Government's new housing fund has fatal flaw that could stop homes being built

Conservative MP James Brokenshire used his first speech as housing secretary to confirm £163m of funding for community-led housing initiatives, available through a dedicated fund. This is a welcome boost to a growing number of community-led housing organisations, which work to establish affordable housing projects, owned and run by community organisations, as opposed to private landlords, local authorities and housing associations.

Against the backdrop of the UK’s severe housing shortage, the government’s plan offers a welcome injection of funds to a previously under-resourced sector. Community land trusts, for example, have provided nearly 1,000 homes for urban and rural communities to date, with limited access to public funds. But there’s an apparent oversight in the strategy, which could undermine the fund before it even begins to take effect.

While announcing the new community housing fund, the government also pledged that any new funding scheme will prohibit spending on the “unjustified use” of leaseholds on new houses, building on recent reforms that seek to curb the use of leaseholds and minimise overcharging by freeholders. Leaseholders typically own a property but not the land on which it is built, which is owned by the freeholder who charges ground rents and management costs. Recent scandals have revealed significant and unreasonable charges imposed on leaseholders, which is why the government wishes to restrict the use of leaseholds.

Many community-led housing groups sell affordable homes on a leasehold basis, so that they can maintain strong and meaningful ties with the residents. This means they can respond to local needs and ensure that housing remains affordable for locals, by protecting it from rent hikes and property speculation. Retaining the freehold means community organisations can set restrictions on rent and resale prices, in order to ensure that housing remains affordable.

So, preventing spending on leasehold-based initiatives could undermine community-led housing groups, not to mention the effectiveness of the new community housing fund.

Community land trusts, co-housing groups, housing co-operatives and community-based registered providers are usually started and managed by local community members. They typically provide affordable housing by means of specific ownership and tenancy arrangements. Developing and protecting affordable housing from private sale or speculation is often the main reason these groups form.

In many cases, homes are delivered in places that commercial speculative house builders or large housing associations are either unable or unwilling to develop. The community-led approach is proven to galvanise local support for housing, overcoming potential objections to new development by giving locals power over the process through democratic governance structures and community-led planning processes.

But in England the community-led housing sector remains very small compared to many countries in Europe and the US, delivering an estimated 400 units per year. In the US, there are around 37,000 units by community land trusts alone. The ring-fenced community housing fund represents the first substantial investment in the sector for many years. It should speed up the delivery of community-led housing in urban and rural areas, help the sector to grow and ensure that communities are able to access support and finance to develop affordable housing schemes that meet their local needs and preferences.

But the proposed ban on leasehold housing development – as well as the government’s ongoing efforts to make it easier for existing leaseholders to buy out their freeholds – could undermine these good intentions. That said, reform is needed to tackle bad practice in the private sector, including escalating ground rents and unreasonable management charges. But a blanket ban on leasehold development – which does not exempt community housing organisations, in spite of long running campaigns – will have a negative impact on current and future community-led housing schemes.

Previous studies have shown that community-led groups often form and develop their organisations with the primary aim of providing affordable housing, so ground rents or management charges are usually set in fair ways, designed to ensure their housing remains affordable. Taking away the means to influence the cost and use of community-owned property could stymie such organisations before they get going.

The National Community Land Trust Network has called for community-led housing groups to be exempt from the ban on leasehold homes – but so far their requests have gone unanswered. The dedicated community housing fund provides significant funding, which could help the community-led housing sector grow. But the government must ensure that the law allows these groups to deliver genuinely affordable homes.

Tom Moore is a lecturer in the department of geography and planning at the University of Liverpool. This article first appeared on The Conversation (theconversation.com)