Guess who’s coming to the rescue?

There’s a whiff of victory in the air at town halls up and down the country: housing departments are popping champagne corks and celebrating the dawn of a new era. Gordon Brown’s new government has finally brought his local government colleagues in from the cold, and has turned to them to help “in the national drive to support more affordable housing”. Council housebuilding is back.

In what has been hailed as a historic move that could help solve the country’s burgeoning homes shortage, housing minister Yvette Cooper’s July green paper laid out plans for an initial 14 councils to deliver 35,000 homes, mostly shared-equity and cheap private-sale units, in partnership with private developers through local housing companies.

But in a separate document issued on the same day, the Housing Corporation also announced – largely unnoticed in the furore surrounding the green paper – the names of local authorities and arm’s-length management organisations (ALMOs) that it would fund to build new homes, for the first time in its history. Added together, the number of homes that will be built or procured by councils over the coming years has the potential to fundamentally change the way the market operates.

Westminster council, for one, has ambitious intentions. It wants to build at least 600 homes in the next five years across the borough, largely on infill sites on existing estates. However, it is not one of the chosen 14 setting up a local housing company (LHC), nor does it want to go into partnership with a private developer.

“We had a meeting with Cooper earlier this year and told her we wanted to be able to bid for Housing Corporation funding so we could build homes again through our ALMO,” says Steve Moore, deputy director of housing at Westminster council. “We want 70% of these homes to be for affordable rent, with the other 30% as shared equity. As it stands at the moment, we’re not sure you can deliver homes for affordable rent through an LHC.”

We have had it our way for a long time. This will undoubtedly lead to more competition

Spokesman, NHF

Westminster’s plans certainly have solid backing. Last year, its all-star housing commission, chaired by the Joseph Rowntree Foundation’s Lord Best and including former housing minister Nick Raynsford, planning expert Kate Barker and former CBI president Sir John Egan, released a report calling for higher densities on the borough’s housing estates. Westminster has now worked up bold proposals to build on sites such as old boiler rooms, laundries and disused garages. Architect Terry Farrell has personally drawn up the plans, which have also been seen by Cooper.

In July, these plans moved a step closer to reality when Westminster found out it had qualified for Housing Corporation funding through its ALMO, CityWest Homes, and has already identified specific plots for the first phases of development. Moore is pleased that councils can now finally take control: “Up until now, we have had to use registered social landlords to apply for funding to get anything done around here, and having two sets of managers is not cohesive. When something goes wrong, it’s easy to point at each other. One manager is the right way to go.”

Also on the Housing Corporation’s list is Norwich council. If its bid for funds is successful, it will be the first local authority ever to build new homes with corporation money. Its first foray into housebuilding will be relatively modest, about 150 units, says Debbie Gould, senior housing development officer at the council. Once it finds its feet, however, the council will move on to more daring schemes. “It’s all very new and we’re out on our own here a bit,” Gould admits. “We’re just learning how to use the bidding software and are advertising for a project manager, which will be followed by quantity surveyors and architects. We’re completely excited by this.”

Norwich is in the process of setting up a wholly-owned special purpose vehicle (SPV) and does not plan to work with private developers. “We have lost a lot of stock along the way to right-to-buy so this is a fantastic opportunity to build and manage all our own stock,” Gould says.

This new regime will have ramifications for others in the housebuilding game – especially developers wanting to buy smaller plots of land from councils, which may now decide to hold on to the sites to develop themselves. There is already anecdotal evidence that two major housing associations have lost out on plots to councils, and a senior source at a large RSL admits it is realistic to expect a drying up of land supply.

We’re just learning how to use the bidding software… We’re completely excited by this

Debbie Gould, Norwich council

Well aware of the sensitivities of the new situation, Norwich council immediately gathered all the housing associations working in its area together and explained the change in the status quo. “It’s going to be interesting to see how the dynamic changes,” Gould muses.

“I imagine we will still rely on their expertise and continue to work with them.”

Housing associations will also now have to compete on yet another front for corporation funding – after only just coming to terms with private sector developers on their turf. Despite this, Tom Dacey, group chief executive of Southern Housing Group, is not concerned. Like Moore, he welcomes the move as a step towards improving relations between local authorities and associations. “A lot of tension between local authorities and housing associations originates because they can’t develop as we can. This should improve the relationship.”

He adds that, at first, housing associations will be needed to plug the skills gaps. “I think the impact will be felt further down the line, as local authorities don’t yet have the development skills to build new housing,” he says. “There’s a good chance they will use housing associations as development agents at first.”

The National Housing Federation is also trying to remain positive. A spokesman says: “We have had it our way for a long time. This will undoubtedly lead to more competition, but housing associations will still be delivering the bulk of affordable homes.”

The government won’t let councils go back to the old-style procurement methods. It wants best value

Sue Bridge, Bellway

Westminster and Norwich are spearheading the new regime of council housebuilding, but many other local authorities are hot on their heels. Islington council in north London has become so impatient to start building that it is going ahead without waiting for a corporation grant. During the summer it sold off a portfolio of commercial property and announced earlier this month it has ring-fenced £10m of the profits to build the authority’s first new council homes in over 20 years. Leader of the Liberal Democrat-led council, James Kempton, says: “We have decided to stop fussing about the draconian restrictions that successive governments put in place to stop councils from building new houses. We have earmarked millions of pounds for brand new council houses.”

And Croydon council too is extremely keen to start building on a larger scale again. Mike Davis, director of housing at Croydon, says he has plans to considerably increase the number of homes the local authority builds, but is still deciding the best model to do this. Croydon, like Norwich, has retained its own housing stock but is not so keen to set up a SPV, claiming it is too bureaucratic.

Its solution is that the government should invest directly in councils again and allow councils to effectively operate as housing associations do. “I want to compete on the same levels as RSLs,” says Davis. “Initially, we would look to put the land in and team up with a private developer, but in the longer term, we want to attract capital investment and we might buy land, like RSLs do.” He insists that civil servants are listening carefully to this argument, at least for high-performing councils.

Sue Bridge, planning and development director at Bellway, believes the government will encourage councils to always include private sector involvement once they start building again. “The government will not entertain the idea of councils going back to the old-style procurement methods. It will want innovative procurement procedures and best value. The private sector is often the best-value option.”

Dacey is also adamant that the sometimes disastrous council housebuilding experiences of the past will not be repeated. “It’s a bit simplistic to point the finger at councils – everyone had a part to play and everyone has learned from their mistakes,” he says.

Cooper’s rallying cry for councils to come on board to build more affordable homes has been taken very seriously by local authorities. They may not be able to end the housing crisis, but they are determined to give it a damn good try.