For more than 30 years a family moving into a brand-new council home has ranked among life’s rarer sights. Councils had all but given up constructing new homes in response to the government’s right-to-buy scheme, which left them with only a fraction of the funds needed to build replacements, and a series of Whitehall attacks that led many to lose more than 40% of their budget.
Plans to house low-income households relied on private developers allocating a few homes on their sprawling sites. Often, these developers would find an excuse to whittle down the number of affordable properties to almost zero, or build them in the least desirable area of the site with the cheapest materials.
In the words of Kevin Price, deputy leader and head of housing on Cambridge city council: “We would go back to a site when it was built and say ‘this isn’t quite what we agreed.’”
Last year council-house occupation slipped to its lowest-ever level, prompting the Local Government Association (LGA) to warn that the 11,357 council-built homes completed since 2012 were dwarfed by the 55,000 homes sold under right to buy.
Battered but not dispirited, councils have begun to hit back with new ways of funding and a will to build better quality homes with a broader mix of styles.
Under a licence granted to them by the coalition government in the 2011 Localism Act, they have started to set up property development firms of their own or to sign partnership agreements with private developers that get around the normal spending rules and put them in charge of the process.
Controversially, not all the homes are classified as affordable – providing tenants and buyers with a 30% discount. Many are rented out at market rates and are designed to bring much-needed income into council coffers.
Cornwall council is the latest to join the band of authorities taking the plunge with a plan to build 1,000 homes at a cost of £170m across the county, using a wholly owned subsidiary to manage the acquisition of land and build the homes. There will be a mix of homes, it says, with 35% classified as offering an affordable rent or shared ownership and 50% available for private market rental. Another 15% will be sold on the private market.
“The income generated from the private sales and rentals will subsidise the affordable homes so there is no cost to the council over the life of the business plan,” said spokesman Andrew Mitchell. “These are homes for local people, with a genuine housing need. Consideration will be given to people who live or work locally.”
Karen Ward moved into her new four-bedroom rental home on the St Nicholas Mews estate in Basildon, Essex, almost a year ago and still can’t believe her luck.
“We were in a tiny place before. And … with the space we have now, where the children are not on top of each other, we all get on better,” she says. “It’s a dream come true, it really is.”
Basildon borough council was one of the first authorities to set up its own developer, Sempra Homes, in 2014 to supplement its return to directly funded council house building. Like many local authorities, it lends the funds to the wholly owned subsidiary at a commercial interest rate, generating an income, and then takes Sempra’s surplus funds, providing two new cashflows for the borough.
Many of Sempra’s homes can be found on large developments and are built to the same standards as the private homes nearby.
Karen and her partner Leonard, who qualified as key workers (Karen works at a local school) pay 60% of the local market rent. They don’t have a car port in front of their house like many others, but their home boasts a 70ft garden and spacious rooms that would make it attractive to any family.
Basildon is under pressure to build affordable homes following predictions that its population will rise from around 180,000 to 210,000 by 2034.
Melanie Keys, manager of Sempra Homes, said the advantage to the council was the ability to react to local needs and build homes that people wanted with amenities to match. That often means more parking spaces and reducing the number of homes.
To get the agreement of the local community for new homes on one site, she even offered parking spaces to residents on an adjacent estate.
A study last week by the trade magazine Inside Housing, based on 200 Freedom of Information requests, found that almost a quarter of councils in England had invested £130m in setting up 58 local housing companies (LHC) since 2012. Five councils said they were in the process of establishing their own housebuilders.
A report for the National Planning Forum (NPF) and the Royal Town Planning Institute in December found that 44% of councils had an LHC. But by the end of last year only 528 homes had been built, adding little to the 225,000 constructed in the last year, mostly by private firms and housing associations.
Councils have been criticised for selling many of the homes rather than offering them for rent.
Housing secretary Sajid Javid is blamed by many for undercutting the enthusiasm and energy behind this new programme by threatening to extend the right to buy to incorporate councils’ privately constructed homes.
Nevertheless, there are many in the industry who see a transformation of public housebuilding in the making. They argue that it is early days, because most of the initiatives only date back to 2016 and 2017 and councils haven’t had time to do much more than wade through the legal bureaucracy and identify possible sites.
Janice Morphet, a professor at UCL’s Bartlett School of Planning, said that while there were many barriers to LHCs adding significant numbers to public housebuilding, there was a head of steam that would add thousands of local authority homes to the total within the next couple of years.
Morphet, author of the NPF report, said Javid needed to show support for LHCs so the councils that were holding back, fearing their new homes would be subject to right-to-buy rules, could move ahead.
Wolverhampton has one of the most ambitious plans after setting up an LHC and hopes to open the first showhome before the summer.
Housing spokesman Peter Bilson said the council’s Housing Revenue Account, which is the source of funds for direct council building, had run dry. “We were also frustrated by private housebuilders who were drip-feeding new homes into the local market to maintain prices,” he said.
The West Midlands council has followed a similar model to Basildon, emphasising the need to house key workers, employing local building companies and building better quality homes that will stand the test of time.
Cambridge has earmarked several of its developments to have a minimum 50% of homes for rent, though it’s not aiming to attract key workers.
“Our concern, when we have a local market where the average house price is £500,000 and average wage £31,000, that Cambridge is not a place where only the wealthy can live,” said Kevin Price.
Cambridge was handed a £70m housing grant as an incentive to join a combined authority with Peterborough and is using much of that money, guided by a joint venture LHC, to build homes in pockets across the city.
Morphet said her research had shown that only the north-west was sticking with directly built council homes. The rest of the country is waking up to the benefits of using private firms to borrow and build without the constraints of local authority budgets.
Leading the way
A rising population forced the Tory-run council to set up Sempra Homes as a wholly owned subsidiary in 2014 to exert more control over council-funded new homebuilding. Despite a surge in support for UKIP candidates that saw the council move to no overall control, a £10m budget remains in place with 580 homes the target. So far 26 homes have been completed of which 16 count as affordable – ie 40% below market rents/values.
Soaring house prices, given extra impetus by Cambridge University’s international status, were behind the council’s move in 2015 to set up a local housing company (LHC). Most of the homes are existing properties that have been bought by the LHC. Only a handful have been built from scratch. There is currently some £7.5m in the budget.
With the council forced to make savings of £260m by 2020, its LHC has identified unused council land that can be turned into rented homes and once built, provide “welcome extra income that can be put towards council services”. Chapter Homes began life in 2015 with a £12.5m budget. By last year it had built 63 homes – of which 12 were classed as affordable.
Housing local homeless people led the council to spend £13m in two years buying 32 properties using an LHC. The previously homeless tenants pay rent from housing benefit, saving the council around £500,000 a year. The council also lends at commercial interest rates, which are higher than its own borrowing costs, creating another source of income.
Figures based on research by Inside Housing