By Paul Hunter, Head of Research
Last week we published our survey of council housing directors one year on from the radical reform of their housing revenue accounts. The policy started under Labour and enacted by the Coalition devolved budgets to council’s and enables them to borrow and build. Against the backdrop of austerity, it is a rare good news story for local government.
Unsurprisingly, perhaps, most of those surveyed viewed self-financed council housing as a good thing. The evidence from the survey shows that most councils are investing in new or existing homes rather than paying off their debts. However, the changes are not without criticism. Many councils were unhappy with the original debt allocation which (added to the debt cap) left little room for borrowing to build or invest on a large scale. And the debt cap itself came in for criticism – not only does it go against the principle of self-financing but puts them councils a disadvantage to housing associations and private housing providers.
As council’s become more confident about managing housing finance the pressure will mount for a loosening of the borrowing caps. At present council housing is grossly underleveraged. As our previous report on HRA reform in 2011 showed, councils could access billions if the rules changed. However, reducing the overall level of national debt is the overarching aim of the Coalition, and such a reform pushes in the opposite direction.
Regardless of the cap, councils also face two other major challenges. First, even with the new freedoms there are considerable issues with social housing funding. Capital subsidy in real terms has been reduced in the 2013 spending review and has been cut by over half compared to pre-2010 levels. So even if the cap was scrapped councils would face similar predicament as housing associations regarding tenure mix – which indeed councils do when granting planning consent.
Second, many councils properties do not meet the decent homes standard. For some councils, without further grant meeting the decent homes standard will eat up any investment that could go into new build. Moreover, some councils might face the unenviable position of having to sell off and demolish estates to reduce the costs of major repairs – hardly a way to reduce pressures on affordable housing in high demand areas.
If government however sees councils as part of the solution to the housing crisis, then it must surely extend authorities further financial freedoms. Putting councils on a more equal footing with social landlords and allowing them to sweat their assets more need not necessarily have to happen in one big bang. Debt caps could be slowly lifted. Although not popular with uber localists, government could adopt an earned autonomy approach, whereby those authorities which have proved their ability to take prudent decisions and manage their housing stock efficiently could be given more autonomy. Another way might be to allow local authorities to trade their headroom, so those that have opportunities to invest using investment from those in areas of lower demand. All are not without their pros and cons and would be boosted by grant funding. However, such reforms would keep a lid on borrowing and do more to enable those councils eager to build and invest. Any increase in council housing most be a plus in the current climate.