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Coffee House

We need to lift the cap on councils’ borrowing so they can help solve Britain’s housing crisis

3 July 2014

10:55 AM

3 July 2014

10:55 AM

With Britain’s housing crisis worsening by the day, and Londoners facing a housing catastrophe, we urgently need to maximise the construction of new homes. It is crucial that this includes new council housing.

In 1979 councils were building around a third of all new homes in the country. But by the end of the 1980s council house building had slowed to a trickle, and it continued to decline in subsequent decades. Private sector housebuilders never filled the hole in supply that was left when local authorities stopped building. Hence, the roots of the current housing crisis can be traced back, in a large part, to the decision by the Thatcher government to choke off council house building.

Thanks to reforms to local authority borrowing made at the end of the last Labour government, some councils are now building homes for the first time in decades. The reform, which gave local authorities ‘borrowing headroom’, was very welcome. But councils would have access to far more funding to build new homes if the remaining cap on their borrowing was removed. Such a move is supported by everyone from Boris Johnson to London Councils and it has cross-party support in the London Assembly.

Yet on Coffee House Keith Cooper took a contrary view. He used a study for Inside Housing that showed £1.4 billion in unused headroom across the country to suggest the cap doesn’t need to be lifted at all.

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The first thing to note is that £1.4 billion split across Britain’s local authorities isn’t very much. And Cooper’s report found that nearly 90 per cent of authorities have headroom of at least £1 million. In London that’s enough to build just six homes.

The report found that four in ten local authorities had no plans to build homes using their existing headroom. Quite obviously this shows that six in ten are, and many of them are lobbying vociferously to be able to do more. Thanks to Labour’s reform to the borrowing rules, 490 new council homes were built in London in 2012/13. This may not sound like many, but it’s the highest figure since 1992. Why is it in anyone’s interest for the government to stymie councils who want to build more homes and do the right thing?

Housing need varies across the country. Some local authorities don’t face a shortage of housing, and so their headroom will remain untouched. This is why the London Assembly has called for a headroom trading scheme to be established to enable authorities that want and need to build homes to acquire borrowing headroom from those that don’t.

Giving councils more borrowing headroom will also enable them to undertake better, faster regeneration of existing estates, and remove the need for unpopular stock transfers to housing associations.

Councils haven’t acted as developers for decades. Most will have a significant deficit of knowledge and experience in the delivery of new homes, and that won’t change overnight. Getting to a stage where local authorities are delivering new homes in significant numbers will be like turning round an oil tanker. But it must be turned around. Thirty years of housing policy failure cannot be corrected overnight.

Owen Jones is right about lifting the borrowing cap. So is Boris Johnson.

Tom Copley is a member of the London Assembly and is City Hall Labour’s housing spokesperson

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