Unlocking housing potential: councils must rise to the HRA cap abolition challenge
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Councils could face new guidance to accompany the government’s proposed lifting of the Housing Revenue Account debt cap. But the biggest challenge they face will be resourcing the increased capacity required to enable a significant rise in council homes, says John Bibby.
In January 2015, prior to the general election in May that year, the Association of Retained Council Housing and the National Federation of ALMOs launched a joint manifesto, For a Council Housing Renaissance.
In that manifesto we argued that there was a need for a renaissance in council housing (or as the prime minister now puts it: “a new generation of council housing”) and, in order to achieve this renaissance, the housing revenue account (HRA) debt cap must be removed.
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In that same manifesto we also argued that the rules governing use of Right to Buy (RTB) were unnecessarily bureaucratic and inadequate to guarantee the promised one-for-one replacement.
We therefore also argued that the arrangements for use of RTB receipts must be reformed if the sector was to be enabled to deliver one for one replacement.
Opportunity brings challenges
Those two major “asks” and the sought-for renaissance in council housing seemed a long, long, way off when the incoming Conservative government under David Cameron and George Osborne ignored them and subsequently introduced a four-year 1% year-on-year rent cut and plans for a high-value asset levy on councils’ HRAs, to be funded by the sale of so-called “higher value” council housing.
It is therefore a cause for celebration that three and a half years on from the 2015 general election, Theresa May’s Conservative government has not only scrapped the idea of a high value asset levy but is consulting on proposals for significant relaxations to the rules governing use of RTB receipts and has now announced a scrapping of the HRA debt cap.
ARCH warmly welcomes all three measures but recognises that the gauntlet has been well and truly thrown down at stock-retaining councils, and the sector must rise to the challenge of delivering Theresa May’s promise of “a new generation of council housing”.
Many councils have of course been delivering new council housing within the existing constraints on the HRA and/or through local housing companies, but the expectation is that the sector will move faster to start building this new generation of council housing.
However, before housing and finance directors across the country can firm up their HRA business plans – and identify the increased capacity within those plans to support a larger new build programme – we need to understand what, if any, conditions may be put around the scrapping of the borrowing cap.
We are promised that the borrowing cap will be lifted as soon as possible, with further details confirmed in the Budget on 29 October.
The hope is that we can take the prime minister at her word and that the cap will indeed be scrapped in its entirety, leaving councils to borrow under prudential guidelines.
However, it seems unlikely that the Treasury will give councils a completely free hand and it would be surprising if the scrapping of the borrowing cap was not accompanied by some form of supplementary guidance covering investment in housing through the HRA.
The interest in bidding for a share of the previously announced £1bn HRA borrowing programme has demonstrated that, given encouragement and the right policy environment, councils are ready and willing to deliver this new generation of council housing.
However, having now announced a complete scrapping of the borrowing cap it begs the question of why those authorities were forced to put in so much effort in such a short timescale.
Councils were already facing criticism from some quarters for their failure to spend up to the existing borrowing cap and in response ARCH and the NFA commissioned a detailed piece of research into the extent of so called “under- utilised” HRA borrowing headroom amongst authorities in England, the results of which were published late last year in our report Raising the Roof.
Councils are naturally prudent in the management of their finances but, once the cap is lifted, the expectations on councils to deliver significant new investment in housing will increase substantially and the next challenge for councils seeking to take advantage of the scrapping of the borrowing cap will be one of building up their capacity and developing the necessary skills and knowledge to deliver new housing on a much larger scale than has hitherto been possible.
John Bibby is chief executive of the Association of Retained Council Housing (ARCH)
