Lifting to borrowing cap – where are we now?
Late last year the government made a surprise announcement that borrowing restrictions were to be removed, enabling councils to play more of a key role in delivering the homes needed across Britain today. How has this affected the market? Joe Bradbury of Housing Association Magazine discusses:
Back in October last year, Theresa May gave a rousing speech at the Conservative Party conference which stated: "There is a government cap on how much councils can borrow against their Housing Revenue Account assets to fund new developments. Solving the housing crisis is the biggest domestic policy challenge of our generation. It doesn’t make sense to stop councils from playing their part in solving it.
“We are scrapping that cap. We will help you get on the housing ladder. And we will build the homes this country needs."
The idea behind this was to give councils the tools they need to deliver a new generation of council housing – up to an estimated 10,000 additional homes a year. It came as great news to many within our industry, who saw the borrowing cap as an obstacle preventing them from building new homes.
It was also hoped that complete removal of borrowing cap would serve to further diversify the house building market, leaving councils free to take on projects and sites that private developers might consider too small.
In response to the news, councils in England estimated that they would be able to build at least 20,500 homes over three years with new powers to borrow for investment in housing.
So, where are we now - 3 months on from the removal of a borrowing cap?
The results are in…
According to details released into the public domain by the Ministry of Housing, Communities and Local Government under the Freedom of Information Act, a staggering £2.9bn-worth of bids have been submitted to date by 75 different councils. The total number of new homes that comprise the project proposals submitted equate to 20,540 – a true testament to the true ability of councils to deliver much-need homes when they are unburdened by government restrictions, such as the borrowing cap.
Only part of the solution
Lifting the borrowing cap on Local Authorities’ Housing Revenue Accounts has been much welcomed and many would argue that it is long overdue. However, the truth is that the borrowing cap was only one of the barriers preventing councils from building at scale, and its removal alone should not be considered a miracle fix for our housing crisis; rather a step in the right direction. A host of obstacles still exist and will need to be overcome if we are to deliver the homes our country needs.
When it comes to building the sheer volume of homes needed in Britain, councils are part of the solution but they cannot do it alone. Their output will need bolstering significantly from both the private sector and housing associations. The estimated 20,540 new homes that councils will build over the next couple of years as a result of the cap being lifted is great, but is sadly overshadowed by the fact that we need as many as 340,000 new homes per year to meet overall demand.
Research from the Royal Town Planning Institute (RTPI) suggests that lack of available land is actually considered to be more of a barrier to direct housing provision at present than lack of funding.
Austerity has also taken its toll on councils and local authorities. Due to the infamous cuts in 2010 and onwards, councils and local authorities have drastically reduced their spending on planning and development services by over 50% and housing by over 45%. It will take time and investment to get these figures back up to where they need to be for councils to be considered large-scale builders once more.
Many are in agreement that the greatest barrier to housebuilding (and one that is still in place) is the highly controversial ‘Right to Buy’ scheme. Its very existence poses the question; why should councils invest significantly in building homes which could be sold off at a large discount and to their own expense after 3 years?
By abolishing the borrowing cap, the government has shown commitment to fix our broken housing market… but in of itself this move alone is not enough. The housebuilding industry persistently pleads with Government to bring a swift end to their disastrous ‘Right to Buy’ policy, which has seen the mass sell-off of council homes at a discount throughout the UK. Undeniably, this has been one of the key drivers of the housing crisis. Is the discontinuation of this on the cards? For now, the government remains quiet on the subject.
This article and other blogs by HA's Joe Bradbury appear regularly on www.les.mitsubishielectric.co.uk/the-hub which contains useful and informative articles on legislation, technology and sustainability.