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How effective will Sadiq Khan’s council house building programme be?
Maggie Rafalowicz scrutinises the mayor of London’s new housing funding programme for local authorities
Councils have increased their role in housebuilding over recent years. Approaches have ranged across direct delivery, joint venture, wholly owned companies and partnerships.
Many have set up development companies, yet few have so far delivered significant numbers of new homes. So why would they themselves seek to build, rather than using experienced developer partners?
The answers are typically about building what they need (more social rent) rather than what others want, speedier delivery and benefiting themselves from appreciating assets.
Funding for direct delivery has come from a mixture of councils’ own capital resources, Public Works Loan Board borrowing, using their own land, bond finance, private sector loans and Homes England/Greater London Authority (GLA) grant bidding alongside housing associations and developers.
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But resources are tight and with Housing Revenue Account caps at their limit, funding has proven a significant stumbling block – together with access to the specialist skills needed to deliver what councils have not done at scale in more than 30 years.
London mayor Sadiq Khan this week initiated a funding stream exclusively for London boroughs. His ‘Building Council Homes for Londoners’ programme sets out measures to help councils deliver 10,000 homes over four years.
The funding is for schemes at social rent or London Affordable Rent (when rent is set at or below London Affordable Rent caps), and bids for ‘intermediate’ products will also be considered.
There are three main elements:
- grant at £100,000 per social rent unit
- Right to Buy ringfence offer
- delivery support
Grant
This standalone fund offers £100,000 per unit for social rent homes.
Grant will also be available for intermediate products (London Living Rent, shared ownership) with an uplift for schemes that can start within two years. It is many years since that level of grant has been available.
“Not all boroughs are geared up for programmes of this size.”
Councils will need programmes of at least 100 homes outside existing programmes. Authorities like Lewisham, Newham and Waltham Forest have already been identified for large programmes.
But not all boroughs are geared up for programmes of this size, in terms of land ownership or the ability to move quickly.
Right to Buy ringfence offer
The GLA will act as custodians of Right to Buy receipts, and councils will be able to opt in to this arrangement, with their receipts ringfenced.
Unlike GLA grant, councils will make the spending decisions about the use of their receipts. However, we shouldn’t get too excited as boroughs will still have to operate in line with existing Right to Buy regulations (ie only for low-cost rent; not funding more than 30% of development costs; not in conjunction with other grant for the same home; use within three years).
All the same, by agreeing credible plans with the GLA, councils should have greater scope to manage the programme flexibly.
Delivery support
Although some councils have large development programmes, others do not have the skills or resources to progress schemes.
The GLA is offering a range of support: regular senior-level meetings (though best practice suggests this should already be happening), secondments of GLA staff, help with clarifying technical issues, the Future of London forum of best practice, and opportunities to learn from housing associations.
It is important to have a range of players delivering new homes, especially homes that are truly affordable, so this initiative is welcome. It focuses on social rent and replacement for homes lost under Right to Buy, hence the higher grant levels.
This is what London (and other parts of the country) desperately needs. Any attempt to address this must be applauded.
“There is a limit to how much delivery support the GLA’s limited resources can provide.”
Although the mayor has invited all London boroughs to put in bids, the question remains whether all will have the capacity to take up the offer.
Housing associations themselves are concerned about losing staff to developers. With all the will in the world, there is a limit to how much delivery support the GLA’s limited resources can provide.
But to councils with existing development teams, this will be an opportunity to deliver even more.
Especially welcome is the attempt to make better use of Right to Buy receipts, which is open to all London boroughs even if they do not bid for this programme.
“Especially welcome is the attempt to make better use of Right to Buy receipts”
However, given that existing regulations will still apply, this will need to be monitored carefully and flexibility used so that development opportunities are not hamstrung by artificial deadlines. Particularly interesting is the GLA’s assertion that it can make grant including reallocated Right to Buy receipts available to bodies in which a council has a controlling interest.
Legal advisors will be kept busy.
All in all, the programme is a positive start, and welcome for that reason.
Maggie Rafalowicz, director, Campbell Tickell
At a glance: the different types of rent in London
Picture: Getty
Social rent: The amount of social rent a person pays depends on the location and size of the property, and is set according to a complex formula, but it is typically set at between 50% and 60% of market rent.
Affordable rent: Introduced by the coalition government in 2011, ‘affordable’ rent can be up to 80% of market rent, although many associations have been charging lower than this.
London Affordable Rent: A tenure introduced by Sadiq Khan that is lower than national affordable rent and based on target rent levels towards which social rents are gradually being raised. This makes it higher than average social rents in the capital, but in line with the rent that would likely be charged if a new social rent unit was built and set according to the same formula.
London Living Rent: A rental product aimed at middle-income Londoners introduced by Sadiq Khan, with rents set at one-third of average local earnings.
Target rent: A social rent level calculated by the government, which council and housing associations should use to move their social rents to over time.
