Listen to this article
Give us your feedback Thank you for your feedback.
What do you think?
Local councils have attacked Philip Hammond’s plans to fix Britain’s housing crisis, suggesting that only a large-scale public housing programme will achieve a target of building 300,000 new homes a year.
On Wednesday, Mr Hammond unveiled in the Budget what he described as a £44bn five-year package to achieve “the biggest annual increase in housing supply since 1970”.
About £15bn of that is new money, made up of £7bn of direct funding and £8bn of “loan guarantees”, with the government promising to stand behind housebuilders to try to draw more investment into the market.
But the role for local councils, which collectively built just 3,000 homes in 2015-16, was more limited. The government said it would lift a borrowing cap for councils in areas of “high affordability pressure” to enable them to build more, with campaigners long arguing that this will help stimulate more public building.
Local councils spend money on housing from a ring-fenced account — the Housing Revenue Account. According to figures from the Department of Communities and Local Government, councils collectively borrowed £26bn over 2016-17, with the cap set at just under £29.4bn —currently leaving them with about £3.5bn left to borrow collectively.
But local councils will only be able to bid for an increase in their caps up to a total of £1bn by 2021-22 and the Treasury is anticipating their spending at £880m.
The Local Government Association, which represents nearly 400 local authorities, has said it wants an abolition of all borrowing caps on council housing budgets, and that £1bn extra will not allow for much extra building.
“Rather than try to manage council borrowing from a desk in Whitehall, the government should simply scrap the cap and enable all councils to spark the renaissance in housebuilding that our communities desperately need,” said Councillor Martin Tett, the LGA’s housing spokesman.
“The last time this country built more than 250,000 homes a year — in the 1970s — councils built more than 40 per cent of them. Councils were trusted to get on and build homes that their communities need, and they delivered,” said Gary Porter, the LGA chairman.
The Institute for Fiscal Studies welcomed Mr Hammond’s plans, saying that increasing housing supply is “key” and the new targets are “genuinely ambitious”, but said it was unclear “whether it will be delivered”.
It noted that Mr Hammond was not outlining “a government housebuilding programme” and it is “impossible to say with confidence how many houses it will deliver”.
Instead, the IFS said Mr Hammond was emphasising “facilitation” by trying to increase the flow of private money into the sector. Small housebuilders, who construct fewer than 2,000 homes a year, were offered £1.5bn in new loans. The new loan guarantees are also expected to unblock a route to finance for developers.
Although the £8bn fund is earmarked for housebuilders of any size, analysts say it will be best used by smaller builders.
According to figures from the National Housebuilding Council, small housebuilders have struggled to recover from the financial crisis, and currently build only half the number of homes they did in 2007. Larger builders have fully recovered.
The Homes Builders’ Federation, the trade body for builders, said that before 2007, small builders could get a loan for around 80 to 90 per cent of the cost of a development project. Nowadays, however, they are generally unable to get a loan for more than 60 per cent.
Anthony Codling, housebuidling analyst at Jefferies, the investment bank, said the government standing behind loans for small housebuilders would allow them to borrow more and “double” the number of homes built.
The Treasury has said it is working with the industry to come up with the best way to use the loan guarantees and that details are not yet available – but that it is aimed at making it easier for housebuilders to borrow.
Alongside offering finance for housebuilders, the government has said it will launch a review into the practice of housebuilders sitting on land for long periods before beginning building work.
Shares in housebuilders such as Berkeley Group and Barratt Developments initially dropped on the news but recovered ground on Thursday.
According to research by Jefferies, there have been three main and three minor reviews into landbanking since 2004, with each one concluding that there was no need for government intervention.
Missing from the chancellor’s speech was a signal on the future of the government’s Help-to-Buy equity loan scheme — which currently makes up a large portion of its housing spending.
The scheme, which allows people to buy new homes with deposits of only 5 per cent by using a low-interest equity loan from the government, is scheduled to end in 2021.
Buyers can use the loan scheme for properties up to the value of £600,000 and the government loan can be used for 20 per cent of the property’s value if outside London and 40 per cent for those in London.
Industry analysts say potential changes could include lowering the maximum value of eligible properties, restricting the scheme to first-time buyers only, or lowering the percentage of the value of a property the government’s loan can be used against.
Lindsay Judge, policy analyst at the Resolution Foundation, said the policy came attached to “massive deadweight costs” — pointing out that the government’s assessment suggested about 35 per cent of Help-to-Buy recipients could have bought a home in the absence of the loan.