By Jo Pitt, CIPFA Local Government Policy Advisor
In July 2016 CIPFA and the Chartered Institute of Housing published an insight championing the important role of Investing in Council Housing. The report makes a number of key recommendations and, with the support of modelling and a sector survey, highlights the impact current policy decisions such as pay to stay and high value asset sales are having on the ability of local authorities to confidently produce long term plans.
Risk, reward and promise
Until 2012, council housing finance was controlled by government. Calls for reform led to a new settlement in April 2012, ‘intended to endure for the long term.’ The majority of councils took on £13 billion in extra debt in order to become ‘self-financing’ and to invest more in new homes. While understanding that there was additional risks Local authorities were also able to make 30 year business plans based on a reliable income stream coming from rents.
Although the government has never called for extra payments from councils, beyond those made in 2012, it has made other decisions which have undermined the settlement:
- rent levels have had to be reduced to substantially below expected levels
- assets are being sold more quickly than anticipated
- welfare reform is making it harder to collect rents.
Modelling and recommendations
Modelling showed that the cash flows available to local authorities had already dropped dramatically, even before other policy changes had been accounted for. In addition to the modelling a survey of local authorities confirmed that those with housing stock saw considerable challenges over the next four years from the reduction in rental income. Re-forecast business plans and warnings over financial stability were common messages and so the report made a series of recommendations to government which included:
- That the Secretary of State acknowledges the promises made by the then housing minister at the time of the original HRA settlement
- The government examines ways in which the investment potential of local authorities could be restored to what it was immediately after the settlement, so that their business plans can once again be put on a sustainable basis.
- That it recognises that inflation in costs and cuts in rents have had a drastic impact on local authorities’ investment capacity
The future
Overall the financial uncertainty already appears to have affected the ability to build homes with many seeking alternative ways of delivery. While many of these ways are innovative and creative the importance of the long term business plan built around the self-financing agenda cannot be lost.
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