Theresa May’s recent conference speech shows how housing continues to rise up the political agenda: the Prime Minister said that, “solving the housing crisis is the biggest domestic policy challenge of our generation”. For a number of Conservatives, who look anxiously at their approval rates amongst younger voters, having a meaningful housing policy offer is looking like a necessity if the party is to retain power.

Coming at the end of a conference dominated by Brexit and party management, and which saw little by the way of policy announcements, the contents of Theresa May’s speech on Wednesday afternoon came as a surprise to many. Not least to those in the world of housing policy who have welcomed the news that councils are to be free to borrow in order to build housing once more, with a mixture of both glee and disbelief.

So, what does it mean that councils will now be able to build? Due to central government policy, local councils are prevented from borrowing prudently against their Housing Revenue Account (HRA) to build genuinely affordable housing. This was always an ideologically driven, dysfunctional policy which was strongly contested by local authorities who wanted to do their bit to address the drastic shortfall of affordable housing.

IPPR and many others have argued for a long time that the borrowing cap imposed on local authorities should be lifted, so Theresa May’s announcement should therefore be warmly welcomed. It is certainly a major shift in the government’s approach to housing policy. However, it is worth noting the limits of the policy.

It will take time for councils who have not developed new housing for some years to build up their capacity, meaning it may take time before the impacts of this change can start to be felt. Once up and running though, councils will be able to deliver around 15,000 homes a year according to propery consultancy Savills; the government estimates a more conservative 10,000 a year. 

But while this will be a key source of affordable housing, alone it will not meet the current shortfall. As such, councils must be seen as a part of the solution to and should not be unfairly expected to solve the affordable housing crisis alone.

At the same time, it will be essential that local authorities are putting their balance sheet to best use, ensuring that the homes that they are building are genuinely affordable. In the last few years, affordable rented homes, where rents are set at 80 per cent of market rates, have dominated supply. IPPR research has shown that, across the country, these so-called affordable rents are simply too expensive for many households on low incomes. Therefore, councils need to build homes at social rent.

Finally, existing policy may also undermine the ability of councils to develop new housing. Significant cuts to council budgets may limit the ability of local authorities to build up the staff needed to deliver new housing projects. Meanwhile, the continued existence of the Right to Buy may prove a significant barrier to council-built projects. As Peter Apps, the news editor of Inside Housing, notes, with up to 13,000 Right to Buy sales a year, even with new delivery the shortfall of new council homes could be up to 3,000 a year.

Overall though, the freeing of councils to borrow is a wider signal that the government has shifted from its ideological aversion to social housing and state provision. Those who argue that only radical solutions are sufficient to challenge the scale of the housing crisis are leading the debate. This opens up the opportunity for more ambitious reform to the housing system.

However, housing policy remains still too siloed, failing to take stock of the systemic issues which cause the housing crisis. For example, a lack of action on our dysfunctional land market could present a further challenge to the ambitions of local authorities.

On average in 2016, the price of land had risen to more than 70 per cent of the price paid for a house, and new IPPR projections suggest that, on current trends, this will rise to 83 per cent over the next 20 years. The high cost of land will be a key barrier to local authority building projects.

Government should complement the ability for councils to borrow with reform to new powers over the land market to truly get them building. In a recent report IPPR argued that planning authorities should be able to zone land for development and freeze its price. Councils would then either buy the land at the price, with reasonable compensation for the landowner, and sell it on to developers at the higher price; or would enter into a partnership with the landowner to share the proceeds of the sale.

Allowing local authorities to build is a great step forward and the shift in thinking it signals is important. However, more work is still to be done to fully get to grips with the issues facing the housing market and to deliver the level of new affordable housing that we need.

Darren Baxter is a Research Fellow at IPPR. He tweets @DarrenBaxter.