Council-owned housing companies set to benefit from HRA cap scrap
0The government’s announcement to abolish the cap on housing revenue account (HRA) borrowing could boost the speed and scale at which council-owned housing companies build new homes, according to housing finance experts.
Prime minister Theresa May announced the government is to scrap the housing revenue debt cap in a surprise announcement at the Conservative Party conference this week.
The announcement could allow councils building through the HRA to become clients of their own housing companies, according to Andy Pack, director at development funding consultancy 31ten.
Pack said: “This is an opportunity for those housing companies looking to balance returns with the provision of social and affordable housing.
“The HRA announcement creates a bigger market for them to sell the affordable housing to.
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“At the moment, they have to attract a registered provider, many of whom have their own development programme and might struggle to get involved. And if they do, the negotiations could be protracted.
“Now, the councils can buy the housing through the HRA, and get involved at an earlier stage. This could increase the pace and potentially the amount of affordable housing these vehicles are delivering.”
Steve Partridge, director of housing consultancy at property adviser Savills, said that such arrangements could have a big impact on regeneration schemes in London.
He said: “The fact is that there is a big element of spending to save in regeneration – you need to invest to generate value.
“Previously, you could only get schemes away by cross subsidising affordable housing from private development. Now, councils could borrow through the HRA and provide it themselves.”
Partridge said that this could be very significant for councils such as London Borough of Haringey, which recently scrapped a joint venture with private developer LendLease, partly due to concerns over social housing levels.
“If you can deliver a traditional rented product through the HRA programme and a more diversified mix of tenures through your housing company, it gives an opportunity to move forward on mixed use development more easily and at a larger scale.”
Association of Retained Council Housing (ARCH) chief executive John Bibby agreed, saying: “This should help with the development of mixed tenure sites. Councils will be able to deliver through a housing company in the general fund alongside HRA housing, and there are ways councils can do a bit of cross-subsidy between the two.”
Pack predicted that the government could introduce new investment guidance specifically to cover the HRA in the wake of the announcement to abolish the cap.
He said: “I am sure there will be more indicators of guidance to make sure councils don’t get into problems so authorities can prove they are in a position to fund what they want to do.”
And Partridge said that councils would have to increase capacity to make full use of their new borrowing freedoms.
He said; “Capacity is the biggest challenge off the back of this announcement. Councils need to think about how they can lever in the skills and expertise to make new housing happen on a significant scale.
“You can only add so much housing without increasing your management or maintenance resources. They can do some without doing that but you can only go so far.”
