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Is Kent Set for a Council House Building Boom?

Is Kent Set for a Council House Building Boom?

The dust has now settled on two important Government promises for funding more council and social house building, but they have created more questions than answers.

There has been a growing consensus among MPs that it makes sense to bring council borrowing for new homes into line with borrowing to build commercial properties for income, or community assets such as swimming pools or sports centres. According to Government statistics, local authorities were responsible for more than 40% of house builds forty years ago, this is down to less than 2% currently.

So, it wasn’t unexpected for the Prime Minister, Theresa May to make the promise at the Conservative Party Conference; a new policy set to be pushed through parliament this year to remove local authorities existing limits on borrowing to build general purpose social housing. But no one expected it to be lifted so quickly, with the housing and communities secretary James Brokenshire announcing the the intention to lift the borrowing cap on Housing Revenue Accounts (HRA) from November.

A further announcement from the Prime Minister came in the form of a £2 billion long-term funding assurance at a conference of the National Housing Federation, which represents housing associations. “Under the scheme, associations will be able to apply for funding stretching as far ahead as 2028-29 – the first time any government has offered housing associations such long-term certainty.”

Although a handful of housing associations have received £600 million to expand their housing stock through a similar scheme, it won’t be rolled out fully until after the next comprehensive spending review in 2019

Does this mean creating more affordable homes in volume and at pace in our region?

The house building sector and local authorities, have already welcomed the announcements. The body that represents London's local authorities has said it plans to use its new freedom to borrow to deliver "housing that Londoners so desperately need". But there are several reasons not to get carried away about when the flow of new money will have a sizeable impact.

The first issue is that neither policy change will have an effect before the last half of 2019-2020. Given significant housing schemes can take eighteen months before the ground is even broken, few expect to see an immediate uplift in large numbers of new homes becoming available.

Secondly, the government needs to address the issue of business plans and the thorny issue of right to buy. The debt cap has been a barrier to development for many councils and they have set up local housing companies to bring forward new home building outside of the constraints of the borrowing cap. While this circumvents financing building new homes, whether tenants have the right to buy their homes is yet to be legislated on or tested in court. Registered provider tenants also have the right to buy and this can cause business planning challenges for all but the largest housing associations. Right to buy undermines the number of affordable social homes becoming available and eat into the providers revenue to finance debt.

Thirdly, it is unclear how lifting the borrowing cap will affect local authorities that transferred their housing stocks to Registered Providers. These councils could still have the need for more housing, but if they don’t have housing revenue to borrow against, how can they demonstrate their borrowing will meet the Treasury’s rules on prudent borrowing.

Finally, while the pledge for new investment is welcome, the reality is, the money is capital fund projects. The number of new social rented homes built last year fell to the lowest level since records began and most of those were built by housing associations where many of the professional skills needed by councils to build large housing schemes exist. The first job of local authorities will be to skill up and build relationships with trusted advisers to appraise, plan and deliver the new schemes at scale.

Simon works in our Commercial team with local authorities to develop their property capability and capacity. You can connect with him here >>

 

Photo by Tom Thain on Unsplash

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