Councils could build new homes in the biggest change to council housing since ‘Right to Buy’

The biggest change to council housing since the advent of ‘Right to Buy’ in the 1980’s could allow councils in the capital to build significant numbers of new homes for the first time in decades, according to a new report from London Councils and Navigant.

London is facing a crisis in housing affordability, with average house prices costing more than ten times average salaries; three times as many households in overcrowded accommodation as the English average; and rapidly increasing rents in the private sector, which rose by 17 per cent in 2010 alone. The options outlined by Navigant in the report from London Councils show how boroughs could maximise their ability to address this problem.

The government has agreed to give the 29 councils in London that own housing full control over their stock from April 2012. This means that, in exchange for taking on an estimated £7.2billion of government housing debt accrued from years of financing council house building, the part of council tenants’ rent which currently goes to the government will instead be kept by the councils.

It is anticipated that all boroughs will initially pay off their share of the £7.2billion debt using loans from the Public Works Loan Board – the government’s lending agency, but may look at other financing instruments to manage the whole debt portfolio in the long term. They will then repay any debt through their Housing Revenue Account (HRA). This is a fund specifically kept for housing income and expenditure which is separate from a council’s main budget.

Once the debt to government is paid, councils will be able to borrow money against the strength of their rental income, although the government is setting a limit on how much money each council can borrow.

London Councils, which represents the capital’s 33 local authorities, commissioned Navigant to look at ways councils could work either individually or in groups to maximise their opportunities to invest in housing given this new freedom to borrow.

The research, which looked at HRA business plans drawn up by a representative sample of 12 London local authorities, highlighted that although some boroughs will take on more debt than others, all could benefit from the new housing finance arrangements.

In the short term, while some boroughs might concentrate on paying off their loans, others could use their freedom to borrow by investing in repairs and modernisation of their current housing stock, or building much needed new affordable homes.

The research also found that, in the longer term, and subject to government agreement, where one local authority has freedom to borrow but fewer investment needs, and another has high needs but little ability to borrow, the first authority could ‘swap’ its borrowing ability either for the second’s land or for the ability to place its tenants in the second’s housing.

London Councils’ executive member for housing, mayor Sir Steve Bullock said: “This is the biggest change in council housing since Right to Buy. For the first time in recent history councils will be able to keep all of the rent they collect and invest it locally to improve housing for their tenants.

“The reform of the Housing Revenue Account is a major opportunity for councils to maintain and expand their housing stock far more effectively for the people they accommodate. This report considers a range of options open to boroughs to maximise stock investment and build new affordable housing, and will help councils in developing their housing investment strategies.”