By Kasia Banas, Consultant
In one of the biggest announcements from this year’s Conservative Party conference, Theresa May presented government’s plans to remove the cap on councils’ borrowing against housing revenue accounts (HRA).
She told the conference in Birmingham that solving the housing crisis is the “biggest domestic policy challenge of our generation” and councils should not be prevented from playing a part in it. Confirmed by Chancellor Philip Hammond during the Autumn Budget, the Government intends to lift the borrowing cap on 30 October and expects it to result in councils building another 10,000 homes a year, borrowing around £1bn between them.
Warm welcome from the sector
Mrs May’s announcement was warmly welcomed by the social housing sector and has already inspired councils to return to housebuilding. Currently, they are building less than 2,000 new homes a year in England. In addition to the huge interest in the Government’s previous offer of £1bn of additional HRA borrowing, 60 councils signed an open letter pledging to borrow to invest in new housing after the cap is removed.
An optimistic piece of research for Shelter from 2014 estimated that following scrapping of the cap, councils would be able to build 27,500 homes a year. A similar study by Savills last year projected delivery of 15,000 new homes per annum. The Local Government Association believes that investment in a “new generation” of social housing could provide a boost of up to £320bn for the wider economy in England and Wales over the next 50 years.
Is removing HRA cap enough?
While removing the cap has been dubbed as a move in the right direction, questions remain about the continuing impact of the Right to Buy on council housing. Terrie Alafat, chief executive of the Chartered Institute of Housing, believes the government should suspend the Right to Buy altogether to stem the loss of homes for social rent. Their research estimates the policy costs councils £300m a year and has resulted in the loss of more than 150,000 social rented homes between 2012 and 2017.
Natalie Elphicke, chief executive of the Housing Finance Institute, argues that money, skills and capacity support are needed across the board if the additional funds are to result in new homes. She claims that a recipe for a successful housing delivery for both, HRA and non-HRA councils includes firm political leadership, strong officer teams and the effective harnessing of public and private finance. All councils would also benefit from broader powers for market renewal and retaining housing receipts locally, upfront funding for infrastructure, site prep and start-on-site costs in order to accelerate the delivery of homes on the ground.
Brett Christophers, professor in the Department of Social and Economic Geography, Uppsala University, Sweden, agrees that money is not the sole factor preventing councils from building at scale. He identifies a shortage of public land resulting from decades of privatisation as another restrictive force. His claim is supported by a 2017 study by Janice Morphet and Dr Ben Clifford, in which almost 90 per cent of local authorities cited lack of land as the main reason for not engaging in housing delivery.
Chancellor Philip Hammond officially confirmed scrapping of the HRA borrowing cap during the Autumn budget on Monday but gave no further details on the matter. Given the Treasury’s past reluctance to removing the cap, despite years of pressure from Labour, LGA and other campaigners, some remain sceptical about the effect it will have on housing delivery.
These opponents suspect there will be strict conditions and rules tied to the amount the councils will be able to borrow to limit the policy’s impact on public spending. It is also suspected that HRA borrowing will come under the prudential code, further restricting councils’ housebuilding capabilities.
There are currently no planned announcements of more details about the HRA cap removal, but the industry is hoping it will not have to wait until Spending Review in Spring 2019 before councils can get building.
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