Building More Homes (Economic Affairs Committee Report)

Baroness Wheatcroft Excerpts

Thursday 2nd March 2017 Lords Chamber

[Baroness Wheatcroft (Con)]

My Lords, I am delighted to follow the right reverend Prelate. I sympathise with his compassionate comments, particularly on rural housing. As a member of the Economic Affairs Committee I would like to echo the words of others in thanking the staff for the extraordinarily good work they did and also the chairman, the noble Lord, Lord Hollick, for his skilful chairmanship.

The debate has been wide-ranging already and many of the topics that were in our report have been addressed, so I will restrict myself to just two issues. First, the government White Paper accepts that we need to build more homes, faster. Much has been said about more, but not much about faster. We need to make sure that planning permissions are developed speedily. There is far too long between permission being granted and housing being built—not that it is always built, given that about one-third of planning permissions are never fulfilled. The Government have to look at how to get planning permissions turned into real developed houses in the shortest possible time. That may mean some sort of penalty, which the committee certainly thought was worth investigating.

However, there is another aspect to building houses faster that we should be doing more about: modern methods of construction. Some of those have been going on, but not nearly enough. We need to get momentum going if that is to take off. It could make a huge difference to our housing situation. The Building Societies Association has said that MMC could be a game-changer, but that it will not happen unless the Government really get behind it. There is too much nervousness among consumers and a lack of knowledge among lenders. We need to get enough of those houses built to demonstrate that this is the way forward. The current method of housebuilding, bricks and blocks, has been unchanged for virtually 100 years, and of course it is very vulnerable to the weather. Fabricating large parts of a house in factories and then moving it to site could make huge savings. The steel construction industry reckons that 75% of the labour costs could be taken out if we got MMC working properly. As the Building Societies Association said, we need to see the Government backing this. Major projects such as Northstone, where there are plans for 10,000 houses and the Government are taking the lead, would be the perfect place for MMC techniques to work. The big housebuilders have projects under way and are investing in factories, but much more needs to be done. I would very much like to hear from the Minister his plans for putting government support behind MMC.

My second point concerns spending by local authorities and their ability to borrow to fund public sector housing. In our report we called for the cap to be loosened. Local authorities told us over and over again that they wanted to be able to borrow more. They said they thought it a nonsense that they could borrow to build swimming pools but not the housing that is so badly needed in so many parts of the country. The Minister told us in our private meeting that there is a little more flexibility in that area now, but as the noble Lord, Lord Sharkey, pointed out, it is nowhere near enough. Yet while these local authorities are being restricted in what they can borrow to build housing, they are having a high old time borrowing to buy commercial property. In recent years councils have become really big players in the market, outbidding private sector investors in many cases. They have been buying shopping centres, bingo halls, service stations, hotels, offices—you name it, councils are now the proud owners. The biggest deal so far was Spelthorne Borough Council, which spent £360 million of largely borrowed money buying BP’s office complex at Sunbury-on-Thames. It is very pleased with the deal—but just think how many houses it could have built for that much.

The explanation for this hunger for commercial property is that local authorities are trying to bridge the gap between what they have now and what they have lost in the government funding that has been taken away. By buying property at low interest rates and letting it at higher rates, they hope to pocket a sizeable margin that they can use to spend on other things—which is fine for as long as the margin persists. They are able to do so because of the low interest rates at which they borrow. We may wonder how they manage to do that. A recent article by John Plender in the Financial Times explains exactly how it works. Councils are borrowing from the Public Works Loans Board, a very low-cost lender with average loans last year of 3.2%. It has plenty of money to keep on lending, too. In March last year it had loans of £65.3 billion outstanding, but its headroom goes up to £95 billion; so councils with an appetite for funding have plenty of it to go for. The Public Works Loans Board is run by the UK Debt Management Office, which is controlled by the Treasury—the very same Treasury that will not allow our local authorities to borrow large amounts of money to build the council housing they need. There seems to be a bit of a contradiction. I can see why local authorities are doing what they think they need to do, even though they would like to borrow to build social housing; they ought to be given more options.

Is it not somewhat strange that, just last year, Portsmouth City Council bought shops in Redditch, a ferry terminal, a Mercedes showroom in Southampton and a warehouse near Gloucester? It may be that Portsmouth has lots of information and knowledge about the commercial property market; we can only hope so. That goes for all the other local authorities that have been building up these vast portfolios. I am prepared to believe that local authorities know a lot about social housing, but I am not convinced of their knowledge about Mercedes showrooms or ferry terminals. Therefore, I would like the Minister to tell me, if he can, whether he is comfortable about the investments—I hope they are investments—these local authorities are making, or whether he can see a way to make more of that money available to invest in the social housing we so badly need.