The role of local authorities in hitting the 300,000 new homes target

Jonathan Jarvis explores what needs to change to help local authorities play a bigger role in boosting housing supply

The Autumn Budget confirmed the Government’s commitment to fixing the broken housing market. A key tenet of that commitment is its aim for the country to be building, on average, 300,000 new homes per annum by the middle of the next decade.

For that aim to be met, all housing providers will need to pull together and maximise their capacity.

Stepping up to the plate
Local authorities, for their part, have been “champing at the bit” for some time to play a bigger role. Many have established their own local housing companies, financed through on-lent Public Works Loan Board (PWLB) funds, to supplement the development carried out within their housing revenue account (HRA).

The HRA debt cap, introduced by Government when it dismantled the HRA subsidy system in 2012, has been subject to much criticism for artificially constraining local authorities’ financial capacity and their ability to develop more homes.

The Chancellor gave muted support for local authorities’ aspirations to do more in the Autumn Budget. This took the form of up to £1billion of additional debt capacity for those local authorities operating in areas that face “high affordability pressure”. It is for local authorities to submit bids for a slice of the additional debt capacity.

The Local Government Association has been quick to call for Government to offer up more significant debt freedoms than those offered up in the Autumn Budget. But what else could the Government do to encourage local authorities to increase their outputs and help deliver on the 300,000 new homes per annum target?

Support for local housing companies
A willingness to support local housing companies that are ambitious about increasing local supply and joint ventures with other local housing providers (whether private registered providers (PRPs) or other housebuilders) could play a key role in boosting supply. Removing the spectre of the high value voids levy would also undoubtedly help.

At present, the General Consents regimes (under Section 32 Housing Act 1985 and Section 25 Local Government Act 1988) discourage the growth of local housing companies. Certain consents are not available where the disposal, or financial assistance, is to an entity in which the local authority has an interest or where the local authority is seeking to provide the housing management services.

The same is true of arrangements relating to the application of RTB receipts where the local authority is, in effect, penalised for passing those proceeds to an entity in which the local authority has a controlling interest. If the Government is serious about achieving its 300,000 new homes target, isn’t it incumbent on it to support all avenues available to create new supply?

Joint ventures
PRPs and national housebuilders have forged successful joint ventures in recent times. Local authorities have too, but not on the same scale, at least in terms of frequency. Lessons need to be learnt from PRPs increased joint venture activity and whether these structures are replicable for local authorities.

The development of “conventional” structures and terms has helped to speed up joint venture activity within the PRP sector. Housebuilders willingness to share in the risk and reward of a development and access supply chain efficiencies in consideration for funding made available from their joint venture partners has also been instrumental. Local authorities are capable of offering up comparable funding terms, so there’s no reason why the same models can’t be replicated.

Fresh thinking
The rebrand announced for the Homes and Communities Agency in the Autumn Budget (Homes England going forward) brought back memories of English Partnerships. One of the last initiatives driven forward by English Partnerships, before it was merged with the Housing Corporation to create the HCA, was a pilot scheme for local housing companies. This envisaged a three-way joint venture model involving a local authority, a national housebuilder and English Partnerships. The Department for Communities and Local Government’s (DCLG) demonstrable lack of enthusiasm for the model meant the initiative never progressed.

It is understandable that the DCLG took that view as the proposal was for large scale, competitively procured joint venture projects. But a new pilot initiative, endorsed by DCLG, aimed at offering up a template for a simple joint venture model which builds on the experiences of PRPs and national housebuilders, may be very timely indeed.

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