Allowing councils to bid for an uplift in the borrowing caps on their housing revenue accounts so they can build more homes “will not solve the housing crisis”, council leaders and housing experts have warned.
However, given ministers’ previous resistance to the policy, the fact that the government is even making such a proposal is significant.
In the run-up to the Budget the Local Government Association ran a concerted campaign to get the government to lift the borrowing cap for all councils.
Reacting to the Budget, LGA chair Lord Porter (Con) said: “If we are to get back to building 300,000 homes a year, then the government needs to ensure all areas of the country can borrow to invest in resuming their role as major builders of affordable homes.”
John Fuller (Con), chair of the District Councils Network, agreed. “The government has finally begun to realise that homes owned by councils are assets that can support borrowing to deliver more homes,” he said.
“However, the government must go further, and lift the housing revenue account cap for all stock holding district councils immediately, rather than creating a bidding process for certain councils in future years.”
The red Budget book said the government “will lift housing revenue account borrowing caps” by up to £1bn between 2019-20 and 2021-22.
Melanie Rees, head of policy at the Chartered Institute of Housing, told LGC: “A few years ago we were told we were wasting our time [asking to lift the HRA borrowing cap] so this does demonstrate a step in the right direction…
“It shows we are starting to win the argument… but it’s not going to solve the housing crisis on its own.”
The Budget book did appear to leave open the possibility of extending the cap further in future, saying the government would “monitor how authorities respond to this opportunity, and consider whether any further action is needed”.
Rob Whiteman, chief executive of the Chartered Institute of Public Finance & Accountancy, said lifting the borrowing cap was “a previously non-negotiable move that could offer a glimpse of flexibility” for councils wanting to build. However, he warned the £1bn cap “might not have a significant impact at the national level”.
Nick Forbes, Labour group leader on the Local Government Association, claimed the money “will only deliver 2,500 new homes nationwide” based on previous government figures, while Peter John (Lab), leader of Southwark LBC, said the money is “totally inadequate” and would build fewer than 4,000 homes in his borough – even if his council got all of the money.
“This government isn’t serious about solving our problems,” he tweeted.
A Treasury spokesman told LGC the government did not know how many homes the extra £1bn would build as it will depend on which councils bid for the increased borrowing capacity, and how much extra room for manoeuvre they get. The spokesman said it was not possible to separate this policy out from the wider aim of building an extra 300,000 homes a year by the mid-2020s as it formed part of a package of other measures.
The Budget book suggested the government will only entertain bids from “councils in areas of high affordability pressure, so they can build more council homes”.
There is expectation in the sector that Stoke-on-Trent City Council, Sheffield City Council and Newark & Sherwood Homes – the arm’s length management organisation of Newark & Sherwood DC – are frontrunners to benefit from the relaxed borrowing restrictions as they have all been in discussions with the government over a potential housing deal.
However, there is some confusion as to how those areas in particular are perceived to have greater affordability pressures than other places. Furthermore, it is not yet know how the government defines an area of high affordability pressure.
Four years ago the coalition goverment proposed increasing the borrowing cap by £300m but the policy was slammed by experts in the sector because it had too many conditions attached.
There is concern again about what the criteria will be for successful bidders, whether qualifying areas will have the appetite to bid for a share of the funds, and whether all of the money can be spent on homes for social rent.
“If it’s for affordable rent the money will go further because rents are higher but it might not be helpful in terms of assisting the people who need it most,” said Ms Rees.
The Budget contained a raft of housing announcements aimed at increasing housing supply to 300,000 new homes a year by the middle of the next decade. However, only about a third of the £44bn announced by the chancellor yesterday is ‘new’ money (see box below).
The chancellor also announced that councils would no longer be required to offer a council tax discount on empty properties. However, Sir Steve Bullock (Lab), London Councils’ housing spokesman, said that will not make much difference in the capital.
“Council tax is a minor issue because if you are sitting on a property in London you are sitting on a valuable asset. If we could charge 10 times the normal amount that might start to shift some of these people,” he said.
The government has also announced plans for a review, chaired by Sir Oliver Letwin, into why the number of homes being built is not keeping pace with the number of planning permissions granted. An interim report is due in time for the spring statement before a full report, with recommendations, is produced ahead of next year’s Budget.
Martin Tett (Con), the LGA’s housing spokesman, said he would “make a vigorous case for councils to be given the strongest powers possible to make sure that developers are held to account”.
New money for housing
In his speech the chancellor outlined plans to spend £44bn and “create the financial incentives necessary to deliver 300,000 net additional homes a year on average by the mid-2020s”. Of the £44bn, about £15bn of that is new money in the form of cash, loans, and guarantees. This is what is ‘new’ money:
- £8bn of guarantees to support housebuilding
- £2.7bn extra capital funding for the housing infrastructure fund
- £1.5bn loans for small and medium sized builders
- £1.1bn cash to develop strategic sites, including new settlements and urban regeneration schemes
- £1bn for lifting the borrowing cap for certain councils
- £630m cash to accelerate the building of homes on small, stalled sites