May scraps the HRA cap in bid to tackle housing crisis
0Prime minister Theresa May has announced the government is to scrap the housing revenue debt cap, a move which it says could allow councils to borrow to build 10,000 homes a year.
May made the surprise announcement at this week’s Conservative Party conference in Birmingham, following years of pressure from the local authority sector.
She said that councils have a big role to play in increasing the number of homes built, but that the HRA, currently capped at just over £30bn, with individual caps for each authority, was holding them back.
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She said: “Solving the housing crisis is the biggest domestic policy challenge of our generation. It doesn’t make sense to stop councils from playing their part in solving it.
“So today I can announce that we are scrapping that cap.”
A report produced by the Association of Retained Council Housing (ARCH) in 2013, estimated that lifting the cap could result in councils borrowing an extra £7bn for 60,000 additional homes over a five-year period.
Speaking to Room151, ARCH chief executive John Bibby, welcomed May’s announcement.
He said that, along with recent proposals to allow councils more flexibility on Right to Buy (RTB) receipts and the lifting of the freeze on social rent rises, councils will be able to plan for new homes with more certainty.
He said: “All of these announcements take us back to the position before 2012. Councils will have a large degree of certainty and can plan on future rental income, debt charges and make judgements on risk to produce fully-costed 30-year business plans again.”
But Bibby warned that some councils face challenges in making full use of the new flexibility.
“You have got to factor in the price of buying the land, although councils might be able to charge higher rents to cover the higher borrowing required.
“At the other end of the spectrum, Right to Buy discounts in areas of low house prices might attract high take-up and leave councils with very small net receipts from the sales. If they think they can’t might make things stack up, they will think twice about borrowing.”
Darren Rodwell, London Councils executive member for housing and planning, said: “We pledge to use this new freedom to play a bigger role in delivering the housing that Londoners so desperately need and look forward to working with government in making it a reality.”
Rob Whiteman, chief executive of CIPFA, said: “We have to look at the small print but very clearly it is a very significant move.
“We have waited for decades for the Treasury to lift the borrowing cap. It has always struck me as perverse that councils can borrow to invest in commercial property elsewhere in the country but not for social housing in its own area.”
A lifting of the cap could also help councils who have been forced to hand back right to buy receipts in recent years because they are close to their cap, according to the experts.
Bibby said: “You can only spend 30% of your right to buy receipts and match fund the rest. Now councils lose to the cap will be able to borrow to do so.”
Councils currently borrow through the Public Works Loan Board to fund new HRA homes. There is currently £15bn of headroom left until councils reach the current cap of £85bn.
Lord Porter, chairman of the Local Government Association, said: “The last time this country built homes at the scale that we need now was in the 1970s when councils built more than 40 per cent of them.
“Councils were trusted to get on and build homes that their communities needed, and they delivered, and it is great that they are being given the chance to do so again.”
May’s announcement comes just days after bidding closed for a share of a £1bn increase in the borrowing cap, spread across three years from 2019-20, announced in the 2017 Budget.
The government said that cap will be lifted as soon as possible, with further details confirmed in the Budget.
