Blimey- build, councils, build!

I went to a soft play this morning, fresh with the idea that whatever anyone else has been saying at the party conferences, one person I probably didn’t need to listen to very hard was the current Prime Minister. Well, that’s me schooled.

Details are still light on the PM’s pledge to scrap the housing revenue account borrowing cap, but for those of us who have been pushing for this change it is certainly welcome. Certainly a major sea change was that councils (both individually and through the LGA) started talking in unison. It shows what can be achieved when councils are united instead of being divided and ruled. Could a similar thing happen with social care or fiscal devolution, I wonder?

The SHOUT campaign should also get some of the credit for making the intellectual case so clearly and I suspect that the presence of Toby Lloyd in number 10 has managed to make a positive difference in entrenched thinking.

In my post before last year’s budget I went through why it is a difficult sell to the Treasury. Essentially, in letting councils (and financial markets) choose when they can borrow to build new homes they are spreading macroeconomic power around. The Treasury is not always good at trusting other people with economic levers. Councils may choose to borrow at the wrong time, both for the real economy or for the government’s accounting. Councils are also unlikely to spread around the kudos when they are allowed do something off their own bat. So it looks like the Treasury has been overruled, which can only really happen by very senior ministers (PM or Chancellor) making the decision above permanent civil servant advice.

There is also the issue that past this first flurry, central government won’t get the plaudits for allowing councils to build. I doubt the housing minister will be invited to cut the ribbon on housing that councils have built with debts they have taken on against their own assets.

The important thing now for stock owning councils is to prepare their plans quickly. It is not yet clear when this change will actually be made (it wouldn’t take much time, but I wonder if there is some small print about the start of the next financial year or even the next spending review to come). Given what certain other leadership wannabes said about social housing, it will be interesting to see if the timescale means the change could get lost in conservative internecine warfare. Labour have already stated that they will raise the cap to the prudential limit, so there is, for now, cross party support for this change.

But it is worth remembering that many councils have transferred their housing stock, so if they wish to build again they may have to either consider borrowing off other assets (maybe not quite remortgaging the town hall!) which might be tricky in accounting terms or seeing whether the government can provide some starter funding or borrowing to set the ball rolling. Let’s make no mistake, this is a policy that pays for itself relatively quickly, but a nudge might be required to help some on the way.

Another issue is the vexing role of land. Many local authorities have land, but are being pushed into selling land thought of as ‘surplus’. Indeed, the planning changes proposed earlier in the week (from the same lectern) include further speeding up of that process. If councils are going to be able to utilise the extra borrowing capacity well then building on their own land would be the cheapest way to do it. Otherwise, they will be competing with private builders and housing associations with strategic partnership funds and who knows who else for the same bits of land. Escalation of the bidding war is the last thing our land market needs- councils with land suitable for housing should be encouraged to use this first, not sell it quickly under duress and use the cash to buy part of a smaller site elsewhere.

Then of course there is right to buy. If councils are building a new load of affordable homes -let’s hope truly affordable homes– then they need to be able to do so in the confidence that they will still own them when the loan is paid off. Indeed, this is something funders or economic sense might insist upon. Building homes for a low rent works because the home lasts longer than repaying the borrowing costs- eventually they provide a surplus to fund housing management, repairs and, you guessed it, more building. Right to buy cuts that off at the knees, especially as new homes are more likely to be attractive to borrowers (especially with a higher eventual sales price) to lend to council tenants than older properties. Flogging them off with a discount makes no sense for society and it needs to be stopped. Yes, right to buy is a conservative shibboleth, but times change and if they are interested in seeing more council homes then right to buy needs to end.

Many councils haven’t really been in the building game for a generation. A few homes here and there have been the preserve of even some of the larger local authorities. So if everything happens according to plan they will need to build up their capacity in planning and construction, whether this is through directly managing projects (my preference) or outsourcing and contract management. There is an opportunity here for councils to really get back into a key part of building a more mixed and egalitarian society. Those who are slow off the ground risk either missing their chance or lagging behind whilst others benefit.

I say ‘missing their chance’ because a change on paper can be changed back very easily. Whatever else, Theresa May is still desperately weak and if this is something that has her name alone on it then it could fall when she does. I do not doubt that the true believers in the Treasury would like to change this back as soon as possible. As I’ve said, this is not just for the accounting reasons but because giving macroeconomic power to a bunch of town halls is simply not the change they want to see.

I think we have to be clear that if councils are not seen to take this opportunity they could face losing it. The case, to so many so obvious for so long, has been won for the present but there are dangers that it could be either undermined or lost in the future. The best way to prevent this is to show what can be done to create genuinely high quality homes for a sensible rent that pays for themselves. It has been done before. Councils just need to be ready, dust off those plans, make some more and get going.

