14 Jan 2019

In December 2017, University College London published a report on “Local authority direct provision of housing”. In it the authors noted that 44% of English local authorities had set up or were considering the setting up of a company wholly owned by them in order to develop or acquire housing and 65% of local authorities were directly engaged in housing delivery themselves.

Against the background of admitted housing need, local authorities could become a significant player in the market. Having said that, and notwithstanding the statistics in the report, fewer than 3,000 new Council homes were produced in 2017.

The view of the authors was that “Local authorities are well placed to scale up their delivery of housing, if certain barriers can be addressed”.

There are many motives that drive local authorities to becoming involved in producing more housing. These can range from increasing the supply of social and affordable housing to undertaking local social and economic regeneration and from improving the quality of the local rented offering to investment in order to produce income streams that mitigate against cuts in central government funding.

Against the background of the HRA debt cap or where the authority simply no longer owns its own housing stock, the local housing company concept had become attractive. The debt cap had largely strangled local housing authorities from producing new social housing, at least in significant quantities.

With a local housing company the authority would own and control the company. The company would develop new housing for sale or rent often using authority owned land. Income for the authority would be generated from dividends and more immediately interest on debt advanced by the authority to the company. This sort of vehicle would give the authority a large degree of flexibility in meeting local need. So it was a bit of a surprise when, at the Conservative Party conference, the Prime Minister announced that the HRA debt cap would be lifted. The government had only recently invited local authorities to bid for increases in individual caps.

So what conditions would be attached to the lifting of the cap? Well as it happens, none. On 25th October 2018 the Secretary of State made the Limits on Indebtedness (Revocation) Determination 2018 which came into effect on 29th October 2018.

There we have it. No more HRA debt cap. No conditions. Government have estimated that this will enable authorities to build 10,000 new homes a year. Savills have estimated 15,000 new homes. Government has estimated an additional £1 billion a year of local authority borrowing.

Does that mean the end of local housing companies? After all, if local authorities now have the financial capacity to build then surely such companies are no longer needed?

I would suggest that this will not happen. There are many reasons why local housing companies will remain a useful tool for local authorities.

  • there were 12,500 right to buy sales last year. Using the government’s figures there will still be a net loss of social housing of around 2,500 a year
  • the lifting of the debt cap only affects local authorities that still own their own housing
  • they can be used to provide new market rented housing in order to provide competition in the local market
  • they can be used as a regeneration vehicle or as a vehicle to undertake joint ventures with the private sector. This might become even more relevant given the recent Court of Appeal decision in Faraday v West Berks
  • some authorities may not want to be involved in building within the HRA, e.g. because of a desire to reduce debt
  • take up of the new capacity may be restricted by the generous right to buy discounts
  • they can be useful income generators for the general fund.

Therefore, whilst the relaxation of borrowing in the HRA is likely to be seen as welcome by authorities, it is too soon to kill off local housing companies.