By Joe Beswick (@joebeswick1)
The withdrawal of the state from the provision of (council) housing is perhaps the primary cause of the deep housing crisis which limits lives for millions of us in the UK. But over the past decade this withdrawal has in some ways begun to shift. If articles in the progressive press are to be believed, council housing is back, and local authorities are once again beginning to build homes at scale. With Shelter estimating a need for 3.1 million new social homes over the next twenty years, this could be an extremely welcome development.
Taking just the Guardian, over the past few years articles have appeared exploring ‘How one council is beating Britain's housing crisis’, and inviting us to ‘Meet the councils quietly building a housing revolution’, through their ‘innovative projects to provide social housing’. All of these articles refer to the rapid rise of what have become known as Local Housing Companies (LHCs). When Manchester council announced its intention to establish an LHC, GMHA issued a cautious welcome to the news, suggesting that it could be representative of renewed ‘municipalism’.
So what are Local Housing Companies, and do they represent a much-needed return to the era of municipal social housebuilding? As part of my recently completed PhD, I conducted an in depth analysis of the rise of LHCs in London. I found that 70% of councils in London have or are in the process of setting up LHCs, and in this article I outline why LHCs are being established, what homes they are building, and whether they constitute the incipient financialisation of social housing. Despite a strong narrative to the contrary, my findings show that, in reality, LHCs have not been set up to primarily meet the need to build social housing, but rather to generate income to replace revenue streams lost to austerity cuts.
In essence, an LHC is a private company set up by a council to buy or build housing for sale or rent. While the companies are often ‘wholly owned’ by the council, they are not part of the council per se, but rather an independent private legal entity, governed by a board of directors, which is an asset of the council.
LHCs are cleverly positioned as representing a renaissance in council housebuilding, driven by a desire for councils to get back into the business of (social) housebuilding. However, a clear finding of my research has been that this masks the primary motivation which has led to councils establishing LHCs. After a decade of austerity, many councils struggle to maintain the income they need to deliver services, and it is in this context that they are establishing LHCs. I found that LHCs, for a great many councils who have established them, are being set up to generate income to fund general services; to be a source of revenue (profit) to replace revenue streams lost to austerity. Local authorities are becoming private housing developers to generate profit.
Traditionally council housing is built and managed by a part of the council governed by what’s called the Housing Revenue Account (HRA). This account is ring fenced, and generally speaking, all social housing owned by the council must be held in this account. LHCs are not part of the HRA, and indeed my research found that a further motivation for establishing LHCs has been to evade the restrictions posed by the HRA. Homes held in the HRA must be social housing (the HRA cannot build private homes), and the homes must be available for the right to buy scheme. Tenants ability to buy homes at a discount makes housing development financially risky for councils, and what’s more, until recently, borrowing to build in the HRA has been artificially constrained by an austerity ‘debt cap’ imposed on HRAs by central government, further limiting council’s capacity to build social homes. LHCs enable councils to build private homes, not subject to the right to buy, or significant borrowing restrictions.
Once we recognise that for many councils LHCs are designed to generate significant income, it becomes unsurprising that, although positioned as such, most LHCs (in London at least) are building few or no social homes. My research found that more than two thirds (68%) of London councils with LHCs did not intend to build any social rented housing with their companies. However, 63% of councils intend to build private homes for market rent and sale through their LHCs, with 47% of councils intending to predominantly build private homes, and 16% exclusively. Beyond social rented and private homes, 68% of councils are also intending to use their vehicles to build affordable rent homes (private rented homes let at 50-80% of market rent). Based on my findings, while a significant development in municipal housing policy, LHCs do not represent a significant step towards building the number of social homes that we need. LHCs are often simply councils setting themselves up as property developers, with the same objective as those developers: making cash.
When trying to understand why LHCs are not in fact building social housing, the need to generate significant income from building private homes is perhaps most prominent. However, there are two additional reasons why LHCs are unlikely, in the present political context, to build social homes at anything like the scale we need. First, LHCs have been established almost entirely without the financial support of, or the direction of, central government. Building social housing requires (often very significant) up-front investment or subsidy. Although it generally pays for itself in the long run, building a social home in London, for example, requires more than £100,000 of up-front subsidy. Whether through the HRA or an LHC, social housing requires investment from central government, and so without that investment, which has been hugely reduced in recent decades, LHCs are financially unable to build social housing at a large scale.
I also found that, generally speaking, if councils were to build and manage social rented council housing at scale through LHCs it would be, in an important sense, illegal. Council housing has to, by law, be held by the HRA. The legal advice around LHCs is that if councils build social housing through their LHCs, then that housing will be in fact be counted as part of the HRA, and so subject to the right to buy and all other regulations which govern it, which the LHCs are being set up to evade. Building social housing through an LHC would defeat the point of establishing an LHC in the first place. LHCs can and are building ‘affordable’ homes, discount homes which are not let to people on the social housing waiting list, and for rents higher than social rent. These affordable homes do meet a housing need for some, but for those in most need of genuinely affordable housing – social rented housing - LHCs do not constitute an answer to the housing crisis.
A final crucial question we need to ask of the rise of the LHC model of council development is whether it represents a further step in the nascent financialisation of social housing in the UK. With councils making repeat visits to the MIPIM property investment fair, and social housing estates being controlled through PFI deals by offshore investors, social housing is slowly being captured by private financiers and held for its value as a financial asset. My research found that some LHCs were being used to transfer the ownership of the estates – usually on a long lease – to private equity funds and other private investors, and so represented a clear case of social housing financialisation. This risk, and the well documented consequences of housing financialisation, must be at the forefront of activists’ minds when they are engaging with, or challenging, the establishment of LHCs. However, generally speaking I found that councils were funding LHCs using traditional routes – borrowing from central government – and so at this stage, the financialisation of municipal homes through LHCs is only at the outside edge of LHC policy.
So what should we make of LHCs? They are a policy forged in deep austerity, and in the context of decades of deeply anti-municipal and anti-social housing policy in Westminster. Clearly representative of the ‘entrepreneurial’ trend in local governance, LHCs represent councils going it alone in a desperate attempt to become private property developers to offset the losses they have experienced over the past ten years. Despite clever narratives to the contrary, they will not boost social housing numbers in a sizeable way, and will not significantly lessen the housing crisis anywhere that they are set up. This is not to say that LHCs are in all cases a mistaken policy choice – there is a great breadth within them, and some are set up to build significant numbers of affordable homes, which while not social rented housing does help meet housing need for some underserved groups in the housing system. But they are far from the renaissance in council housing that they have been presented as. What is clear however, in the present political economic context in the UK, and the deep austerity which is likely to be the consequence of the coming recession, LHCs are likely to be a feature of council policy for some time. Understanding them and what they represent will be an important task for activists and campaigners engaged in the struggle for a fairer housing system, as we fight for more genuinely affordable social housing.
Joe Beswick is a member of the London Renters Union, former housing and land researcher at the New Economics Foundation and has just completed a PhD on the financialisation of social housing.
This piece was made possible thanks to support from the Rosa Luxemburg Stiftung.
2 January 2021