How London's social housing acquisitions can tackle homelessness and help councils avoid bankruptcy
Britain is in the midst of a long-running but sharply deepening housing crisis. Nowhere in the UK is the crisis more severe than in London. London councils are facing a record number of homeless families they must provide homes for as a result of the cost-of-living squeeze and already sky-high rents rising sharply. This is pushing many local authorities to the brink of bankruptcy as they are forced to shoulder the high costs of temporary accommodation (TA), which is often of very poor quality, due to a chronic undersupply of social housing.
Compounding the problem, macroeconomic headwinds – high construction costs, high interest rates, limited grant funding, poor and unaffordable land supply, planning backlogs and a lack of local government development capacity – mean building Londoners’ real estate The affordable housing needed is becoming increasingly challenging. Building a new generation of new social housing is the main long-term solution to the housing crisis. But these adverse circumstances present a significant opportunity for councils to act now, especially with house prices stagnating in the capital and some landlords looking to sell their rental properties. Councils purchase houses to rent out as general needs social housing (for people on the council waiting list) or to help them cope with the immediate homelessness crisis.
When councils buy homes from the private market they can make a real difference in tackling homelessness in their communities. Homes can be purchased relatively quickly and closer to the type and size of homes residents desire. This approach can also improve the environmental efficiency of our housing stock by improving the quality and energy efficiency of the homes purchased. The acquisition achieves this while circumventing many of the challenges associated with building new affordable housing, including the difficulties councils often encounter in land acquisition and developer negotiations. In order to provide value for money and avoid overheating of the local property market, acquisitions must be conducted carefully, particularly in high-demand, high-cost areas. But they do play a vital (albeit complementary) role in increasing the supply of new social housing and are an important part of the package of solutions to the housing crisis.
The Greater London Authority's (GLA) Right to Buy Back (RTBB) scheme started in 2021 and ended last year, with the council buying around 1,300 homes. The GLA has since announced its new Council Home Acquisition Program (CHAP), which sets out ambitions for councils to buy 10,000 homes over the next decade. These schemes draw on GLA's allocations under the Affordable Housing Program (AHP) to provide grant funding to London councils to purchase homes and alleviate growing homelessness.
The homelessness crisis is also a financial crisis for London councils, with high costs for taxpayers. Our research shows that takeovers can save local authorities and central government significant amounts of money. If the London council bought 10,000 homes over the next 10 years, this would reduce its TA costs by £1.5 billion, cut government housing benefit subsidies by £340 million, and generate an additional £440 million in indirect savings over the next 20 years. After 16 years, the annual government-wide savings through CHAP will exceed the annual costs, meaning it begins to generate annual savings from this point on. By year 25, the program will pay for itself, saving enough money to cover its cumulative costs. All these savings will generate dividends to be reinvested more effectively into the London economy, while immediate steps are taken to help tackle London’s homelessness crisis.
Based on this analysis, this report makes a series of recommendations. To enable councils across the country, including London, to benefit from social housing acquisitions, the government should take the following actions:
- Make an early commitment to implement the new AHP beyond 2026, which includes a long-term funding solution for GLAs and housing providers.
- Introducing a National Housing Conversion Fund, with significant grant funding support, to enable councils across the country to undertake more acquisitions.
- Relaxing the 10% cap on the number of homes delivered by acquisition under the AHP grant administered by Homes England to match the higher 30% cap administered by the GLA, and the acquisition cap on Right to Buy receipts so that councils in London and across the country can maximize land acquisition, while continuing to prioritize funding for new housing.
- Allowing councils to combine right-to-buy income with other forms of grant funding, such as CHAP funding, gives councils the flexibility they need to replace homes they have sold.
- Increase the TA housing benefit subsidy to current Local Housing Allowance (LHA) rates and then develop a sustainable TA funding solution for future councils.
- Provide additional grant funding to the GLA to achieve environmental improvements as part of a future acquisition program so that the GLA can consider improving the standards of homes acquired by the EPC Number'C'.
- Introducing community buying rights – Council’s right of first refusal – giving them a competitive advantage when buying a new home.
- Providing capital funding to wider community-led housing groups to purchase homes.
To maximize the benefits of future iterations of CHAP, GLA should:
- Requires all acquisitions to be made within the borough. If the purchase is outside the borough: (a) it must be in a neighboring borough; (b) the local authority must demonstrate that the purchase is not financially feasible within the borough or that there are specific, permitted reasons why the purchase should be made outside the borough.
- Consider requiring local authorities to collect and provide data on the accessibility of purchased homes.
- Obtain the views of councils that have not so far participated in its takeover plans to understand the reasons for this and encourage their participation in the future.
Work with the London Center for Community-Led Housing and the wider housing co-op sector to consider how housing co-op takeovers can be scaled up, including looking at ways to improve their financial viability.
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