For a long time, councils have been largely absent from their local housing markets. Yes, new social housing goes up every year, but this is largely driven by housing associations as opposed to local councils.
This is in stark contrast to the 1950s when councils put up around 150,000 homes a year. At this point, around a tenth of all public spending was funnelled into this state-provided housing.
So high was the number of council homes built that the UK government thought they had taken care of housing shortages (one of the views that led to the cutting of support for new construction).
Since Thatcher’s government council house building has been in a steady decline, typified when, in 2004-05, local councils built just 130 new homes. In 1979, 42% of Britons lived in council homes, a figure that had dropped to under 8% by 2016.
Now, though, council houses seem to be making a small resurgence. Last year, councils built 4000 houses, the most since 1992.
For private investors, the question arises of how councils building homes will impact modern markets? You’d imagine that more than 4000 homes will need to be built a year to make a significant dent in the market, but is this a sign of more to come?
There is no doubt that there is a housing shortage. It is predicted that 4 million new homes need to be built in England and the government wants 300,000 new homes to be built annually. However, independent research from Heriot-Watt University places the number required at closer to 340,000.
Following the age of building council houses in the 1950s, Thatcher’s government encouraged those living in council houses to buy their property at a reduced rate. Those properties were bought and sold and now it’s been argued that 42% of ex-council home capital is owned by private landlords, often as part of a portfolio.
There’s no doubt then that the ability to buy and sell ex-council homes has impacted how property investors build their portfolio and benefit from the growing number of people who are unable to make it onto the property ladder themselves.
Ex-council homes are not the only way investors have benefited from social housing, though. Civitas Social Housing launched on the stock market in November 2016, making social housing a bonafide investment opportunity for private investors.
The Civitas fund has invested around £400m in social housing in over local authorities and investors are attracted by the longevity and security of the investment.
It’s fair to say the reputation of private landlords has not always been the best. Analysis in 2017 uncovered 29% homes rented from private landlords failed the national Decent Homes Standard, and this kind of coverage can, unfortunately, reflect poorly on the majority of high-quality landlords.
However, private landlords have not seen the potential damage of this because there are few alternatives to private renting. The lack of social housing means more than 1.15 million people are on the waiting list for social housing in England and rising prices and excluding many people from buying their own home.
However, if the number of council houses built continues to rise, we may see more and more people opt for this option, with potential benefits being reduced rent and the fact they are held to a higher legal standard.
Of course, a lot of social housing would need to be built, including more council houses, to see a significant swing back to this option, but it is not inconceivable that demand for private rentals may be damaged.
As previously mentioned, the fall out from the Thatcher government allowing council house tenants to purchase their property is that much of it ended up in the hands of private landlords.
However, as the list of people requiring social grew, councils were forced to look to the private sector. As such, many councils began to offer incentives to private landlords to house their vetted tenants.
For many landlords, changes to how benefits are paid have left tenants struggling. While previously rents were paid directly to landlords, under universal credit, tenants are now left to manage their own rent payments. For those who struggle to budget, this can result in tenants owing thousands in unpaid rent.
This is a difficult situation for all parties, and one of the reasons private landlords have been wary about council tenants, but still, more council houses will impact private landlords with council tenants.
One of the driving factors behind some policymakers calling for more council houses is combating the rapidly rising housing costs. The bill for housing benefits has, in real terms, risen six-fold in the last 40 years, and new council houses could reduce it.
However, current planning regulations limit the land available for development, meaning extra council builds could be at odds with private investment.
This conflict could lessen the overall number of homes built each year. Official estimates suggest that for every two council houses built, a private one is not.
Clearly, this limits opportunities for private investment in off-plan property and may increase competition from private landlords.
Since the 1970s, funds for council houses have steadily deteriorated to the point we’re at now. In response, private investors have been able to capture and benefit from more of the rental market.
It’s too soon to say whether we should expect a significant increase in council homes in the near future but pressure appears to be rising as more and more people require social housing.
Still, funding greater numbers of council houses would represent a change in policy we haven’t seen in decades, so will policymakers be willing to go out on a limb to make it happen? Labour has promised a rise in funding but could it come to fruition?
It’ll be a while before we can answer these questions, but economists and investors will be keeping an eye on the number of council houses built in the coming years – that’s for sure.