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Need for action: housing minister Margaret Beckett |
Financial snags in way of PM’s housing promise
Barriers in the way of boroughs building thousands of homes each year are big ones, argues John Perry
GORDON Brown has promised to sweep away the obstacles to councils building more houses.
Does that means we can soon expect to see London boroughs building houses, in places where private developers have stopped?
Well perhaps. But there are some snags.
For example, councils have been promised they can apply for the same grants that housing associations now receive.
This is good news, but they aren’t available yet. And when they do become available councils will have to compete with others to get the grants.
Yes, some will get them, but it might be another 12 months or more before it happens.
If a council gets a grant, that will cover, say, half the cost of the project.
It still has to finance the other half.
This is where things get more tricky.
The council might be able to subsidise the scheme by selling land or putting its own land in free of charge.
For example, Islington is building a small housing scheme at the moment that it financed by selling commercial properties on its estates.
But these kinds of subsidy will only go so far.
Most councils will have to borrow part of the cost of the scheme.
There are two problems about this. One is that councils can’t borrow freely from normal lenders like housing associations can. Even though they get rental income from any houses they build, to pay towards the costs, their loans are counted as adding towards government debt. And there is already too much of that about at the moment for the government to encourage any more.
Councils have been pressing the government to change the rules so that this is no longer a problem; one of the barriers that perhaps Gordon Brown could now tackle.
Then there is the problem of paying for the loans. The government has promised that councils will be able to use the rents from the new houses directly to pay for the loans they take out.
But this won’t be enough. Housing associations carry out new schemes by using their reserves, or spare income from rents on older property to cross-subsidise their new ones. But councils aren’t allowed to do this. Here is another barrier that Mr Brown could take his axe to.
People see that housing associations can build new houses with government grant and wonder why their council can’t do the same thing. After all, at the moment councils can borrow money at lower interest rates than housing associations or private developers.
And unlike a developer, every London borough knows that for every house it built it would have hundreds – if not thousands – of people wanting to move in.
The logic of this is obvious and the Prime Minister hasn’t been slow to see it.
But the barriers that stand in the way of councils actually being able to go back to building thousands of houses each year are big ones. They won’t be brought down just by speeches calling for councils to do more.
Fortunately, the government has been carrying out a review of the whole system of financing council housing, so it’s got the evidence in front of it together with the options for making big changes.
If the Prime Minister really means what he said in January, he will ask housing minister Margaret Beckett to act on this review as quickly as she possibly can.
Only then will Camden and other London boroughs be able to consider making serious plans to increase their stock of council houses.
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