Big numbers for the big players

There is never a quiet week in housing policy, but perhaps we should have known something would happen at this week’s national housing federation summit. And lo Theresa May came down from the mountain bearing many warm words and a policy intervention or two. Oh and what looks like a huge sum of money and a sensible amount of time to spend it.

Now, I’ve spoken before about politicians bearing cheques with lots of numbers on. You’ve got to be careful to understand what sort of a scale we are looking at, how it fits into the wider framework and if this is new money. To paraphrase what we know so far, it is £2 billion over 7 years, starting in 2022 and is expect to deliver around 40,000 affordable homes across this period. So £285 million a year and an average (although it will be skewed towards the end of the period) of 5,700 homes a year. That’s all very good, but it won’t set the world on fire, particularly if high land values persist.

We don’t know where the money is coming from because 2022-2029 is part of the next spending review. Essentially what the Prime Minister has done is earmarked part of government spending in the next long term period. So in one sense the money cannot be “old” in the sense of transferred from somewhere else as the entire long term budget of the government has yet to be decided. The spending review will move money all over the place and like most magician’s tricks you won’t be able to tell where the card in your pocket came from. So a slamdunk “this came from reducing x fund” won’t happen in quite the same way. Sorry.

Nothing I’ve said above hasn’t already been discussed a huge number of times already and at first I was content to take my daughter to the park rather than repeat what everyone else is saying. But one thing I’ve noticed hasn’t been discussed much is what this change might do to the housing association sector.

The funding has been announced as an extension of the “strategic partnerships” the government has already undertaken with many of the very big housing associations. I can only imagine that this will continue, perhaps with some smaller proportion going to the simply big and medium sized organisations and a small amount to the actually small ones. The big organisations will be the ones who can deliver on the scale the government are looking for, who can speak the same language as the government and articulate a large vision. They are likely to share social contacts with ministers or senior civil servants. They will often have a greater degree of financial security and an ability to speak to the markets in a language they will understand. My point is, it is the big boys (gender intentional) who will win at this game. That’s the way the funding is structured.

What does this mean for the smaller housing associations? What should they do. Their options are:

  1. Rely on other funding. Keep purchasing sites from developer’s section 106 agreements or using whatever other affordable homes funds we all expect will exist in the next spending round (even if it is smaller).
  2. Act like a bigger organisation. Get in a management team who can talk the talk (and might need paying to do so) and go to the right conferences, summits and soirees.
  3. Become a bigger organisation. Do what the big players have done and conglomerate, start acting more like a business, maybe look at poaching a manager from one of the larger organisations (perhaps one that already has a deal).

None of this means that a couple of smaller organisations may get deals, but I strongly predict that they will be the exception rather than the rule. For all of the talk about the housing associations’ Victorian beginnings, this looks like another step towards having fewer, bigger, more commercially minded and deal orientated organisations. Whether that is a good thing or not isn’t really my place to judge, but this is something boards will need to think about as they prepare for 2022.

And what does this mean for the homes that will be built? Well, that’s really left to the organisations and the government to decide between themselves, on a rolling basis. This is in part going to respond to housing needs, but let’s face it, it will also be a carve up between the associations and government. If housing associations are designing whole schemes containing market, “affordable” to buy, “affordable” to rent, shared ownership and social housing then their ability to balance these out will be the key factor on how big a difference this can make. But there will be an economic logic- it will have to depend on what they have paid for the site. The bigger, more commercial organisations may also have to balance out any losses made elsewhere.

So what I’m coming to is that there will be a pressure towards the top end of the market- either a greater proportion of market prices or the supposedly affordable homes. Social rented homes will get squeezed unless the government is forceful about demanding these in high enough proportions. Even with the much warmer words on social rent (by which I mean “tepid” compared to Cameron/Osborne’s “absolute zero”) the plethora of price points open to housing associations plus the economic logic as a site’s costs inevitably increase mean we may see fewer social rent units than anticipated.

In conclusion, if I had been an the summit I would have perhaps clapped, but I wouldn’t have got on my feet. This is a large but limited amount of money, may quicken the change of the housing association sector to an oligopoly and may mean there are fewer social rented homes than if the money had gone into the affordable homes programme. It doesn’t do anything to affect land prices and will be very limited for councils, who (to repeat myself for the umpteenth time) really only need a single accounting rule to be changed to get on with building new council houses.

What it really means in totality won’t be known until we see the spending review. That’s not for a while yet and who will be standing at the dispatch box to deliver it may make all the difference.