Councillors doubt HRA reform will boost building

Author: Tom Lloyd, Inside Housing - Dec 8, 2011

Local authority leaders have questioned whether the dismantling of the housing revenue account subsidy system will allow councils to start building large numbers of homes.

In a policy paper for think tank Localis three housing figures offer different perspectives on the introduction of self financing, but all question whether the policy will really result in a resurgence of council-led housing development.

Under the current housing revenue account subsidy system councils are required to send income from rents and right to buy sales back to the Treasury, and it is then redistributed. From next April this will end, and councils will be able to keep more of their housing revenue, but they will have to take on millions of pounds of debt in return for the new freedoms.

In the Localis paper Gary Porter, council leader at South Holland District Council, argues rules on the right to buy will be crucial to determining if HRA reform is a success.

As the HRA proposals currently stand 75 per cent of right to buy receipts would still go back to central government. However this is likely to change due to the government’s desire to revitalise the right to buy with bigger discounts.

A paper outlining how this will could work is expected this month. One of the options on the table is for right to buy money to go into a central pot which could then be accessed by councils to fund housing development. Mr Porter argues this would create ‘unnecessary bureaucracy’ and ‘run contrary to the principles of localism’.

‘If there is an increase in right to buy sales and receipts are clawed back then councils will find themselves presiding over a fast dwindling level of council housing which could undermine the very premise of self financing,’ he writes.

Also writing in the paper John Synnuck, chief executive of Swan Housing Association, argues that councils will need to overcome a cap on the amount they are allowed to borrow if they are to deliver new homes. He says local authorities will need to work with housing associations and developers on new homes, but adds: ‘A return to the heyday of council house building is unlikely.’

Tim Coleridge, cabinet member for housing in Kensington and Chelsea, explains why self financing is unlikely to see a significant increase in council-led building in high value areas. ‘It must be assumed in the early years capital works to existing stock will take priority for most of the surplus generated by higher income levels received,’ he states.

Mr Coleridge also warns that the move to affordable rents – where housing associations are allowed to charge up to 80 per cent of market rent to fund new development – is unlikely to see an increase in house building in the area.

‘With little available land locally here in Kensington and Chelsea we may well see considerable surpluses accruing over the years ahead by registered providers, and little of this surplus going into new development locally,’ he states.

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