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Lifting the housing borrowing cap risks increasing unfairness

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LGC’s essential daily briefing.

Speaking at the Conservative party conference this year, the prime minister described the housing crisis as “the biggest domestic policy challenge of our generation”. 

As part of the government’s solution, Theresa May announced an end to the borrowing limit set on stock-holding councils’ housing revenue accounts. While first stating that “there must be no return to the uncontrolled borrowing of the past”, Ms May then said it “doesn’t make sense to stop councils from playing their part in solving [the housing crisis]”.

LGC analysis shows, however, that lifting of the borrowing cap may not be the panacea to the housing crisis that some inside, and outside, the sector would wish it to be. This is for two main reasons. 

First, the policy creates the risk of a have/have-not situation between England’s stock-holding and nonstock-holding authorities. District Councils’ Network chair John Fuller (Con) warned that councils which have transferred their housing stock are largely in areas with the “greatest housing potential” – outside metropolitan areas. These councils with the most free land face a “disadvantage” and require additional “fiscal tools” to build homes or risk being left behind. 

The policy also creates a geographic split between the north and south. Research by the Key Cities group found that grant funding “disproportionately” benefits the south, as housing policy currently prioritises areas of “highest affordability pressure”. Of the 165 authorities described by the Ministry of Housing, Communities & Local Government as “high affordability pressure areas”, only 25 are in the north. Greater Manchester CA mayor Andy Burnham (Lab) described the allocation as “demonstrably unfair and unacceptable”. 

It seems unfortunate that a policy which at its heart aims to ultimately narrow the gap between the haves and have-nots may actually serve to do the opposite. 

While it is true, according to the Institute of Fiscal Studies, that home ownership is at its lowest in London, where only 20% of 25- to 34-year-olds own their own homes, it is also true that 36% of young people in the north-west were in the same position. 

Leeds City Council leader Judith Blake (Lab), who is also chair of the Core Cities group, has argued that part of the solution must lie in a change of direction in the way the government allocates grant funding. 

“We should be moving away from competitive and ultimately counterproductive drivers of investment such as mortgage affordability and land value uplift towards a collaborative and place-based approach where national and local governments work together to tailor crosstenure solutions to meet local demands and opportunities,” she said. 

There are undoubtedly profound benefits to lifting the borrowing cap; extra funding streams for the sector have been switched on, yet not for everyone. If this government wants councils to truly help build the 300,000 new homes a year it wants by the middle of the next decade then it must make the system truly fair for all. 

By Robert Cusack, reporter

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