Question: Building Council Homes

MQT on 2017-12-14
Session date: 
December 14, 2017
Question By: 
Tom Copley
Labour Group
Asked Of: 
The Mayor


What effect will the Chancellor's announcement lifting the HRA borrowing cap "in high demand areas" have on London's Housing Market?


Answer for Question: Building Council Homes

Answer for Question: Building Council Homes

Answered By: 
The Mayor

Sadiq Khan (Mayor of London):  Thank you.  The new draft London Plan sets out how we need to build 65,000 new homes in London each year.  This is roughly double what has been delivered in recent years.  To boost housing supply to this degree we will need far greater investment and far stronger powers in London.  At the heart of this we will need a step change in the number of homes built by councils.  As we all know, despite great ambition from many councils, national restrictions on what they can do has left recent delivery pale in comparison with London’s long and proud history of municipal house building.  In 1970 alone, councils delivered over 27,000 homes.  In the two decades to 1980 they built nearly two-thirds of all new homes in London.  Together the London government built the mixed communities that are still essential to our economic and social success today.  This was abruptly ended by Government in the 1980s. 


Although reforms in recent years to the Housing Revenue Account (HRA) system have given councils some greater freedoms to build again, meaning 1,800 homes have been built in London over the last six years from a standing start, councils have remained severely constrained by arbitrary national borrowing caps.  Almost everyone agrees these caps should be scrapped.  When I heard the Prime Minister’s speech to a party conference in October I hoped we might finally see this happen.  Unfortunately, in the Autumn Budget the Chancellor failed to do so.  Rather than freeing councils from arbitrary borrowing limits, councils in “high-demand areas” will have to go to the Government for a slice of limited new allowances to invest in new housing.  The Office for Budget Responsibility (OBR) itself has recognised that this bureaucratic approach would put councils off and is forecasting that 20% of the earmarked money will be left unspent.  On top of this, the Budget failed to announce an extra penny of Government grant for affordable housing, leaving current spending less than a fifth of what we really need.  Londoners need Government to do much better than this.  Alongside the lifting of caps on council borrowing they must provide significantly greater investment in affordable housing and infrastructure, and give City Hall and councils powers to bring forward land so we can unlock a new generation of council house building and build a city that works for all Londoners. 


Tom Copley AM:  Thank you, Mr Mayor.  I agree with you that the Budget was a missed opportunity to do something about this, particularly given the wide consensus that you mention.  We have written to the Chancellor asking that the cap is removed for all London boroughs.  It is absurd to suggest that any borough in London should prove they are a high-demand area for housing, it is self-evident.


Can you tell us what conversations or communication you have had with the Treasury about this since the very poor announcement?


Sadiq Khan (Mayor of London):  Ahead of the Budget I wrote, with 20 London councils, to lobby the Chancellor on the grounds you know about.  Since the Budget my team has been engaging with Treasury civil servants explaining the serious concerns about the cap.  You are right, the whole of London is covered by the definition.  The coalition Government made a not dissimilar announcement, but the red tape led to not many councils utilising that.  The OBR itself says there will be a 20% underspend.  We are therefore lobbying the Government to free up the bureaucracy.  Of course, as and when there are any developments I will let the Assembly know.


Tom Copley AM:  Thank you.  A report by the National Federation of ALMOs back in 2012 found that removing the HRA borrowing cap nationally for all councils would free up an additional £4.2 billion for new homes.  Are you aware of any work that would determine how much extra investment would be raised if the HRA borrowing cap was lifted in London across the 29 stock owning authorities that we have?


Sadiq Khan (Mayor of London):  London Councils did some work a few years ago in this area.  That was before the new rent settlement.  We are speaking to London Councils about them doing new work to build on the National Federation of ALMOs work you talked about.  Obviously, the old work that London Councils did is now outdated.  With the new work done we are hoping to persuade the Treasury it will make sense.


Tom Copley AM:  Good, that is very welcome.  Finally, the £1 billion, which is all this is, that the Government is putting towards partially lifting the borrowing cap is very much in stark contrast to the £10 billion they are spending pumping up house prices with Help to Buy.  Do you agree they have things the wrong way around?  If you were Chancellor would you do it the other way, and put £10 billion into social housing and less into Help to Buy?


Sadiq Khan (Mayor of London):  They have to deal with the supply-side.  They have it wrong in relation to trying to tweak the demand-side which leads to inflation in relation to homes that are being sold.  By the way, you mentioned £1 billion.  The OBR says 20% of that will not be used up because of the red tape and the bureaucracy.  Absolutely, they have it the wrong way around.  What a good Chancellor would be doing is investing hugely in not simply affordable housing in London but also freeing up councils who want to borrow prudentially and lift the HRA cap so that they can do that.  They have their arms tied behind their backs.  They want to do it.  Even things like allowing councils to swap the cap and the ceiling so Council A can use the difference Council B has.  There are simple things the Government could do that would not cost much money and would help the plight of London’s homeless who need affordable housing.