Kirby’s cunning plan

Paul Kirby, former head of the No 10 policy unit claims to have come up with a simple idea to solve the housing crisis

In essence he says we should start building social housing with a grant of £50,000 per unit. HMT would recoup this outlaw by insisting that any social housing that becomes vacant is sold on the open market. Kirby estimates that each unit will go for £120,000 per unit.

It sounds like a win-win with more housing being built and more money for the government to build garden cities and other goodies.

From another way of looking at it, this is a deficit financed growth strategy.

Kirby is probably right to say that you can build a new social housing unit for £50,000 per unit. The reason that this is possible is because the housing association or council that build the unit borrow the rest of the money, on the basis that they will pay back the loan from rents.

Council housing debt is certainly a form of government debt. Housing association debt is probably a form of government debt, since, ultimately, the government would stand behind housing associations if they were threatened with insolvency.

(It is also worth noting that much of the money for the rents will be paid for through housing benefit.)

This is the first way that Kirby’s plan is financed through deficit spending. The second way is contained in the idea that you would ‘build the new houses quicker than the old ones are sold off’. Kirby explicitly says that this means a Treasury ‘guarantee’ of £240 billion. ‘Guarantee’ here in effect means spending money that the government does not currently have but will have in the future. This is another way of saying deficit financing.

Perhaps there is nothing wrong with housing associations, councils and central government borrowing money now to build housing given that interest rates are low and there is lots of slack in the construction industry.
However, this form of deficit financed growth strategy is precisely the approach that the coalition government has rejected.