House of Commons - Communities and Local Government Committee

Select Committee on Communities and Local Government Committee Written Evidence

Memorandum by the Local Government Information Unit (LGIU) (SRH 03)

The Local Government Information Unit (LGIU) is an independent policy and research organisation which provides information, advice, training and lobbying service to over 145 local authority and trade union members.

KEY POINTS

— Although there is a role for the private sector in helping to meet unmet and newly arising housing needs, there has to be a large increase in direct public funding for increasing the provision of social housing in the Comprehensive Spending Review 2007 to meet the government's stated objective in giving priority to social housing.

— The current balance of resources going to subsidise low cost home ownership schemes and to social rented housing is not justified. Some schemes are not delivering sustainable solutions to housing need: many of the proposed initiatives, for example, such as equity shared schemes, do not actually increase the supply of housing.

— The LGIU strongly believes that local authorities (and ALMOs) should continue to have a key role in managing social housing, and that they should be able to directly provide new housing. There needs to be radical reform of the housing finance system, to ensure local authority housing has a sustainable and vibrant future.

We are focusing our evidence on those issues where the LGIU has recently done specific work—particularly on future funding needs; on the relative priority given to social rented housing and intermediate housing; and on the future role for local authorities as builders and managers of social housing.

The level of public funding required to meet social housing needs

There is a large body of evidence that shows the need for a fundamental increase in the amount of public funding for increasing the provision of social rented housing.

The social rented sector is now only 19% of the total housing stock in England—its sharp decline has not been accompanied by an equivalent increase in private rented accommodation. In 1970, 173,000 houses were built by local authorities. By 2001, local authorities built 487 homes while housing associations built 22,000 homes. Right-to-Buy has reduced the stock of social housing—with over 1.5 million homes transferred to the private sector.

"Sustainable Communities: Homes for All"

— In 2005 Shelter commissioned the Cambridge Centre for Housing and Planning Research (CCHPR) to update Barker's analysis. The CCHPR estimated that 40,000 units of social rented housing are needed each year to meet the level of need identified in the final Barker report (10,000 a year more than will be provided under current spending plans). This would require an increase in public spending of £675 million a year.

Housing and Neighbourhood Monitor

"The number of new affordable homes being built is now increasing from very low levels, but remains well below even the limited targets set out in the `Barker' report".

"Mortgage costs for first-time buyers have now reached their 1990 peak. A third of all working households under 40 cannot afford to buy even at the low end of local housing markets."

Affordable Rural Housing Commission

"Rural Housing—A place in the countryside?"

The government has said that social housing should be a priority in the Comprehensive Spending Review 2007, but it clearly sees private sector funding as key to delivery. There are interesting developments in innovation and partnership working that can increase affordable housing provision, and we recognise that there is scope for increasing the levering in of private sector resources, and for making the better use of existing assets. We strongly believe, however, that there also has to be a substantial increase in public funding.

The Treasury has benefited, over decades, from a huge amount of additional revenue, due to changes or developments in housing policy, such as the increase in income from stamp duty and the abolition of mortgage tax relief. The Joseph Rowntree Foundation's update to their inquiry into British Housing (December 2005) showed that these gains have largely not been put back directly into housing. Only a quarter of the £45 billion proceeds from right to buy sales have been recycled to improve public housing.

The relative funding priority being given to social rented housing as opposed to shared ownership and other forms of submarket housing.

The increase over the last few years in Housing Corporation funding has mainly been for shared ownership and equity share schemes:

"Intermediate housing schemes are now taking up a larger share of the funding for submarket housing. In 2003 and 2004 around 40% of the homes completed with Housing Corporation funding were for shared ownership or equity share compared with 25% in 2002."

"In the 2004 CSR the Government said that it would deliver 40,000 homes for essential public sector workers and low cost home ownership in areas of high housing demand. On 22 March 2006 the Chancellor announced in his Budget speech that almost £1 billion of the Housing Corporation's National Affordable Housing Programme would be earmarked for shared ownership products over 2006-08."

Affordable housing in England, House of Commons research paper 06/41, September 2006.

Public money and public land are being used for home ownership at the expense of building more publicly rented homes for those in the greatest need.

The LGIU recognises that there is a role for specific initiatives to boost low cost home ownership, for example in areas of market decline, or where authorities want to retain specific groups (or to attract them). We are concerned, however, that some of the schemes are not delivering sustainable solutions to housing need: many of the proposed initiatives, for example, such as equity shared schemes, do not actually increase the supply of housing. Some shared ownership schemes could eventually become totally market housing, as there is no ceiling on staircasing.

There is evidence that in some areas, subsidy for low cost home ownership is being used to help people, who could already afford market housing, to buy more expensive housing than would have been possible. This cannot be a sensible use of public money (see House of Commons Library Research paper 06/41, page 40). Some intermediate housing schemes are only affordable to a small group who are on the margins of home ownership. There is the danger that subsidising home ownership without increasing supply can actually increase house prices.

The LGIU believe that the current priority (and public subsidy) given to promoting home ownership is not the most efficient use of resources or sustainable. Direct investment into social rented housing has social and economic benefits, such as improving the health and educational achievements of children, alleviating child poverty, cutting the costs of homelessness and increasing job mobility. It provides the best value for money.

The future role for local authorities as builders and managers of social housing

The LGIU strongly believes that local authorities (and ALMOs) should continue to have a key role in managing social housing, and that they should be able to directly provide new housing. The current ALMO new build pilots should open the way for both ALMOs and councils with stock to build new homes, independently or in partnership.

