HRA lift isn’t magic fix for housebuilding, say councils

by Chris Smith
in 151 News · Development · Funding
— 15 Jul, 2019

Local authorities say the decision to lift the cap on the Housing Revenue Account isn’t enough for them to deliver on the scale needed to end the housing crisis.

According to the government, councils are getting more money to spend on housing as a result of the decision – and consecutive increases in capital expenditure.

However, a survey of 50 councils released last week by the Local Government Information Unit for the District Councils Network, found that other factors are preventing councils using extra HRA borrowing to deliver housing on the scale ministers want.

2nd Housing & Regeneration Finance Summit
October 31st, 2019, County Hall

The report said: “Lifting the cap is a welcome decision that has already yielded positive results.

“However, to maximise their house building potential, further changes are needed to enable the level and quality of building that we need.”

According to the report, Wealden District Council indicated that it would deliver an additional 200 properties as a direct result of removing the borrowing cap.

Colchester Borough Council said it was delivering an extra 15-20 units a year, while some estimate that over the next five years between 200-300 additional affordable homes will be delivered.

Many, such as London Borough of Croydon, are tackling garage sites that developers would normally shun.

Councils that had housing stock had been able to borrow against their value – leaving those that had handed over properties to housing associations at a disadvantage.

And one council told the LGIU the HRA cap lift had only enabled them to shorten the timescale of the homes it would have built rather than increase the volume.

Why are new HRA freedoms not a magic bullet?

Direct funding for schemes is one issue.

An officer from Preston City Council told researchers that concerns were raised with “how will we fund the revenue cost, even with the low rates from the Public Works Loan Board?”

There are other problems too, such as a lack of council land holdings in some areas.

The LGIU said: “To maximise their house building potential, further changes are needed to enable the level and quality of building that we need.”

The challenges are impacting on the ability of councils to build on a major scale.

The Office for Budget Responsibility (OBR) has projected councils only being able to build 9,000 homes a year.

Councils say the austerity years have left them without the skilled staff they need in planning, development and building control teams to enable them ramp up the numbers.

The HRA decision simply isn’t enough to have an impact.

Wealden District Council told the LGIU: “Councils haven’t built for so long, people need to have skills and experience.”

An officer from a non-stockholding district in the North West, added “our issue is capacity to do research and gain market knowledge”.

Harry Smith, projects and policy manager at the Town and Country Planning Association (TCPA), backed their comments.

“The whole culture of local authorities building for themselves has been lost. It is going to take time to recreate that with a new wave of practitioners.

“There is some innovative work on things like packaging up garage sites but it’s not enough,” he said.

The other issue is sending money back to Whitehall after the sale of council houses through Right to Buy (RtB). Not having control of the cash means it cannot be factored fully into long-term plans for new homes.

The LGIU warned further Right to Buy sales mean new housing spending is a bad investment, especially at a time of shrinking budgets: “Some councils are wary of investing in new stock that might be sold at a reduced rate in the future.”

Recent LGA analysis reveals almost £3.5bn in RtB discounts have been handed out to council tenants over the past six years, at an average of £60,000 in 2016/17.

An LGA briefing said: “This has led to a quadrupling in the number of RtB sales, which councils have been unable to keep up with and replace.

“This loss of social rented housing risks pushing more families into the private rented sector, driving up housing benefit spending, and exacerbating our homelessness crisis.”

The TCPA said councils needed more than just borrowing room to start building social housing again.

Smith said: “They have to regain the powers they need, extra funding and regain the institutional approach to development within councils.

“That means working with the finance teams, the economic development teams and asset teams. That ability is vital.

“Councils also need to be able to use compulsory purchase powers. That’s something we’ve been pushing for because councils don’t have the land assets. We need to give councils as much as we can,” he added.

The Local Government Association told Room151 that central government needs to do more: “Scrapping the Housing Revenue Account borrowing cap was a big step forward, but the government now needs to go further in the Spending Review by devolving Right to Buy so councils retain 100% of their receipts to reinvest in new homes, and can set discounts locally.

“Councils are committed to building the homes that communities need and that are appropriate for the local environment and supported by the required services and infrastructure.

“However council planning departments need to be given greater resources to enable them to deliver effective planning services that in turn create great places for people to live, work and play.”

With a Comprehensive Spending Review now increasingly likely, the government could take the opportunity to look at how to do this.

Councils are clear they want to raise and control the funding they need to build more homes.

The LGA said: “The LGA has long-called for councils to be allowed to set their own planning fees, with taxpayers currently having to subsidise the costs of planning applications by around £200m a year.”