Government's new council house building drive will come at expense of housing associations

Exclusive: The independent Office for Budget Responsibility thinks housing associations’ available government grants will be squeezed to accommodate new construction by councils

The government’s council house building drive will come at the expense of fewer new units constructed by housing associations, The Independent has learned.

The revelation that housing associations will be partially crowded out casts doubt on the government’s claims to be fully committed to a surge of new housing for people on low incomes.

In her Conservative conference speech in October Theresa May announced the borrowing cap on local councils would be lifted in order to allow authorities to start building houses for low-income families again in serious volumes for the first time in 30 years.

It was a reform that housing campaigners and many council bosses had long pressed for as a vital element of solving the shortage of social housing.

In the Budget on Monday, Philip Hammond followed up on the pledge, with official Treasury estimates suggesting the removal of the cap would lead to extra borrowing to build by councils of £4.6bn over the next six years.

The independent Office for Budget Responsibility said it expected new council house construction of 20,000 units over the period as a result of the lifting of the cap.

9,000

The number of new homes the OBR estimates will be built over six years as a result of lifting the council borrowing cap

However, the OBR, also added that it expected this to crowd out private house building, with every two new council houses resulting in roughly one less new private house, meaning the net impact on new housing supply from lifting the cap would be only 9,000.

And The Independent has learned that the basis for this assumption is that councils, as well as funding new council building from borrowing, will also partly finance the new supply by tapping funds from the Affordable Homes Programme (AHP).

This is a pot of government grant money currently mainly drawn on by housing associations (charities and third sector organisations that provide housing at below-market rates) to fund their own construction of social housing

The upshot is that the OBR thinks housing associations’ available government grants will effectively be squeezed to accommodate councils.

Housing associations

What are they?

They are charities and third sector organisations which provide housing at below market rates to lower income families. When Margaret Thatcher more or less put an end to council house building in the 1980s a great deal of their stock of homes was transferred to housing associations to be managed and maintained. Housing associations have also been able to access grants from government to increase their supply of new homes. But the volumes of new homes they have built each have never matched those built by councils in the 1960s and 1970s, mainly because the government grants have never been large enough to enable them to do it. Their grants were cut severely by George Osborne and David Cameron. In recent months Theresa May’s government has been saying that they will get more resources. But this revelation that some of their grants will be diverted to councils to build will come as another blow to the sector and may undermine trust in ministers’ promises.

“We assume their [housing associations] reduction in building is related directly to the proportion of the additional local authority building that involve AHP grants,” said an OBR spokesperson.

The National Housing Federation, which represents housing associations, said the news was “concerning”.

“If lifting the cap on council borrowing comes at the expense of housing association delivery, that would be concerning,” said James Prestwich, the NHF’s head of policy.

“However, we’re confident that more council building shouldn’t have to mean housing associations will build fewer homes. This isn’t a zero-sum game, and there is a lot to be gained from cooperation between housing associations and local government.”

“Ministers should reset funding for low-cost homes to the £4bn it was in 2010, as Labour has long argued. This scale of investment could see both housing associations and councils building genuinely affordable homes at scale again,” said shadow housing secretary John Healey.

Government figures show that between 2015 and March 2017 the AHP distributed just over £1bn of funding to create 42,878 affordable rent and affordable home ownership homes in England.

The government says a total of £9.1bn in capital grants is available under the current AHP over the next three years. Ms May announced a further £2bn of funding for the AHP in September, but this is reportedly to be money for the next phase of the programme, which doesn’t begin until 2022.

Councils were significant house builders between the 1940s and the 1970s. Margaret Thatcher brought that to an end in the 1980s and transferred much of the stock of council housing to be managed and maintained by housing associations.

Source: MHCLG

The latest official data shows the housing association sector started construction on 23,890 new homes in the year to June, with annual new starts of all new homes running at 160,020.

Ministers have said that they want to deliver 300,000 new homes a year in England.

More than a million households have been on social housing waiting lists for at least a decade.

In her forward to a green paper on social housing in August, Ms May said: “We need to get back to the scale of new social housing that will deliver a real difference to communities.”

An HMT spokesperson said: “We’re committed to increasing the housing supply by 300,000 homes a year on average. Removing the cap on how much councils can borrow to build houses is vital to ensuring there is a variety of homes available. Councils are likely to use their own land and resources for development, which is why we do not expect the removal of the cap to affect other types of development.”

Dan Wilson Craw of the Generation Rent pressure group said: “Lifting the cap on councils’ borrowing is just one part of the strategy we need to boost the building of social housing. Providing more grant funding is another, as it pays for itself in the long run in lower housing benefit payments.”

Josh Ryan-Collins of UCL’s Institute of Innovation and Public Purpose, said the biggest obstacle for the provision of new council housing was the land market.

“Ongoing austerity means local authorities still face strong incentives to sell off their land – or what’s left of it following years of privatisation – to fund vital services rather than use it to build affordable housing. The land market remains rigged in favour of private developers given the rules around selling land at market value. Lifting the local authority borrowing cap is the first step in the other direction, but it’s a small step given the wider context.”