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More flexibility is needed but councils will be judged on their take-up of headroom funding
The government is unlikely to consider further borrowing cap flexibilities if local authorities don’t take up headroom funding, warns Emma Maier
Councils have long lobbied for government to lift the borrowing cap – allowing them to access more funding to increase housebuilding.
Last year a study suggested the move could fund 15,000 new homes. In the Autumn Budget the chancellor stopped short of completely lifting the cap, but announced a policy to allow councils to bid for £1bn extra borrowing headroom in “high value” areas.
Local government offered a cautious welcome. Why was this not more resounding? There are rarely new ideas in politics, and this was no exception.
Back in 2014 then-chancellor George Osborne offered councils £300m of additional borrowing capacity to build 10,000 council homes. But the programme was wound down after just £220m was allocated.
If the government is to avoid an episode of déjà vu, ministers will need to learn some important lessons.
At the most senior level, council leaders and chiefs are really focusing on housing for the first time in many years and articulating ambitious plans.
Yet Inside Housing research over the past couple of years has confirmed that while a handful of councils have reached or maybe even exceeded their borrowing caps, the vast majority have not.
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Despite that ambition, other policy drivers have created a significant disincentive, including the austerity policies, rent cut and proposed forced high-value asset sales.
The reinvigoration of Right to Buy (RTB) created a double challenge: the prospect of the loss of newly built homes and the restrictions on using RTB funds making it all but impossible to replace homes sold.
Councils including Haringey have returned RTB funds to the Treasury, unable to spend them. Enfield and Croydon have had to set up new organisations to spend their RTB funds.
It is little wonder that much of the innovation from local government has been outside the Housing Revenue Account (HRA), with many setting up housing companies.
Nevertheless, an Inside Housing straw poll of councils without social housing stock found as many as a third were potentially interested in establishing a new HRA and starting to build, as recently suggested by Labour. It is telling that among those not interested, RTB restrictions were directly cited as a deterrent.
The government has taken an important first step: unlike the 2012 programme, councils bidding for the £1bn headroom capacity will be able to combine the funds with grant and RTB receipts. But ministers would be well advised to tackle other barriers, particularly taking the opportunity posed by the RTB consultation to reduce the constraints on funding build replacement homes and to allow councils to keep all receipts and set their own discounts in relation to the local market.
Councils, meanwhile, will be judged on their uptake of the headroom fund.
The government is unlikely to look kindly on future attempts to lift the borrowing cap if the programme is undersubscribed.
Emma Maier, editor, Inside Housing