Why did local authorities in England and Wales stop building homes?

Question

From the 1970s–1980s, UK government local authorities stopped building homes:

(Source: BBC News)

Or, with raw figures from the Ministry of Housing, Communities & Local Government spreadsheet, extracting figures for England and Scotland for completed council homes in selected years:

      England    Scotland

1970  130,180     34,660
1975  116,330     23,190
1980   74,840      7,490
1985   23,310      2,830
1990   12,960      1,630
1995      760        720
2000      180        110
2005      300          0
2010    1,140        610
2015    1,900      1,140

Source: Ministry of Housing, Communities & Local Government

This has resulted in the housing crisis (for example, see Financial Times, Shelter, The Independent, The Telegraph).

Why did UK local authorities stop building homes since the 1980s?

Although houses were built by local councils, funding came from the central government so the political decision to no longer do so was taken in Westminster. So the direct answer would be because they cannot afford to, but what motivated the political decisions stripping councils of money to build homes?

Although there's been some recovery in the past 15 years, building 2,000 council homes per year is far below demand. Scotland does a little better, it has 1/10th of the population that England does — per capita, Scotland has usually built more council homes, and are now building around a factor 5 more. Scotland does not have the right to buy, and has had more progressive governments than the UK (which decides for England), so either the right to buy and/or the more progressive governments may be part of the answer to the lack of council house building in England. I'm not sure how the right to buy would lead to lack of council house building; one might equally reason that the privatisation of council houses through the right to buy should necessitate a steady construction of new council homes.

Background reading: Tom de Castella, Why can't the UK build 240,000 houses per year?, in: BBC Magazine, 13 January 2015.

Answer 1

Much of the social housing stock has been sold off under Right to Buy and it will not be built at replacement rate without the removal of significant barriers to new builds. [1]

Successive governments since 1979 have created a set of circumstances that make it economically infeasible to build social housing stock. Governments have tried to compel the building of replacement stock without significantly reversing those economic circumstances.

These include:

• secure tenants' Right to Buy local authority housing stock (and former local authority stock owned by housing associations) at large discounts [2], introduced in 1980 in England, Wales and Scotland

• LAs have been obliged to set-aside large proportions of capital receipts from RTB to pay off debts before spending on replacement builds, not allowed to use RTB receipts to fund more than 30% of the cost of a replacement home, not allowed to use RTB receipts in conjunction with subsidies such as government grant or public land, have had to commit receipts within a tight three year turnaround or lose them to the Treasury

• reductions in central government grants to local authorities for the purpose of building new stock [3]

• rules changes that effectively put central government in charge of local housing budgets [4]

• reductions in rents LAs are allowed to charge

• compulsory sales of land owned by local authorities [5]

• central government limits on the freedom of LAs to borrow

Now housing associations and other social housing landlords (e.g. the NHS and the military) will likely face similar problems with building new properties since the Right to Buy was extended to them.

Scotland abolished the Right to Buy in 2014 and it will end in Wales in January 2019, so we'll have a 'natural experiment' to see whether social housing stock will recover in those countries.

As to why, the Thatcher government (and successive Conservative governments) purported to want to restructure the relationship between the individual and the state. They said the state owned too much, people had a right to own their homes, the pride of ownership would reduce urban deterioration and ownership would increase labour mobility. But there were Conservatives who believed that making more people owner-occupiers would destroy British 'socialism'. One even proposed giving away social housing to the secure tenants.

Right to Buy is the most expensive privatisation in UK history, it is the largest transfer of wealth from the public to the private sector - more than 2m properties sold at an average net loss.

[1] " it is certain that reform of the RTB scheme would significantly help the council sector address the current shortfall of homes, both overall and in most individual local authority areas. Taking everything into account only one in five (21%) of the authorities who participated in our research said that they currently expect to be able to replace at least the majority of the homes they have sold. By contrast almost three quarters (73%) said that they only expect to replace half or fewer, including one in 10 (12%) who said that they will not be able to replace any at all. http://www.cih.org/resources/PDF/Policy%20free%20download%20pdfs/Keeping%20pace%20-%20replacing%20right%20to%20buy%20sales.pdf

and https://www.local.gov.uk/about/news/right-buy-replacement-will-be-all-eliminated-just-five-years-warns-lga

[2] At the time of writing, if you live in a house you get a 35% discount if you’ve been a public sector tenant for between 3 and 5 years, after 5 years the discount goes up by 1% for every extra year you’ve been a public sector tenant up to a maximum of 70%. In a flat you get a 50% discount if you’ve been a public sector tenant for between 3 and 5 years, after 5 years the discount goes up by 2% for every extra year you’ve been a public sector tenant up to a maximum of 70%. The maximum discount is £80,900 in England, except in London where it’s £108,000. https://www.gov.uk/right-to-buy-buying-your-council-home/discounts

[3] page 11 https://www.ifs.org.uk/uploads/publications/bns/BN178.pdf

[4] "By explicitly ring-fencing housing revenue accounts and controlling these net additional subsidies, central government was effectively able to impose external budget constraints on local authorities. In economic terms, therefore, local council housing budgets have effectively been set exogenously by central government and unaffected (at least directly) by revenues arising from council house sales." https://www.ifs.org.uk/uploads/publications/bns/BN162.pdf

[5] https://www.nao.org.uk/wp-content/uploads/2016/07/Disposal-of-public-land-for-new-homes.pdf

Answer 2

It didn't stop, it was just a phase, a low point.

"Between the late 1940s and late 1950s councils built more homes than the private sector. Right up to the late 1970s local authorities were building 100,000 homes a year. But with the election of Margaret Thatcher in 1979 housebuilding by local authorities fell.

• Council tenants given the right to buy their homes by the Housing Act 1980, introduced in the early days of Margaret Thatcher's Conservative government" http://www.bbc.com/news/magazine-30776306

"In 2012, the government reformed the HRA subsidy system so councils keep all the rents they collect from their homes, and receipts from sales of houses or land, giving them the freedom to invest them in building new homes." https://www.gov.uk/government/news/councils-help-get-britain-building

Building homes in UK just resurged:

An example (page no 4, the third column from right): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/572013/House_Building_Release_September_Qtr_2016.pdf