Sadiq Khan’s council house building programme – will it be effective?

Maggie Rafalowicz, Director at Campbell Tickell, discusses the potential of Sadiq Khan’s council house building scheme.

Councils have increased their role in house building over recent years. In the capital, this has received a further boost with the recent announcement by the London mayor that he will take steps to help councils build 10,000 homes over four years. So what does this mean for the potential of a continued renaissance of council house building and what are the key elements of Sadiq Khan’s scheme?

Development approaches

In recent years, development approaches by councils have ranged across direct delivery, joint venture, wholly-owned companies and partnerships. Many have set up development companies, yet few have so far delivered significant numbers of new homes. So why seek to build themselves rather than using experienced developer partners?

The answers are typically about building what they need (more social rent) rather than what others want, speedier delivery and benefiting themselves from appreciating assets.

Funding for direct delivery has come from a mixture of councils’ own capital resources, PWLB (Public Works Loan Board borrowing), using their own land, bond finance, private sector loans and Homes England/Greater London Authority grant bidding, alongside registered providers and developers. But resources are tight and with HRA caps at their limit, funding has proven a significant stumbling block – together with access to the specialist skills needed to deliver what councils have not done at scale in more than 30 years.

London Mayor Sadiq Khan hopes his plan Building Council Homes for Londoners can address this and continue the progress many town halls have made. Funding is for schemes at social rent at or below the London affordable rent, though bids for ‘intermediate’ products will be considered. There are three main elements:

  • Grant at £100k per social rent unit;
  • Right to Buy (RTB) ringfence offer;
  • Delivery support.

1. Grant

This stand-alone fund offers £100k per unit for social rent homes. Grant will also be available for intermediate products (London Living Rent, Shared Ownership) with an uplift for schemes that can start within two years. It is many years since that level of grant has been available. Councils will need programmes of at least 100 homes outside existing programmes. Authorities like Lewisham, Newham and Waltham Forest have already been identified for large programmes. But not all Boroughs are geared up for programmes of this size, in terms of land ownership or the ability to move quickly.

2. Right to buy ring fence

The mayor’s Greater London Authority will act as a custodian of right to buy receipts, and councils will be able to opt in to this arrangement, with their receipts ring-fenced. Unlike GLA grant, councils will make the spending decisions about the use of their receipts. However, we shouldn’t get too excited as Boroughs will still have to operate in line with existing RTB regulations (i.e. only for low cost rent; not funding more than 30% of development costs; not in conjunction with other grant for the same home; use within three years). All the same, by agreeing credible plans with the GLA, councils should have greater scope to manage the programme flexibly.

3. Delivery support

Although some councils have large development programmes, others do not have the skills or resources to progress schemes. The GLA is offering a range of support: regular senior level meetings (though best practice suggests this should already be happening); secondments of GLA staff; help with clarifying technical issues; the Future of London forum of best practice; and opportunities to learn from housing associations.

It is important to have a range of players delivering new homes, especially homes that are truly affordable, so this initiative is welcome. It focuses on social rent and replacement for homes lost under RTB, hence the higher grant levels. This is what London (and other parts of the country) desperately needs: any attempt to address this must be applauded.

Although the Mayor has invited all London Boroughs to put in bids, the question remains whether all will have the capacity to take up the offer. Housing associations themselves are concerned about losing staff to developers. With all the will in the world, there is a limit to how much delivery support the GLA’s limited resources can provide. But to councils with existing development teams, this will be an opportunity to deliver even more.

Especially welcome is the attempt to make better use of RTB receipts, which is open to all London Boroughs even if they do not bid for this programme. However, given that existing regulations will still apply, this will need to be monitored carefully and flexibility used so that development opportunities are not hamstrung by artificial deadlines. Particularly interesting is the GLA’s assertion that it can make grant including reallocated RTB receipts available to bodies in which a council has a controlling interest. Legal advisers will be kept busy.

All in all, the programme is a positive start, and welcome for that.

To discuss the issues raised in this article, contact: maggie.rafalowicz@campbelltickell.com

This article also appears in CT Brief, Issue 36

A version of this article previously appeared on insidehousing.co.uk.