The Government’s target of 350,000 new homes per year in England is laudable but history shows us will only ever be achieved by a massive increase in public sector direct housebuilding. This is totally possible provided three things happen:
- government aggregate public sector land into development companies to give them scale;
- development companies apply a standardised approach to construction rather than bespoke each time, to benefit from efficiencies; and
- we deliver a mix of housing types and tenures aimed at returning long term savings against other government budgets to unlock funding.
A step change is required
It should not be the role of private sector housebuilders to solve the housing affordability crisis in England; policy makers need to stop expecting them to do so. The last time England built 350,000 homes a year, Local Government was responsible for building 41% of them.
The reasons for the decline in direct public sector housebuilding are well documented but, ultimately, to achieve a step change in housing supply we must complement existing volume housebuilder delivery with a strong public sector housebuilding capability.
Building on success
Newsflash, this is not a distant aspiration. The public sector is successfully delivering homes already. While some council-owned development companies failed, others have become established, with companies such as Populo Living and BeFirst continuing to deliver homes and offer scale-up potential for a new Prime Minister committed to localism and a renewed focus on a Total Place approach to public investment.
A Total Place approach to housing means investing capital now to save revenue costs later. The aim is straightforward: retain the land in public control, effectively manage development risk and capture the value created as long-term public benefit.
The inclusion of a greater mix of types and tenures of housing improves market responsiveness, with opportunities to deliver housing to match local need. This view is shared by a growing number of policymakers and commentators, as Andy Haldane recently argued in The Financial Times, these approaches can help address the twin constraints of financing and resourcing that continue to limit public-sector delivery.
However, the challenge is not simply to build more council homes, it is to see councils building more homes. This means restoring councils as active participants in the housing market across a range of products and price points that support low- and middle-income households along with first time buyers and affordable later-living. All of which has the potential, if aligned to other policy changes, to free up existing affordable family homes. This mixed approach means blending new build with retrofit as well as the extension of existing housing stock. We must pull every lever possible to address the housing challenges we face as a country.
Delivering now
Populo Living provides one example of how a council-owned housing company can support direct public sector delivery. Its group structure includes a Build-to-Rent investment company and a Registered Provider of Affordable Homes with combined assets under management of approximately £300 million, but it may be the Group development company that is most valuable as it offers Newham Council the ability to directly deliver its 8,000-home pipeline.
At first glance this may appear unremarkable, however Populo has based its approach on being ‘Commercial for a Social Purpose’. From the outset assembling an industry board of sector experts with collective experience of building tens of thousands of homes to help shape its design, development and construction processes. This is a differentiator from many in the public sector, where delivery is often characterised by ambitions that are not always aligned with commercial realities.
It is right to question whether the public sector can efficiently build homes again. Across the whole development industry, we are all grappling with cost inflation and viability pressures, but this is exacerbated by a public sector that is fragmented both geographically and politically and often seeks bespoke solutions each time. Greater alignment around products and processes would allow the public sector to benefit from the efficiencies of scale seen in the commercial sector.
Some of Populo’s projects:
To the left, Populo Living delivered a new centre with Plaistow Hub, including 182 homes for private rent over two buildings, including a 23-storey tower block, a new square and commercial buildings. Populo manages all of the homes and commercial units. Credit: Robert Greshoff
To the right, Populo Living delivered and manages the Grange, 77 homes at London Affordable Rent split over two buildings. Credit: Simon Kennedy/Populo Living
Populo is now well established with tried-and-tested processes. Our in-house planning, design, development and construction teams enable us to control the risks associated with development as well as the best residential developers. We focus on value creation aligned to good quality and efficient design driven by standardisation and KPIs. This is our approach – it benefits both the council and our residents – and ensures we are commercially competitive.
Enabling public sector delivery
Unfortunately, a combination of higher interest rates, rising social care costs and other budget pressures have materially reduced councils’ financial capacity to undertake direct development. The confidence in the sector has drained away and seen many reverting to development models that rely more heavily on the private sector to avoid risk. At a time when the private sector is struggling to make schemes viable this approach may not deliver the homes as expected.
So how should we think about the prospect of the state building homes again?
My answer is that we already are, but just not at the scale required and that’s what needs to be addressed.
Those council-owned housing companies that have demonstrated resilience and longevity over the past decade are replicable models that can be scaled and copied across the country to bring immediate capacity to the sector.
However, these companies also need pipelines of a scale sufficient to drive efficiencies so public land should be aggregated in regional areas of at least 10,000 homes.
Finally, along with capability and pipeline the government needs to step up with patient ‘risk capital’ aligned to long-term outcomes that reduce other public sector spending over similar time scales.
Given the timescales associated with new housing development, such an approach would benefit from cross-party consensus to avoid a future government unpicking it but hopefully all parties now appreciate there is a need. Once the public sector can build homes at scale again, future political policy decisions then become around the product to be delivered, not the route to delivery.
I believe this is achievable. Once capital, policy and delivery incentives are aligned, the practical challenge of building homes becomes significantly more manageable provided the sector remains commercial, but for a social purpose.
Michael Holland is Deputy CEO of Populo Living, the London Borough of Newham’s wholly owned housing company.
Main image: The Carpenters Estate is one of London’s largest estate regenerations, including 2,300 new homes with 50% at social rent in a masterplan led by Populo for Newham Council. Populo is also providing delivery management services for four of the initial phases. Credit: Proctor and Matthews; Metropolitan Workshop
