More confusion over government housing schemes

There are 400,000 homes waiting to be built by councils, a think tank says, but the government limits how much they can borrow. But hold on - doesn't the government actually incentivise councils to build homes?

by Emma Haslett
Last Updated: 10 Sep 2013
George Osborne giveth, George Osborne taketh away: particularly when it comes to housing, where the Treasury is giving out decidedly mixed messages.

A new study by the Local Government Association has found almost 400,000 homes in the UK have planning permission – but councils can’t get to work on building them because of restrictions on the amount local authorities are allowed to spend on new housing.

According to the LGA, which represents 350 councils in England, councils are limited in terms of how much they can borrow against their existing housing stock to build new homes because council borrowing is set against the national deficit. The government is (understandably) reluctant to allow anything which might push the deficit up.

Which is odd, given the fact that when councils do manage to build new homes, they are actually rewarded by the government. The local authorities that built the most homes were awarded £1.3bn this year under the New Homes Bonus, a government scheme introduced to incentivise councils to… build new homes. If MT is confused, how do councils feel?

An LGA spokesperson pointed out to MT this morning that when councils do borrow money, they do so under a prudential code. Because of that, they have a ‘proven record of demonstrating responsibility’ (just don’t mention Icelandic banks).

‘Councils need to be able to build more homes, because clearly the private sector isn’t delivering at the moment,’ he added.

He has a point. Although housebuilders have had a stonking few months, as evidenced by results published this week by Bovis and Persimmon, the number of homes they’re building hasn’t risen much.

Operating profit in the six months to June rose to £20.4m at Bovis, up from £13.6m last year, while pre-tax profit at Persimmon rose by 40% to £135.3m in its first half.

Completions, though, barely edged up during the period: at Bovis, it rose from 944 homes in 2012 to 963 this year, while completions at Persimmon rose by just 7%, from 4,712 in 2012 to 5,022.

So housebuilders may be delivering for their shareholders, but with an estimated shortage of 100,000 new homes a year – and extra help in the form of the much-maligned Help to Buy scheme – the onus is now on them to put their money where their mouth is and start delivering for councils and would-be homeowners, too.

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