It is now 3 years since the introduction of the self–financing Housing Revenue Account (HRA). For a number of councils it has been the answer to their problems and they have been able to invest in the refurbishment and major repairs of their existing housing stock, as well as in several cases start a new build programme within the HRA for the first time for many years.
For others though it has been a much more frustrating time mainly due to the imposition of the HRA Debt Cap at the start of the regime. So although they may have been able to produce a 30 year HRA business plan that would stack up and demonstrate they can afford increased borrowing, the debt cap has not allowed them to go down that route and is suffocating the programmes they would want to implement. Therefore there is still no level playing field between the HRA and housing associations and no immediate sign that the debt cap restriction will be lifted.
So as has always been the case, councils are looking at legitimate ways to circumvent these problems. This has led to the creation of wholly owned local housing companies and use of prudential borrowing from the General Fund, which has again come strongly onto the agenda. Uses range from new social housing development and regeneration, to private sector rental properties where there is an existing ALMO using that as the body to provide wider council services. Then there were proposals from a Treasury commissioned housing review to create an independent organisation to help councils set up housing companies, access finance and obtain investment advice. The Government has recently announced it will support the creation of such a Local Housing Institute.
What do councils see as the benefits of local housing companies?
- The financial flexibility, through the use of prudential borrowing within the General Fund, to carry out programmes which would otherwise not be possible because of the HRA debt cap.
- The retention of ownership and long term value of the assets, and therefore the benefits of any future increases in value; including any land the council may put into the development.
- Retaining some control and influence over the development proposals.
- Retaining some control and flexibility over long term future proposals for change after the initial development period.
Additionally for those councils who no longer have an HRA, having previously transferred their housing stock, it allows them to become involved again (if they wish) in new house building without having to re-open their HRA and all that entails.
For these reasons councils are increasingly looking at this route as a preferred option to that of working with existing providers for some development schemes.
So for the first time since the early 2000’s when local housing companies tended to be the preferred option for stock transfers, it seemed that they were back high on the agenda again for a significant number of councils, and were likely to remain so unless there is a relaxation of the HRA debt cap.
This all changed however when suddenly towards the end of March the Housing Minister, Brandan Lewis, produced a written statement to parliament which seemed to throw cold water on local housing company proposals. The exception being where they are developing new homes for market sale, or purchasing private rented homes for the accommodation of homeless households through an appropriate legal entity structure. In that instance, the loans do not count as public sector borrowing.
Not surprisingly several councils have reacted with surprise and anger at this statement, given that only 10 days earlier the announcement on the Local Housing Institute suggested support.
It is not clear how the Government can stop councils creating Local Housing Companies, so this one could run and run – dependent of course on what happens on May 7th.