08 October 2004
John Prescott's announcement at the start of the Labour Party conference that top local authorities could start building homes again surprised just about everybody – not least the Office of the Deputy Prime Minister.
Just over a week later, the ODPM was still unable to confirm whether the deputy prime minister's statement was as significant as it first seemed. Further details may have to wait until the department publishes its strategic plan towards the end of the year.
Housing professionals, meanwhile, thought that Prescott was attempting to appease Labour activists who are angry over ministerial refusal to support a 'fourth option' for meeting the decent homes target.
'It feels like a political fix,' says Neil Litherland, director of housing at the London Borough of Camden, where tenants have rejected an arm's-length management organisation as well as the other options of the Private Finance Initiative or stock transfer. 'The civil service is going to have to come up with something.'
In his speech, Prescott did not state whether the top-performing councils he was referring to would need to set up Almos before they could apply to the Housing Corporation for social housing grants.
Such a condition would not have constituted a new policy as, under the Housing Bill going through Parliament, Almos and private developers can apply for grants from next year anyway.
Jon Rouse, the corporation's chief executive, says it is awaiting details but is receptive to new ideas. 'We see ourselves very much as a procurer of new homes on behalf of the government,' he says. 'We want to work with the best and are open to whatever they have to bring to the table.'
Bizarrely, councils could be left in a situation where they need an Almo to borrow funds to meet the decent homes target, but may not be required to set one up to apply for grant to build new homes.
But without extra borrowing, it is doubtful whether such grant will be much use to them anyway. Gwyneth Taylor, policy officer at the National Federation of Almos, says: 'Almos will be able to apply for social housing grant, but unless they're given access to private finance as well, they will be ridiculously limited,' she says. 'They may as well as get a housing association in to build the homes.'
When housing associations receive grant, they normally subsidise the cost of the homes they build through loans until rent income starts to exceed the cost of the loans – normally after about ten years.
Jeff Zitron, a director at consultancy Hacas Chapman Hendy, doubts if councils that raised money through the prudential borrowing regime for the same purpose could demonstrate value for money to the exchequer.
'A housing association can do it because it has reserves and cash flow,' he says. 'The question is whether local authorities can match that. They will require a higher level of grant to balance the books from year one.'
John Perry, policy adviser at the Chartered Institute of Housing, says the government could let councils plug the gap by charging higher rents on new properties. 'It could allow them to keep the money rather than taking it away through the subsidy system.'
But if councils are to get seriously involved in house building again, it is far more likely to be in partnership with a registered social landlord or a developer that has easier access to private finance.
The ODPM has already extended the Private Finance Initiative to include new build as well as refurbishment. All nine third-round PFI schemes approved earlier this year include new properties.
According to Zitron, the PFI is likely to be more popular as a vehicle to build homes because it will be easier to transfer risk to the private sector. 'Housing PFI is going to be less about meeting the decent homes target and more about new housing supply,' he says.
Yet, in spite of the need for more affordable homes and the new popularity of the PFI, councils cannot realistically be expected to embark on house building on the scale seen in the 1960s.
'Local authorities haven't built new homes for a long time,' says Litherland. 'They don't have the skills of developers and RSLs. They should focus on delivering decent homes.'
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