New era of council house building is needed to solve housing crisis, says committee of MPs

Gordon Rayner
Philip Hammond needs to allow councils to borrow more, say MPs - © 2018 Bloomberg Finance LP

Philip Hammond’s plans to ease the housing crisis will fail unless he allows local authorities to borrow more money to build council houses, a powerful committee of MPs has warned.

The Treasury select committee said that a national cap on how much councils can borrow to build new homes should be abolished to kick-start a housebuilding revolution.

For the last 50 years the private sector has built around 150,000 homes per year, half the Government target of 300,000.

When housebuilding was at its peak in the late 1960s around 420,000 homes were built, but almost half of those were built by councils, compared with around 4,000 council-built homes today.

The committee said that only by allowing councils to borrow more would the Government be able to come close to its target.

Council house building has almost ground to a halt since its heyday in the 1960s Credit: Getty

At present, councils have to make a business case to central government for increased borrowing, with a national limit imposed to keep a lid on overall public debt.

In the Budget in November, the Chancellor raised the national borrowing cap by £1bn to around £4.5bn, but that will have a limited impact on the number of homes that can be built.

The Conservative MP Nicky Morgan, chairman of the committee, said: “The Chancellor pledged to ‘fix the broken housing market’, but the Government is going to find it very difficult to meet this ambition. The increase in the cap on borrowing for local authorities to build homes is a step in the right direction, but it doesn’t go far enough.

“The borrowing cap restricts the number of homes that local authorities could deliver. To achieve the Government target of 300,000 new homes per year, the cap should be abolished. The potential of local authorities to build should be unleashed.”

Local Government Association Chairman Lord Porter said: "This is significant recognition of our central argument about the vital role councils must play in solving our housing shortage.

"Our national housing shortage is one of the most pressing issues we face and, as a nation, we have no chance of housing supply meeting demand unless councils can build again."