The following is a guest blog from Steve Barwick – Deputy Director of the Smith Institute
It has become well known that despite a growing housing crisis, councils have been hampered from meeting specific local housing needs, especially for the elderly and homeless. Alongside budget cuts and welfare reforms, councils have faced tough new restrictions on their ability to build including the right to buy (RTB), rent cuts, borrowing caps and limited government funding for new social housing.
It is less well known that innovative councils are quietly bypassing Government rules by setting up wholly or partly owned local housing companies (LHCs) and getting on with building homes. The Smith Institute’s latest report – Delivering the renaissance in council-built homes: the rise of local housing companies – has shone a light on this “quiet revolution” and concluded that the number of LHCs has risen to around 150 and could top 200 by 2020. On current trends these companies could, within five years, provide 15,000 council built homes a year, up from just 2,000 in 2016.
Under the banner of localism, councils – large and small, Labour and Conservative – have used their freedoms and flexibilities to establish their own private housing companies. These arms-length companies are borrowing from the council and providing not just sub-market housing, but also homes for market sale and rent. Rather than shareholders taking any profits, surplus income goes back to the council and is usually re-cycled back into the housing company.
A number of councils have established LHCs to specifically meet specialist housing needs including for temporary accommodation. The LHCs cross-subsidise to support housing for those in greatest need and use their clout as a landlord to push up standards. The London Borough of Enfield, for example, set up a LHC (‘Housing Gateway’) to provide temporary accommodation. The council claim the company has saved over £1.5m and improved the livelihoods of hundreds of homeless people.
The London Borough of Brent, which has one of the highest numbers of households in temporary accommodation in England, has established a wholly owned LHC (‘Investing 4 Brent’) to acquire private rented sector properties which will be let at Local Housing Allowance levels and provide a cheaper alternative to local Bed & Breakfast establishments.
Meanwhile Reading’s LHC (‘Homes for Reading’) plans to buy about 500 properties to rent over five years, specifically for those needing temporary accommodation. The Council lends funds to the company in order for the company to purchase flats and houses. The housing company then lets these properties and the rental income covers both the company costs and the cost of borrowing.
LHCs are not a silver bullet to the worsening problem of homelessness, but they are making a significant contribution. They not only provide the council with the types of properties it needs on better terms, but ultimately save money. It is not surprising therefore that locally LHCs appeal to councillors across the political spectrum as well as council officers. In fact, LHCs are fast becoming a “must have” for councils wanting to pro-actively intervene in their local housing market, albeit often initially on a small scale.
The key question going forward is whether the Government will get behind this initiative and help LHCs deliver more homes, including temporary accommodation. Ministers have recently indicated a change of tone, with councils being spoken of as part of the solution, rather than part of the problem. But they have yet to turn this rhetoric into the reality of a major policy shift.
The veiled threat by Ministers to impose the RTB on LHCs is not helping. Not does it make sense to fund LHCs through the social housing grant, which denies housing companies the flexibility over rents and tenure mix that they need. What would help is if councils could retain all their RTB receipts and re-invest them through their LHC.
As the Chair of the LGA, Lord Gary Porter, said in his comments on the Institute’s report: “Councils are determined to lead the way in building new homes, and are leading local innovations finding different ways to make this happen. We’d like to see the Government properly throw its weight behind our work and provide us with the tools to get on with the job.”
The rise of LHCs has so far attracted little attention in either Whitehall or Westminster with little political discussion about what they might contribute, including helping tackle homelessness. However, LHCs are leading a renaissance in council building and with the proper Government encouragement they could be significant contributors of additional homes, including social housing and temporary accommodation.
‘Delivering the renaissance in council-built homes: the rise of local housing companies’, published on 16 October is available free from the Smith Institute website: www.smith-institute.org