New report looks to resolve council underinvestment in housing

A new report published by Chartered Institute of Housing in partnership with Savills reveals how an updated debt settlement could revitalise council housing finances and create greater capacity for local authorities to invest in good quality homes and meet new housing needs.

The report is based on rigorous analysis of the 2012 Housing Revenue Accounts (HRAs) debt settlement.

A key component of that settlement, brought into effect by the Localism Act 2011, was the level of debt held to be sustainable for each local authority. However, the levels set were based on assumptions about future rental income, inflation, and stock investment requirements no longer fit with the financial and policy environment.

The impact of rent controls sustained higher-than-expected inflation, loss of stock through right to buy, and new regulatory burdens have all undermined the original settlement. The result is that councils have unsustainable debt levels and there is simply not enough money in the system to allow council housing to be run properly, as evidenced by the report that Southwark council and partners published last week.

The paper – Why councils are underinvesting in housing and how an updated debt settlement could put that right - sets out how the settlement could be brought up to date in six steps. These lead to a calculation that the sustainable level of debt for local authorities with HRAs to deliver against current and potential future quality and regulatory standards is now estimated to be around £17 billion less than the 2012 levels specified.

Revising the debt settlement would allow for the investment in housing stock originally intended by the HRAs and recreate the capacity to build the new homes that were planned in 2012. It would also crucially ensure that the homes of 1.6 million tenant households remain at affordable rent levels, by securing council housing finances over the long term.

Gavin Smart, chief executive of the Chartered Institute of Housing, commented on the report: “We are living in a very different place than the one we were in 2012 when the government first outlined their plans for a debt settlement. It is vital that all government decisions are made with the most up-to-date information possible, especially when local councils are struggling so much against spiralling debts.

“Unlocking new funding to reduce council debt will enable councils to provide new homes and to bring the properties they currently have up to the standards people deserve.”