Five million people are on waiting lists for affordable rented housing. And while the Government has recognised the need for more social housing, radical change is needed to deliver those homes, says Richard Capie, director of policy at the Chartered Institute of Housing.

Councils are part of the solution, he says, adding that they are “not a panacea” but are “being able to build affordable housing again”.

Just 520 homes were built byEnglish councils in 2008-09, says the Department for Communities and Local Government. Changing the rules that make it difficult for councils to build houses could lead to hundreds of thousands of new homes being delivered in the next decade.

Social housing falls into two groups: two million homes are owned by councils, half of which are run by Arms Length Management Organisations, and two million are owned and managed by housing associations.

But changes to the council house funding system are needed. Under the Housing Revenue Account system right-to-buy receipts are sent back to Whitehall and redistributed once the Treasury has taken a cut.

“If we can reform the Housing Revenue Account, there is the potential to allow councils to use their rental income streams and capital receipts, to build — and also to be able to potentially borrow as well,” Capie says.

Local Housing Companies (LHCs) are a new form of partnership between landowning councils and private developers. To date 16 councils have expressed an interest and four are close to setting one up.

Barking and Dagenham council will be the first in the UK to set up an LHC. It will be jointly owned by the council, which invests its land, and a private equity partner, First Base, which puts in matching cash, with the returns shared equally.

Long term the council wants to build 6,250 homes on council-owned land, potentially rising to 8,000. It was an attractive option, says Ken Jones, programme director for the council’s LHC. “Over a long period the return to the public sector is a greater sum than if we just flogged the land now to a developer.”

Croydon council has set up its own company, Croydon Homes, which can access funding from the Homes and Communities Agency and borrow from the private sector.

“We have interviewed two banks and they showed immediate interest,” says Dudley Mead, deputy leader of Croydon council and cabinet member for housing. “In today’s climate, to indirectly be lending to a London borough is very attractive to a bank.”

Croydon has bought some land but is primarily recycling its own brownfield land. “We take a scruffy piece of land, we grant planning permission and we build a house on it which costs typically £150,000 to £160,000,” Mead adds. “We end up with an asset that is worth £250,000. Then the rents pay the loan back.”

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