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Lifting the borrowing cap – a key report by ARCH, CIH and NFA 03/01/2020 Labelled as Legislation

The Housing Revenue Account "borrowing caps" that restricted investment by councils in building new council housing were lifted in the Autumn 2018 Budget and the government promised that it would herald "a new generation of council housing" in England but a new report by the Chartered Institute of Housing (CIH), ARCH and the National Federation of ALMOs show councils still face obstacles to building more homes.


The report asked different-sized councils across England what was still stopping them building the homes their local communities need. Five London boroughs, large cities in the Midlands and North and several medium and small authorities were among the 22 councils and ALMOs that responded.


In lifting the borrowing caps, the Treasury estimated that local authorities will soon be building 10,000 houses a year. Our survey suggests that's likely to be met - and even exceeded. But councils and ALMOs say they could do more.


For three-quarters, the lifting of the borrowing caps was a significant factor but generally not the only one.


Several respondents told us they plan to build only around 50 new homes (or fewer) per year, while two had programmes of around 500. No councils planned to build no homes at all.


But there are still barriers. While the government's planned rents policy from 2020 onwards is generally welcome, councils need more long-term income stability and would prefer a ten-year policy, as opposed to the five years the government is proposing, coupled with more local flexibility to allow for regional differences.


Other significant constraints include:


  • the requirement to allow tenants to buy their homes at a significant discount, and restrictions on how councils can use the money they raise from selling these homes
  • the need for more, and more certain, grant funding
  • land shortages and planning constraints, even when the council is the planning authority for its own development
  • the capacity of the building industry to deliver as many homes as councils and ALMOs want to build
  • shortages of skilled staff
  • competing priorities for finite resources, such as investment in existing stock to meet new safety standards or improve energy efficiency


Launching the report, report author John Perry said:


"Councils and ALMOs are ready and willing to take-on long-term investment programmes, but stability is vital: there needs to be a consistent approach to rents policy and no wider policy changes that would compromise the major commitments which councils are now taking on.


"And given their very diverse approaches to building new homes, councils need more local powers and flexibility on key issues such as right to buy, access to grants and local rent levels to deliver what their local communities need."


CIH chief executive Gavin Smart added:


"This report shows that councils are stepping up to the challenge of building more homes, and with more help they make a significant contribution to ending our housing shortage. But a combination of factors is stopping them.


"If the government wants councils to play their full part, it needs to take on board the points raised in this report and give councils the flexibility they need to really get building the homes their communities need."


ARCH chief executive John Bibby commented:


"Government should be applauded for the decision to lift the HRA borrowing caps in the 2018 Autumn Budget and this report clearly shows that this decision has enabled councils to begin to provide much needed affordable rented homes for local people.  But more can and should be done.


"This report highlights some of the remaining constraints on local authorities and we hope very much that the new government will act quickly to remove those constraints to allow councils to deliver the new generation of council housing for those who need it."


"We recognise that home ownership is a genuine aspiration for many, but it is not the answer for everyone and in many areas of the country house prices and rents in the private rented sector are unaffordable to those on modest incomes.  The Government's Housing White Paper of February 2017 recognised that the housing market is broken, and the Prime Minister said in his New Year's Message that he wants to "unite & level up" the country. If he is to achieve this, then we need to fix the broken housing market and stock retained councils must be allowed to play their full part in doing so by building more council housing where this is necessary to meet local housing needs". 


Chloe Fletcher, policy director at the National Federation of ALMOs said:


"This is solid evidence from the front line of housing demand. It highlights all that we have been trying to put before successive housing ministers over the last five years.


"The lifting of the HRA debt cap was fantastic news to the sector and a very necessary reform of the system but it is not enough on its own. Finding land on which councils can afford to build is a huge concern, as is the current right-to-buy regime which both depletes housing stock and siphons public money out of the system.


"We have been arguing for some years that right to buy doesn't necessarily have to end. However, it must urgently become a sustainable home-ownership offer that sits comfortably alongside our very desperate need to provide more homes that more people can afford to rent. 


"With the right support, councils and their housing management ALMOs are ready to do that, but they need the wholehearted support of government. And government needs local authorities - the national housing crisis is a problem that the private sector simply can't solve on its own."


The right to buy policy was cited as a severe disincentive to building, as new homes might have to be sold after only three years, possibly at less than the cost of building, while many local new-build programmes are not addressing growing need because they are only replacing, or even failing to replace, the homes sold under the right to buy."


Download a copy of the full report: "Local Authority new build programmes and the lifting of the HRA borrowing caps - what is the potential and what are the constraints?"

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