Saturday, 23 August 2014

Council house building hopes hit by £430m rent restructuring blow

Southwark’s 10,000 new homes plan under threat

Plans by London’s largest local authority landlord to build 10,000 homes are ‘in jeopardy’ as a result of the government’s proposal to end rent convergence in 2015.

Southwark Council this week said it intended to use the freedoms granted under the self-financing reforms to the housing revenue account system in April 2012 to build 10,000 homes over the next 30 years.

However, the 40,000-home authority has warned that proposals to end the rent convergence policy in 2014/15 threaten the viability of its 30-year business plan and development ambitions.

The borough, which took on £323 million of debt under the HRA reforms, will be badly hit by the change because it has an 8 per cent gap between its average rents and target rents - the optimum rent a property should be charging. By 2015, 55 per cent of its homes still won’t have achieved rent convergence.

Ian Wingfield, deputy leader at Southwark, said this would create a hole worth between £300 million and £430 million in its business plan. Mr Wingfield said: ‘The consequent loss of resources over the life of the housing revenue account business plan could put our ambitious plans in jeopardy.

‘This is why we are confident that the government will see that their planned “tinkering around the edges” is pointless if it prevents councils from building new council homes - 10,000 in our case, as we have announced this week.’

He added the change would ‘compromise the ability to generate sufficient resources to meet our stock’s massive investment needs’.

Council leader Peter John said the modelling for the 10,000 homes was ‘conservative’, so he thought the homes could still be deliverable.

Landlords have warned that ending rent restructuring - a policy intended to align council and housing association rents gradually since 2002 - before convergence is achieved will reduce the sector’s capacity to build homes.

Readers' comments (3)

  • Southwark Council say they think their scheme is still viable. Ending convergence will save money. Perhaps councils and HAs could look for funding elsewhere, rather than re-letting social homes at "Affordable Rent"?

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  • Don't give up Southwark - even if it is less than 10,000 it is stil la lot more than the Con/LibDem/New Labour coalition would ever do.

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  • Southwark Council must appreciate that it was their tenants that were having to foot the convergence bill i.e. unnecessary rent increases in the vain pursuit of housing association rent levels. Housing associations will always be increasing their rents at the drop of a hat, always have, always will. For the sake of council tenants it's good to see New Labour's "convergence" in the dustbin. It would have made more sense to cut housing association rents down to council rent levels.

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