Opinion: Why don't we just build more council houses?

Local authority council housing is in an ever-worsening financial storm. 

The subject rarely, if ever, hits the headlines. Funding for council homes is a complex subject, which perhaps does not make easy reading. 

But the situation should not be ignored, because its impact is huge – and there are extremely worrying consequences unless action is taken on a national level. 

Richard Winch (Image: BMDC)
People often talk about a ‘housing crisis’, but what does this actually mean? 

This is shorthand for a complex range of issues covering homelessness, poor conditions, increasingly unaffordable rents, the growth in house prices versus average incomes, demographic pressures and a shortage of social housing.  

The solutions to these problems are not straightforward but most commentators agree that we urgently need to build more affordable housing and in particular more council housing.  

So why don’t we just do this?  

In Mid Suffolk, we are doing our best to encourage more affordable housing. Our planning policies require that 35% of all larger developments on green field sites should be for affordable housing.  

There were more than 200 affordable homes built in Mid Suffolk in 2023/24 and we are expecting a similar number in 2024/25. If this level of building was repeated throughout the UK, we would be near a target of 150,000 affordable homes a year.  

In terms of our council housing, Mid Suffolk increased its housing stock by 70 homes in 2023/24.  

However, even though there might be a political will in Mid Suffolk to build more, the economics of council housing make this almost impossible.   

The start of this crisis goes back to 2012 when many councils took on significant government debt in order to own their housing stock - and in return the government agreed that local authorities could keep all their rental income.  

So, in theory, it was like taking on a mortgage and in the long run paying it off and owning your own home.  

Unfortunately, the government reneged on the implied agreement that rents would be used to pay off the loans. They started to require councils to fix or reduce their rents and this happened over a period of many years.  

This is like taking on a mortgage and then being told you can’t increase your salary even while all other costs are increasing. 

This was good news for council tenants, but was effectively central government funding rent controls by putting local councils in an unsustainable financial position.  

Mid Suffolk, for example, now has a debt of about £120m and is using roughly 25% of its council house rental income to service this debt.  

Another major issue is the complex set of rules and regulations that have been developed to ensure that council housing is not cross-subsidised.  

So, the rental income from council houses has to pay for repairs and maintenance, the implementation of all regulations relating to health and safety, the decarbonisation of housing stock, the negative impact of the right to buy scheme, the servicing of the huge debt discussed above and the building of all new council houses. 

Imagine telling residents in a private housing estate that they had to invest in a new housing estate in another part of the district – and, by the way, they probably wouldn’t get any return on their investment for at least a decade.   

In Mid Suffolk, we are in the fortunate position of having substantial financial reserves in our General Fund, but even here government rules prevent these being used to sort out our council housing, which can only be funded from our ring-fenced Housing Revenue Account (HRA). 

The current situation for many councils is bleak.  

Mid Suffolk has just had to use £3.7million from reserves to balance its housing budget for 2023/24. Without action to tackle the financial issues, our HRA could fall below the minimum working balance of £1m in two years. 

Our good progress in the last 12 months, including clearing a repairs backlog which had built up over several years, risks being derailed. 

We are not alone. Less than two weeks ago, a group of 30 councils from across the country wrote to the government to highlight the issue.   

There are rightly huge pressures to improve the council housing stock, to insulate homes and to build high quality new ones. But councils like Mid Suffolk are servicing a massive debt that effectively can never be paid back.  

With a new government now in place, we are hopeful of a new approach and new thinking.  

The government has stated that it wants to get Britain building again and deliver many more homes in the years ahead.  

If the complex issue of council homes financing can be unpicked, it could unleash a new wave of council homes being built, helping many families out of temporary accommodation and into secure, long-term affordable homes. 

We encourage all Suffolk’s new MPs to press the government on this critical issue.