market to truly get them building. In a recent report IPPR argued that planning authorities should be able to zone land for development and freeze its price. Councils would then either buy the land at the price, with reasonable compensation for the landowner, and sell it on to developers at the higher price; or would enter into a partnership with the landowner to share the proceeds of the sale.

Allowing local authorities to build is a great step forward and the shift in thinking it signals is important. However, more work is still to be done to fully get to grips with the issues facing the housing market and to deliver the level of new affordable housing that we need.

Darren Baxter is a Research Fellow at IPPR. He tweets @DarrenBaxter.


Joe Anderson: Why I resigned from the Northern Powerhouse Partnership

Liverpool Lime Street station, 2008. Image: Getty.

The Labour mayor of Liverpool has a few choice words for Chris Grayling.

I resigned from the board of the Northern Powerhouse Partnership this week. I just didn’t see the point of continuing when it is now crystal clear the government isn’t committed to delivering the step-change in rail investment in the North that we so desperately need. Without it, the Northern Powerhouse will remain a pipedream.

Local government leaders like me have been left standing at the altar for the past three years. The research is done. The case has been made. Time and again we’ve been told to be patient – the money is coming.

Well, we’ve waited long enough.

The only thing left is for the transport secretary to come up with the cash. I’m not holding my breath, so I’m getting on with my day job.

There’s a broader point here. Rail policy has been like a roller-coaster in recent years. It soars and loops, twisting and turning, without a clear, committed trajectory. There is no consistency – or fairness. When London makes the case for Crossrail, it’s green-lit. When we make the same case for HS3 – linking the key Northern cities – we are left in Whitehall limbo.

Just look at the last week. First we had the protracted resignation of Sir Terry Morgan as Chairman of HS2 Ltd. Just when we need to see firm leadership and focus we have instead been offered confusion and division. His successor, Allan Cooke, said that HS2 Ltd is “working to deliver” services from London to Birmingham – the first phase of the line – from 2026, “in line with the targeted delivery date”. (“In line?”)

Just when HS2 finally looked like a done deal, we have another change at the top and promises about delivery are sounding vaguer. Rumours of delays and cost over-runs abound.

Some would like to see the case for HS2 lose out to HS3, the cross-Pennine east-west line. This is a bit like asking which part of a train is more important: its engine, or its wheels. We need both HS2 and HS3. We are currently left trying to build the fourth industrial revolution on infrastructure from the first.

If we are ever to equip our country with the ability to meet rising customer and freight demand, improve connectivity between our major conurbations and deliver the vision of the Northern Powerhouse, then we need the key infrastructure in place to do that.

There are no shortcuts. Ministers clearly believe there are. The second piece of disappointing news is that officials at the Department for Transport have already confirmed to the freight industry that any HS3 line will not be electrified, the Yorkshire Post reports.

This is a classic false economy. The renaissance of the Liverpool Dockside – now called Superport – is undergoing a £1bn investment, enabling it to service 95 per cent  of the world’s largest container ships, opening up faster supply chain transit for at least 50 per cent  of the existing UK container market. Why squander this immense opportunity with a cut-price rail system?

Without the proper infrastructure, the North of England will never fulfil its potential, leaving our economy lop-sided and under-utilised for another generation. This is not provincial jealousy. Building a rail network that’s fit for purpose for both passenger and freight will remove millions of car journeys from the road and make our national economy more productive. It will also be cleaner, cheaper and more reliable. Our European neighbours have long understood the catalytic effect of proper connectivity between cities.

Similarly, linking together towns and key cities across the North of England is a massive prize that will boost growth, create jobs and provide a counterweight to Greater London, easing pressures on the capital and building resilience into our national economy.

To realise this vision, we need the finance and political commitment. Confirmation that the government is pushing ahead with HS3 – as well as HS2 – is now sorely needed.

With Brexit looming and all the uncertainly it brings in its wake, it is even more pressing to have clarity around long-term investment decisions about our critical infrastructure. Given the investment, the North will seize the chance.

But until ministers are serious, I have a city to run.

Joe Anderson is the elected Labour mayor of Liverpool.