As Gordon Brown settles into No 10, speculation continues about his planned first moves as prime minister. Judging by statements emanating from the new premier and his friends, one proposal likely to be enacted is the provision to allow councils to invest directly in their own social housing. Brown is now reported to be ‘open minded’ about this policy while his key supporter, Nick Brown, described it as an idea whose time had come.

Throughout its 10 years in government, New Labour has rejected calls for an extension of the freedom to invest that is currently enjoyed by housing associations (HAs). Unable to provide much needed regeneration of their existing homes, councils have effectively been forced to sell them to not-for-profit HAs, to transfer them to arms-length management organisations (ALMOs), or to opt for PFI projects. Furthermore, councils have been blocked from constructing houses, with new development reserved for HAs.

Support for the ‘fourth option’, as direct council investment is known, has been building steadily within the party, with resolutions calling for its adoption as policy passed at annual conference in three consecutive years. For many council housing supporters, preventing local authorities from investing in housing has appeared at odds with the excellent standards that some councils have shown. For a government that has prided itself on forming policy around ‘whatever works’ rather than ideological preconceptions, favouring housing associations (HAs) over councils has seemed inconsistent and unfair. It is hard to argue convincingly that councils that manage their housing well deserve anything less than full support from central government in investing further.

But, if the excellence shown by some councils needs to be recognised by the government, so too must detractors of HAs accept that many independent social landlords have also achieved high standards. Plenty of HAs have proved to be exemplary in both housing management and community regeneration. Competition between them has acted as a powerful motivator for improvement.

And yet, just as competition in health or education is ultimately limited in its capacity to raise standards, so too is it flawed as a mechanism for improvement in housing provision. While there is new business to bid for, housing associations will compete to impress. But competition is increasingly restricted to a handful of the largest HAs, leaving many providers stagnant, continuing to manage their existing stock but free from the impetus provided by competition.

Moreover, HAs essentially lack one obvious and traditional source of pressure for improvement, namely representative democracy. Controlled by community boards, their governance bypasses local councils, replacing them with a form of direct, participatory democracy. As such, they are an example of the transferral of power from councils to alternative local structures, along the lines of the New Deal for Communities and city academies. These projects are united by their generous funding and their almost complete freedom from council control.

One consequence of handing over powers to parallel community bodies is that councils are gradually undermined, in much the same way as they have been weakened by decades of creeping centralisation. Far from enhancing local democracy, such changes can render it fractured and confused. Councils can be left as mere bystanders to the provision of essential services, powerless to shape them as they deem most appropriate for their particular, local circumstances.

So creating a level playing field for councils alongside alternative social housing providers will allow excellent practice to thrive, regardless of the nature of the provider. Councils that are run well will be able to begin rebuilding not just their housing but also their credibility as political institutions, able to deliver renewal and change for the communities they serve.

Aside from these arguments of principle, Brown may also have chosen to concede to the party on the fourth option for political reasons. For most voters, this remains a relatively technical and little reported debate. The new prime minister will find giving ground on this issue a relatively painless way of demonstrating a fresh start to party activists eager for change.