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The rise of local housing companies 24/10/2017 Labelled as Development, Finance

A new report by the Smith Institute reveals the rapid rise in the number of local housing companies directly funded by councils which now total around 150 and could increase to around 200 by 2020 - covering just over half of all councils in England with the largest concentrations in London and the South East.


The report 'Delivering the renaissance in council-built homes: the rise of local housing companies' predicts that local housing companies could deliver up to 15,000 extra homes per year by 2022 although most local housing companies have modest ambitions to build (averaging around 50 units per year).


The report says councils are attracted to set up local housing companies because they have more direct control and influence and greater flexibilities & freedoms especially over rents, borrowing and the Right to Buy.


That local housing companies can generate income for the council's General Fund providing a "triple dividend" in the form of much needed extra housing, a greater stewardship role in place=shaping and a financial return to the councils' General Fund.


Many of the companies they studied use the profits to cross-subsidise new affordable and social rented homes as well as providing temporary accommodation and housing for the young and elderly.


Speaking at the launch of the report in the House of Commons on 16 October, ARCH Chief Executive John Bibby said: 


The fact that many local authorities are exploring the idea of building new municipal housing through a local housing company clearly illustrates their ambition to build new housing to tackle the broken housing market.  It does however seem perverse that councils can freely borrow ¬£millions through their General Fund under prudential borrowing rules to build new housing but, even though the HRA (Housing Revenue Account)  is self-financing , they are restricted in the numbers of new social rented properties they can build by the borrowing caps on the Housing Revenue Account.


Councils were just getting to grips with the new self-financing regime introduced in 2012 under the Localism Act and were starting to invest in new council housing when previous governments reneged on the deal and increased the uncertainties and risks for councils by introducing a reinvigorated Right to Buy with substantially higher discounts, imposing a 4 year mandatory rent reduction and signalling the introduction of an as yet unspecified High Value Asset levy, thus discouraging councils from prudently investing more in new social housing through their HRA.  


Local housing companies can have an important role to play, particularly in improving standards in the private rented market and in stimulating growth in home ownership where the private market ids failing but ARCH would like to see the government re-instate the original self-financing principles and allow local authorities more control and flexibility over their HRA to make the best use of their assets and resources locally given the evidence is that with the right long term, stable framework that is what they were starting to do and will be able to again.

The Government should empower local authorities to build more homes by: 


  • Giving councils back control of their housing assets and revenue by committing to the principles of HRA self-financing for council housing under the Localism Act 2011 which has the potential to drive a real revival in public investment in council housing if properly supported. 

  • Lifting the HRA debt caps for new build purposes and relying instead on prudential borrowing rules to enable councils to invest in new homes and pay back the money from their rental income.


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