Khan we fix it everywhere?

Yesterday was a busy day for housing all round, but the happiest news was in the capital; where Mayor Sadiq Khan has announced a huge investment in new council housing. This can only be a good thing, but it is worth looking through what is actually being proposed and, perhaps crucially for anyone interested in housing outside of London, see if this can be replicated elsewhere.

The document, Building Council Homes for Londoners is actually quite readable, for a technical briefing, so if you are interested it is worth having a look through. I will do my best to summarise, but it is rare I can suggest a general reader looking at a document like that, so feel free to.

There are two main legs to the funding side, a not-insignificant block of money (£1.67 billion) given to the capital from the Chancellor in the Spring Statement and an interesting wheeze about right to buy receipts.

Coming to the £1.67 billion first- I know I have mentioned seemingly big bits of money before and pleaded for people to understand them in context. But we can do that a little bit with this- compare this amount to the £2 billion added for all of England earlier this year. I was critical of the size of latter because per area because it didn’t actually amount to all that much. Spread thinly across the country (or even in centered on particular areas) it wasn’t going to amount to a huge amount of extra housebuilding. Plus as it was for both Council and Housing Association house building and it is the government at the end of the day who will be deciding who gets funds and who does not.

The Mayor has been given much more freedom with his (per head) much larger allocation of cash and the announcement yesterday shows how he is going to use it. He is choosing to spend this money unequivocally on Council housing. This isn’t just traditional social rent, but could also be London affordable rent, London living rent or shared ownership. What it clearly isn’t is affordable rent. Housing Associations aren’t completely out of the picture as there is another funding mechanism similar to the affordable housing programme for them to bid for.

In terms of what the Mayor will consider funding with this cash, for rents below the London affordable rent levels he will pay £100k per property. This looks positive compared to the “average” £80k paid under the affordable housing programme (although you’d expect London properties to be above average in that programme). For the other rental or shared ownership schemes he will pay £38k per unit for quick wins (started before April 2020) or £28k per unit for later starts. There is an emphasis on a programme approach, so we are talking about each borough putting in a sizable application and, if the worked example is anything to go by, a mixture of rent types.

So this looks like a more generous scheme than central government’s direct scheme focused on delivering only Council homes. It exists because:

  1. the government has decided to give a large block of capital funding to London
  2. the Mayor has the power to decide what to do with the money
  3. being directly elected he has a strong personal mandate and
  4. he has decided to do something linked wholly to council homes with it.

Without any of these rungs the scheme would not look like this. Other authorities, for example the metro mayor areas, may have the personal mandate but usually any funds they get from government are limited and very prescriptive. Just look at the housing deals announced for the West Midlands and Greater Manchester. They are both having to up their overall housing supply numbers just to get significantly smaller agreements from government and would be unlikely to be allowed to do anything like spend all of the extra cash on council housing.

Non metro-mayor areas (which we do have to remember is the vast majority of the country) will just have to take their share of the affordable housing programme, use up any housing revenue account headroom they have (and any extra they can grub from the government) and try to use up right to buy receipts as best they can.

Which brings me on to the second part of the Mayor’s announcement- the use of right to buy returns. This is a very clever little bit of circulating cash -I won’t go so far as to say laundering it- but certainly relies heavily on London having a different arrangement to the rest of the country.

You’ll probably know the issues relating to right to buy receipts- homes are sold at a discount, the Treasury takes some costs back straight away and, after all this, the money can only be used to fund 30% of a new housing association home. All this and councils have to use the money within 3 years or it disappears off to the Treasury.

But what happens then? For everywhere except London the money goes to the Homes and Communities Agency, who plough it back somewhere across the country- who knows where? In London the money goes to the GLA, who until now have been giving it out as part of their affordable housing programme.

What the Mayor is now proposing is London councils that wish to opt-in can give right to buy money back to the Treasury, who pass it on the GLA. So far, so the same. But then, the GLA will ring-fence the money to be spent in the council’s area and will allow the council to make the funding decisions. There will still be rules with this- the 30% rule and the housing association rules look like they will be the same. But it looks like the Mayor’s office will be much more flexible and open-minded about how this money can be shared out, particularly with regard to mixed sites (ie. where one house is funded through right to buy and another through a grant). It will also give councils more freedom to (within limits) move money about whilst construction is ongoing in order to deliver more homes.

The total amount of funding for this is much smaller than the £1.67 billion- London councils have so far given back to the Treasury £50 million. But the key issue is that instead of losing money because of a strict set of rules, councils in London will be able to in effect keep money to replace (to an extent) right to buy homes. With the government-enforced rules still in place it remains to be seen if 1:1 replacements can be achieved (I suspect not quite) but this is still much likely to be a better, friendlier scheme than the one overseen by the Treasury.

Again, this clever little circulation of cash can only works because of the powers held by the London Mayor and GLA. Nowhere else in the country has this arrangement and I doubt the HCA are going to suggest something similar for every other council.

So what the Mayor is doing is using his significant and unique powers (and personal mandate) to mitigate against what he (and I) see as central government’s failures. But it isn’t replicable elsewhere without those powers being devolved, something that was unlikely the day before yesterday and is perhaps incredibly unlikely now. I’m sure central government are smarting slightly at his actions, but the point is he alone is able to do this.

One of the challenges of devolution, particularly the uneven and deal-led devolution preferred by the government since 2010, is that different areas will have different agreements. London is always likely to do well out of this, especially if they have an activist Mayor who is unconcerned about his popularity with the Westminster government of the day. London has a huge number of challenges, especially in the provision of affordable housing, but it is also in a position of power. It is doing far better that other areas on insisting on affordable housing proportions through section 106 (again, due to the powers of the Mayor) and has the ability to gain investment from around the world.

So this is great news for London, but without rule changes it doesn’t mean much for anywhere else. That isn’t a criticism, it’s just a point to be made when celebrating the scheme. As discussed enough times here already, what would make the difference everywhere is a lifting of the HRA borrowing cap and further investment in council housing as a genuine alternative to the other tenure types available in the country. Labour’s green paper goes some way to moving ahead with that- if they were in power. We continue to wait for the government’s social housing green paper.

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