We are not arguing to go back to a situation of mass council house building, but new council provision can meet specific local needs and circumstances. Local authorities have a huge range of roles and functions. There is no reason why it should be assumed they can no longer be providers of new housing, as well as having the key strategic housing role. Indeed, it could be argued that in order to be effective strategically, councils need the ability to intervene directly in housing, as well as ensuring other organisations are meeting local needs.

Enabling councils and ALMOs to build new homes will increase tenant choice and competition: meeting the government's stated objectives for public service reform. Local authorities understand their local areas and housing needs better than anyone else. They are in the best place to integrate policies on housing and neighbourhood renewal and to join up services. Council tenants who have chosen to stay with the council should not be denied the possibility of moving into new council homes. It is hard to see how ALMOs can develop and be financially viable, post 2010, without an element of new build.

New council provision would be about quality, not quantity. It could be about acquiring and renovating homes, as well as building them. It should be about widening choice, and opening up public rented housing to a range of people, not only the poorest. People on low-to-middle incomes, who may not be able to afford to buy, but who are often excluded from social housing, and who cannot find good quality, affordable private rented housing, could benefit from widening access, at the same time, as developing more socially mixed estates.

Chris Holmes, in "Housing, Equality and Choice" (IPPR 2003) analyses housing inequalities. He describes how councils could recycle properties and reconfigure estates: using capital receipts to meet their policy priorities—for example, selling unpopular flats in inner city estates to groups like key workers, and using the proceeds to buy or build more suitable family housing, perhaps outside their area; or moving under-occupying tenants to smaller housing of their choice, and selling their property to first time buyers to finance new build or acquisition.

Holmes sees this recycling as enabling greater choice, tackling residualisation, and achieving more socially mixed communities—with a mix of new build, acquisition, sales, and partnership working. It would require changes to housing finance and the rules for pooling receipts in England, and a more flexible policy framework from the regional housing boards, that could oversee a cross regional approach to housing supply issues.

With at least 100 councils retaining their housing and more than 70 ALMOs, there is an urgent need to address how they are to have a sustainable future: maintaining and improving their homes post 2010; funding decent neighbourhoods; and helping to deliver affordable housing.

The LGIU published Council housing: a sustainable future in August 2005, a study of a number of councils that were retaining all or the majority of their housing, with detailed case studies of five councils.

The research showed that whereas councils could meet the decent homes standard, and some even improve on the standard, they still faced significant financial challenges and uncertainties:

"The council has a worked through a 30 year financial plan. 97% of our tenants wanted to stay with the council, and we will meet decent homes and higher standards, but we need to respond to our tenants' other priorities for environmental improvements and sustainable communities. And the council is changing—becoming more rural, house prices have shot up, we have an ageing population—we need to be able to say to our residents that there is a secure future for investment beyond maintaining our already good quality homes".

For all the councils studied, there were concerns about having less money for facilitating affordable housing or for improving neighbourhoods, after resources were put into meeting the decent homes standard. A district in the south-east, for example, had little potential for investment outside of decent homes or improving management services. There are very serious housing problems in the city, with a huge affordability gap for many residents, coupled with an acute shortage in supply. There were concerns about the future lettability of the stock, particularly flats, where it may not be possible to invest adequately in common areas and the immediate environment.

The LGIU welcomes the establishment of the six pilot areas to examine the scope for self-sufficient housing revenue accounts. We recommended this as one of the possible ways forward in Council housing: a sustainable future, with authorities reconfiguring the HRA to produce investment to maintain DHS and long-term sustainability, including environmental and community works.

Becoming self-sufficient looked like being the best way forward for several of the councils we researched. We were pleased that the Audit Commission came to the same conclusion in Financing council housing. Coming out of the HRA subsidy system would mean greater risk, but for those councils and ALMOs that are financially self-sufficient, it would also, critically, mean much greater control over their income and spending, and the certainty needed to make longer-term financial commitments. Taking on more responsibility would require an appropriate accountability framework, particularly to tenants.

There are, however, significant and difficult issues to be dealt with. There would be, for example, serious implications for councils with stock, if only a small number were to come out of the system, along with the majority of ALMOs.

We agree with the Audit Commission that allowing some councils to be self-sufficient would require additional resources for the poorer councils with the most serious housing and environmental problems. It is hard to see how this option could be properly effective if the Treasury insists it has to be financially neutral. We would argue, however, that the current system may not be the most effective way of helping poorer councils, that all the options need consideration, and that there needs to be more money put in regardless: management and maintenance allowances are still too low.

The LGIU has consistently argued for a level playing field between all of the ownership models: the government has been prepared to write off millions of pounds of debt to facilitate stock transfer and to provide gap funding—there should be equal treatment for councils retaining their housing to ensure a viable financial future.

Although we welcome the work now being done, we believe the government should also be looking at alternative or additional options. It will not be clear until the results of the pilots are known how wide or how limited any reform will be. The government should be considering options such as ring-fencing current and future income from rents to spend entirely on council housing. Rent restructuring will produce rising levels of income: this should remain transparently within council housing. Councils could bid for the pooled money on the basis of need and performance.

There is also a case for authorities retaining a greater proportion of their housing capital receipts. For some councils in our options research, this reform would mean meeting tenants' aspirational standards for their homes, and being able to seriously address housing issues across other sectors. For one high performing district council, over the period 2005-06 to 2009-10, the council estimates that the government will pool over £21 million of its receipts from right-to-buy sales. This represents almost three times the funding gap the council had identified towards meeting the decent homes standard.

In conclusion, the role of local authorities in managing and building homes can not be seen separately to the future financing of council housing. Without radical reform of the system, there may not be a sustainable future for some of the councils that are retaining their housing, and for some ALMOs. Council housing is a huge public asset that must not be wasted.



© Parliamentary copyright 2006	Prepared 21 November 2006