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Let councils borrow to build

GlanzCllr Jonathan Glanz, the Cabinet Member for Housing on Westminster City Council, says the cap shoud be lifted to give freedom on housing budgets

Let local authorities and ALMOs manage their housing businesses effectively and efficiently to provide more of the affordable housing that this country so desperately needs.  That’s the argument behind the report ‘Let’s Get Building’, published at the end of last year by the LGA and an alliance of housing organisations.

After some promising noises from various quarters, the potential for higher levels of house building by local authorities and ALMOs was overlooked in the spending review but undoubtedly warrants a more detailed examination ahead of next year’s Budget. Having given councils greater freedom to manage their housing budgets last year, the next logical step is to give them the freedom to decide on levels of investment and borrowing to fund it.

Councils currently plan to construct about 4,000 homes per year. This could increase by an additional 15,000 annually if councils were given more freedom to borrow to invest.  Councils have a well-earned reputation for sound management of their finances and ALMOs are known for providing high quality housing management, managing large scale capital programmes and in many cases have already built new homes in communities all over the country.

To illustrate the headroom for further borrowing, the current average debt on ALMO property is £17,000 compared with an average outstanding mortgage debt held by UK owner occupiers of £111,793 in August 2012, according to research by Credit Action.

In most cases building more homes to replace those sold through the Right to Buy and to provide for families in need of affordable housing would make sound business sense as the new rental income would help repay the overall debt over the business plan period as well as saving huge sums of money on housing benefit by providing cheaper accommodation for homeless families rather than resort to private sector temporary accommodation.

The obstacle is the cap on council housing borrowing imposed by Government when self-financing began last April. Whilst those of us involved in local government understand all too well and support the Chancellor’s commitment to return the country to a stable fiscal footing, it is important to understand that this borrowing would be paid for by the rental income from the new homes and would not be a call on general taxation.

This is why ‘Let’s Get Building’ also argues that the introduction of self-financing for council housing
makes the case for a permanent change in borrowing rules even stronger than before.  There is no reason why councils should not simply manage their own housing businesses effectively.

We are, indeed, the only country within the EU that does not recognise that investment in publicly owned housing is a commercial activity. All other member states do not include borrowing for housing investment in their public sector borrowing figures. I support the thrust of the report, which urges the Government to also recognise this important distinction and adopt international borrowing rules which would take council housing investment out of the main measure of government debt and outlines how this could be done.


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