borrowing cap
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Speaking at the Conservative Party Conference, Prime Minister Theresa May announced that the government will lift the borrowing cap on councils to allow them to build more homes.

The Federation of Master Builders (FMB) said this is a victory for bold thinking and common sense and will allow councils to build many more new homes.  But the Institute of Economic Affairs (IEA) said this is not the way to address the housing shortage and is “financially irresponsible and costly”.

Brian Berry, chief executive of the FMB, commented: “This is the most exciting, and potentially transformative, announcement on council housing for many years.

“It is something the house building sector and local authorities have been crying out for since the last economic downturn as a means by which to increase house building. Indeed, the only times the UK has built sufficient numbers of homes overall is when we’ve had a thriving council house building programme.

“Local authorities have a strong interest in delivering new affordable homes and many would have the appetite to directly fund this, but have been frustrated from doing so by an artificial cap on their ability to borrow against their assets to build homes.”

Shortage of inexpensive housing

Mark Littlewood from the IEA  is pleased the Prime Minister acknowledges the root cause of the housing crisis is the extreme under-supply of homes, however, he believes the proposal to lift the borrowing cap for local councils “will not do the job of getting renters onto the housing ladder.”

He said: “The UK already has one of the highest proportions of social housing in Europe – more so than France, Germany and Spain.

“There is no specific shortage of social housing, or private rented accommodation, or homes for first-time buyers, or housing of any other type, but an overall shortage of inexpensive housing across all tenures.

“The private sector could deliver the number of homes needed if it were given the opportunity to do so, through planning liberalisation and incentives to build.

“Permitting councils to borrow to do a similar job is likely to lead to less efficient outcomes, and is certain to lead to a higher debt burden, which taxpayers will have to pay for down the road.”

Could be good for SME builders

The FMB also thinks lifting the cap on local authority borrowing could expand the capacity of the private sector by providing more opportunities for SME builders.

Berry said: “The private sector will continue to take the lead in delivering new homes, and to ensure it can do so, we need to continue to lay the foundations for a diverse private sector in which new firms can more easily enter the market and small firms can more easily prosper and grow.”

Where are the construction workers?

However, a spanner in the works could be immigration rules post-Brexit. New homes of any sort will not get built if the industry doesn’t have the people to build them.

Berry concluded: “Recent announcements on post-Brexit immigration rules, if implemented as currently understood, will be a serious threat to our ability to deliver on the promise of this policy.

“The failure of the government so far to listen to the construction industry could unfortunately threaten the delivery of the government’s increasingly bold moves to solve the housing crisis.”

Source: Mortgage Finance Gazette

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