Dear Kit Malthouse MP
Many congratulations on your new job. With your years as a Westminster Councillor and Deputy Mayor under Boris Johnson we know you will understand the scale of the housing shortage in London and want to make tackling it a priority.
You will find no shortage of commentators willing to tell you that you only need to do one thing to unlock housing supply in the capital — build on the Green Belt, liberalise the planning system, reform property taxes, unleash public spending. We at Centre for London think it’s a bit more complicated than that.
There is no one magic intervention.
We need reform across a number of fronts. Nevertheless, part of the answer has to lie in empowering the boroughs to take a more active role. It is no coincidence that the decline in housebuilding has been accompanied by the weakening of local authorities and in particular, the curtailment of their housing powers. The government-commissioned Letwin Review points clearly to the need to diversify housing supply — and London’s boroughs can play a crucial role in achieving this.
So here are three things you should be doing to empower local councils and London’s local councils in particular:
Reform HRA borrowing caps
First, you should take a serious look at borrowing caps. Borrowing against the Housing Revenue Account (HRA) — the ring-fenced account for council housing rents — is heavily constrained. The impact on London is significant; only around seven London boroughs have both regular revenue from council-owned housing stock (which can be borrowed against) and the headroom required to take advantage of HRA borrowing. This lack of borrowing capacity and flexibility hamper some council’s housebuilding efforts.
In January 2018, the Treasury Select Committee argued that the HRA borrowing cap should be abolished to allow local authorities to increase supply. Now is the time to act upon this recommendation.
Allow flexibility with Right to Buy receipts
Second, you should review how councils can use the capital receipts from tenants buying their homes through Right to Buy (RTB). Investment in affordable homes through RTB has proved to be a challenge. Receipts can only provide 30 per cent of the costs of a replacement home and must be used within three years before funds are handed back to the Treasury (and then the GLA).
This is a stumbling block for many councils. It doesn’t give them enough time to put together a funding package, secure planning, appoint contractors, and commence construction. So much so that the GLA received more than £50 million in unspent RTB receipts from councils since 2012.
While a new initiative announced in May 2018 will allow receipts to be passed by boroughs to the GLA to be ring-fenced for investment in affordable housing, the government must also take action and relax the restrictions on combining receipts with other grant funding. You should also be more flexible on the time period during which homes must be replaced.
Your Department recently announced a consultation on the flexibility of RTB receipts as part of the upcoming Social Housing Green Paper. Please now ensure the speedy publication of this paper and push ahead with the consultation.
Properly fund planning departments
Third, you need to recognise that we won’t get the new housing we need without well-resourced, highly skilled and locally engaged planning departments.
When London’s housing needs are more intense than ever, local authorities are losing capacity to engage with local residents, plan for new development or manage planning applications.
Our research has found that between 2010 and 2015 net local authority budgets on planning and development in London fell from £259m to £148m, a reduction of nearly 43 per cent – more than in any other council service. The government needs to acknowledge a deeper problem at the heart of our housing system, and start funding planning departments properly.
Theresa May has said that housing is her number one priority after Brexit. Now, rising above the turbulence of the government’s Brexit negotiations is your chance to help her prove she means it.
Ben Rogers is Director at Centre for London.