Housebuilding slump could be tackled by council investment

The national housebuilding slump could be halted by a council-backed programme to build tens of thousands of new homes.

Local authority leaders are urging the Chancellor to give the construction industry a shot in the arm in next month's Spending Round by removing unnecessary restrictions on council investment in new housing.

It comes as official Government figures released today show that the numbers of new homes completed in the first quarter of this year continues its downward trend.

With 400,000 new homes already given planning permission and waiting to be built, the key obstacles to building is a lack of financial security for builders.

Thousands of 'shovel-ready' sites could be kick-started into action if a Government-imposed block on council investment in housing was lifted.

The Local Government Association, which speaks on behalf of more than 370 councils in England and Wales, is calling for a commitment in next month's Spending Round to remove the unnecessary housing borrowing cap.

Research shows that councils could build up to 60,000 new homes over the next five years if they were allowed to invest in housing under normal borrowing guidelines.

This would deliver a 0.6 per cent boost to gross domestic product (GDP), create new jobs and reduce the benefit bill by increasing the provision of much-needed new social housing.

Councils have not been able to invest in new housing on such a scale since the early 1990s.

The government has set every council a cap on the total amount it can borrow to invest in new housing. The level of the cap bears no relation to the number of new homes needed in each of these areas. 

It means that some authorities are barely able to invest in the building of any new homes at all while others are only able to build far fewer than they would like to.

Research by a coalition of housing organisations including the LGA last year found that removing the cap would help create up to 60,000 new homes over five years, delivering a 0.6 per cent boost to GDP.

Market analysis has shown that the investment would be very low-risk and paid many times over by future rents on new homes.

Under the current rules, councils would be able to borrow no more than £2.8 billion to invest in housing – enough to build 15,000 homes. Without the cap, councils could borrow up to £7 billion to invest in housing over five years, under existing prudential borrowing rules.