Making plans to build new homes

11th May 2009

Do ministers know their PSBRs from their ALMOs? The downturn has seen a barrage of initiatives from the government to help the housebuilding industry by restarting the flow of mortgage borrowers and by encouraging the social sector to build. But the regulatory system is of such baffling complexity that one part can stymie reform in another. To take but one example. Prime minister Gordon Brown has said he will sweep away barriers to councils building homes. But occupants would be eligible for the right-to-buy, and councils are reluctant to build homes that they could have to sell at a huge discount and then lose most of the proceeds into the housing subsidy system. Housing minister Margaret Beckett has promised to review this, but will there be a conclusion before either the recession ends or more industry capacity is lost?



determined



The prime minister appeared determined when he said: “If local authorities can convince us that they can deliver quickly and cost effectively more of the housing that Britain needs, then we will be prepared to give you our full backing and put aside any of the barriers that stand in the way of this happening.” There are obvious get outs –“if”, “cost effectively” and“prepared”– but at least the intent is helpful. The government appears to have no grand plan to revive building or shared ownership, but has offered a series of helpful steps by channelling public money into social housing. Richard McCarthy, the civil servant in charge of housing at CLG (Communities and Local Government), urged the social sector to keep building when he addressed a Chartered Institute of Housing event; there is a consensus that it can come to the industry’s aid if the finance rules allow this. Help is certainly needed. The consultancy Glenigan puts the number of social housing schemes with planning permission but on hold at 7,164, and stalled private schemes is 50,915.



The most tangible help so far has been the creation of the Homes and Communities Agency’s HomeBuy Direct, which sits alongside the older HomeBuy products. This has £400 million earmarked to help some 18,000 first time buyers, and 130 developers have agreed to offer it. It will give an initially interest-free loan equivalent to 30% of a home’s price, financed equally by the government and developers. Lenders would, the thinking goes, be tempted by lending on only 70%of a home’s value.



There has also been help for people at risk of repossessions, bulk purchases of homes from developers by housing associations and £605 million allocated among 163 councils in growth point areas to, in effect, invest in infrastructure thatwould otherwise have largely depended on section 106 dealswith builders. The demand for homes is still there, and despite widespread redundancy the capacity could be recreated. But where is the money, and will the government’s measures kick-start things? John Slaughter, HBF director of external affairs, says: “We are very positive about HomeBuy Direct, and hope it will give confidence to lenders as they will not be so exposed. “There is no reason why that could not be replicated at local authority level if councils used their powers to provide mortgages in the current climate.”



Councils provided mortgages long ago, but the Thatcher government stopped them from offering competitive rates, and so this power became dormant. Whether this “barrier” will be “put aside” remains to be seen. Slaughter says: “On one level the government’s announcements about councils building are good, but it needs a level of detail which is not yet there, and more generally local authorities don’t have the skills to deliver on building. “What is needed are new means to facilitate partnerships between them and the private sector to deliver homes, where it may be easier and cheaper for local authorities to raise finance and also to make land available.”



Ted Czerniak, an executive member of the Association of Retained Council Housing – councils that still directly own their homes – could offer a useful building programme but it is waiting for a government decision on whether these councils can access HCA grants, at present limited to some housing associations and ALMOs. His council is Broxtowe, in Nottinghamshire, which has “a lot of land for building, not large sites but bits and pieces that could quite easily take 40 – 50 homes,” Czerniak says. “If you multiply that across all other local authorities you are starting to look at quite large numbers. “Council homes would only be a niche product but we are getting extremely good value for money now on builders ’tender prices so it could happen. “We need the grants.



We will have missed a trick if we’re not allowed to get started by this summer.” Solihull Community Housing, Solihull Council’s ALMO, has prequalified as an HCA development partner and so can access grants. Chief executive Matt Cooney says it is proceeding in partnership because it has no experience of new build. “Our new build will be a contract with Waterloo Housing Association, as we are new to it they will provide a developer service,”he says. This will be initially for 19 homes, nine for shared ownership by WHA and ten for rent for the ALMO. It’s a modest start but Cooney says new build is “the obvious step”for ALMOs that have completed the decent homes standard renovations they were originally created to do, and which want to replace homes lost to demolitions. Solihull Council is also looking at becoming a mortgage provider, as “rates are low and so we ought to be able to come up with a decent offer”, though Cooney says “there might be an issue for councils in assessing people for mortgages, but there are plenty of people available to help with that.” Colin Dixon, md of United House, congratulates the HCA on being quick off the mark after its creation last December.



“They have got to work very quickly and are getting stalled development moving by pump priming and been very proactive,”he says. Just aswell.“There is no way that most developers can fund shared ownership and people are getting very nervous about it because someone has to supply the mortgage for the ‘share’ and that is still difficult unless you can reduce the risk somehow,”he says. Dixon calls for more partnerships where the public sector contributes land and where appropriate, grants, and so unlocks developments by taking out the land value cost. Public money would be paid back once the market picked up. What of the longer-term? This worries Stephen Teagle, md of affordable housing and regeneration, at Galliford Try. “These are useful initiatives from the government overall but they depend on bringing forward money earmarked for future years and I am concerned about what will happen by 2010/11 to public investment in housing if that money has been spent now,”he says. “It could be that this gets the industry working again, but we then find there is no money in a few years time.”



public sector borrowing requirement



He points out that building by councils would count against the public sector borrowing requirement, and that unless the Treasury relaxes that rule it would be hard to show how such additions to the PSBR could be permitted. However, Teagle thinks ministers might find a way. “In debtedness among councils is far lower than in housing associations because council stock is older, and more has been paid off, so there is an untapped capacity to finance building there, which I think the government has spotted if it can find a way to give them the freedom to use it.” The government is trying to help the industry, but the problem may be that it will all be too late by the time complex rules on public finances are unravelled.