Jonathan Bunt: The threat from ‘right to buy’ hanging over housing innovation

Councils have found innovative solutions to provide housing through wholly owned companies but central government is threatening to make right to buy apply to their properties. Jonathan Bunt predicts councils will develop ever more complex structures to protect their assets.

Not for the first time, councils were told off earlier this month for creating wholly owned housing companies through which they own and manage rented properties.

In announcing the housing white paper, ministers made an overt threat referencing finding a way for “right to buy” to apply to such homes, which will have had lawyers rubbing their hands with glee. Whilst it wasn’t in the aggressive style of Eric Pickles, there was a definite “naughty local authority” tone to the announcements, almost admonishing councils for finding innovative solutions to provide housing locally.

Whilst not explicitly saying that it definitely will at this point, the government was clear in its desire to ultimately bring properties held through council companies into the scope of right to buy, and this will be a cause of some nervousness inside some town halls.

In announcing their partnership with Lendlease earlier this month, Haringey made reference to the joint venture structure clearly sitting outside of any future scope of right to buy, so it unquestionably exists in the collective thought process.

Filling the gap

The reasons councils have stepped in to this space are both straight forward and sound.  Clearly, councils feel the shortage of available local housing most pointedly, typified by enormous waiting lists and increases in homelessness.  In particular, they will be aware of the gap in the market for affordable housing for an increasing range of income groups, specifically where housing associations have not managed to establish any significant presence.

Private sector developers are, as a rule, seeking to maximise profit and therefore sub-market rent is not a natural position for them to assume.  There are some institutional investors who, for sound investment and occasionally philanthropic reasons, fund the provision of intermediate housing, but they are the exception rather than the rule.  Therefore councils are plugging an important supply gap by building homes available to rent at below market rent prices.

This is not done solely for social good.  As well as the economic benefits to the local area, it also generates a strong income source which can be used to deliver the demand-led services which are putting such pressures on budgets.  In a climate where councils are strongly encouraged to behave more innovatively and commercially, it is even more curious to challenge and destabilise the work being done.

It is also worth mentioning that many councils are using such companies to develop the more challenging sites in their area which attract less interest from developers. The housing companies are potentially also able to act with more freedom when procuring construction partners enabling them to work with smaller, more innovative and, often, more local firms.  The challenge remains to ensure value for money but that is a different test to picking a large developer off a narrow framework contract.

Serious about support

If ministers were really serious about supporting local authorities to build more housing they would have looked at either relaxing the debt caps, restrictions on rent setting and relaxing the use of right to buy receipts.

The latter point, in particular, has resulted in some of the structures that have popped up enabling the maximum use of the retained one-for-one receipts. Greater freedom in their application would be a starting point in shifting how councils approach house building.

Equally, the government could have given more emphasis to really enforcing an initiative such as One Public Estate. In many areas, there are significant public sector land holdings but these are often outside of the local councils control or influence.  Whilst the principals of One Public Estate are sound, and there are some good examples of work under its banner, it is yet to have a significant impact in many areas. Applying greater pressure to some public organisations, for example TfL in greater London, could see the release of land for housing and an easing of pressure in the capital.

The reality for most councils is that their current constraint on building is not money, or even land, but actually the staffing capacity to develop the housing company structures and then deliver the schemes. It is a tough market in which to recruit high quality regeneration and development officers and there is scope for council owned companies to assist with that risk.  They can develop a different offer for staff, potentially drawing in from other sectors and act with greater agility.

There remains, therefore, compelling reasons for continuing to invest in homes through housing companies. The outcome, as a result of threats to apply of right to buy, is probably more complexity in the structures under which councils hold their private rented units to provide protection for that investment. The winners of that outcome? Lawyers.

Jonathan Bunt advises local authorities on investment, development and funding opportunities, particularly in relation to housing and regeneration. He is a former strategic director at London Borough of Barking and Dagenham.