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Council housing borrowing cap set to end this month

Berkeley homes stephenson street newham 2
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Councils could be able to raise more money for housebuilding within days, an official document has revealed.

Housing secretary James Brokenshire circulated a draft determination among local authority chiefs yesterday stating that the revoking of the Housing Revenue Account borrowing cap would come into force on 30 October.

Prime minister Theresa May stunned the industry at the Conservative Party conference earlier this month when she announced she was scrapping the cap – a decision hailed by housebuilders as ‘exciting’ and by surveyors as ‘very positive’.

Now Brokenshire has shown that the government intends to move fast to remove the barrier that prevents councils from borrowing cash on the open market beyond a fixed limit set by the Treasury.

In a letter to stock-owning local authority leaders, the housing secretary said: ‘I was very pleased that the prime minister’s announcement received such a positive reaction from local authorities. This reaffirms local authorities’ appetite to deliver a new generation of council homes.

‘We intend to remove the borrowing cap by issuing a determination revoking previous determinations that specified a local authority’s limits on indebtedness.’

Brokenshire said consultation had to take place first, but gave councils just six days to respond to the draft determination, which sets out the detail and fixes a date of 30 October for the borrowing cap to be removed.

Government officials said further details would be set out at the Budget on 29 October.

The government has recently been increasing its support for social house-building. May last month pledged £2 billion in long-term funding deals for housing providers, calling for a new wave of high-quality social homes.

Reaction earlier this month to May’s pledge to scrap the borrowing cap:

RIBA president Ben Derbyshire 

‘The prime minister quite rightly says that the housing shortage is the biggest domestic policy crisis the country faces. But it is not enough to simply build more, the houses of today need to be designed and built to last.

‘We will continue to work with the government to put the policies in place needed to secure high-quality homes now and for the future.’

Royal Institution of Chartered Surveyors head of policy Hew Edgar 

‘Housing is one of the most complicated market situations that we have seen for some time, and too many are locked out from accessing decent, affordable homes.

‘The government has made tentative steps to tackling the housing crisis since the 2017 Budget; but today, in announcing the government’s intention to scrap borrowing caps for councils, the prime minister has taken a large, and very positive, step.’

Trevor Goode, head of planning and public sector at law firm Ashurst 

‘The government has at last listened to the plea from local authorities to remove the constraints around funding and allow them to use their land and powers to deliver much-needed housing.

‘Some local authorities have been innovative and created separate companies focused on using council land to build housing. The changes announced today will enable local authorities to have direct control over the delivery of additional social housing.’

Brian Berry, chief executive, Federation of Master Builders

This is the most exciting, and potentially transformative, announcement on council housing for many years. It is something the house-building sector and local authorities have been crying out for since the last economic downturn as a means by which to increase house building.

’Indeed, the only times the UK has built sufficient numbers of homes overall is when we’ve had a thriving council house building programme.’

John Dickie, director of policy and strategy, London First

’Taking the fiscal handcuffs off local authorities could lead to a new era of council-led housing development and is long overdue.

’But it’s just a first step. We have a £20 billion funding gap to overcome to build the 300,000 new homes each year already promised by the chancellor - and in London, it’s £8.6 billion.’

Melanie Leech, chief executive, British Property Federation 

’Lifting the council borrowing cap is something our industry has called for over many years and should enable local authorities to invest in their communities’ economic and social wellbeing.

’We urge local authorities to take advantage of this, to support new housing delivery and provide a significant boost to the social housing sector.’

Finn Williams, chief executive, Public Practice

‘Councils understand the urgency of the housing crisis and have the political will to take direct action. They now, finally, have the borrowing powers to deliver housing at scale.

’The challenge councils now face is how to rebuild their capacity to build. The last time councils delivered half of all new homes in the country, in the mid-70s, half of all architects worked for the public sector.’

Bob Kerslake, chairman, Peabody

‘Working together, councils and housing associations can make a significant contribution to tackling London’s acute housing shortage. To deliver enough genuinely affordable homes, however, there will need to be investment from central government.

’There are currently counter-productive housing policies in place which need reform. I’m thinking of Help to Buy, Right to Buy and the ongoing problems with welfare reform and Universal Credit. 

’And of course the elephant in the room is the threat of a no-deal Brexit. This would be catastrophic for the housebuilding industry, given the likely effects on the labour market, materials and the value of the pound.’ 


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Readers' comments (1)

  • Clare Richards

    Last month a £2 billion funding pledge to support social housing; now the lifting of the cap on local authority borrowing. But before we leap to resolve the housing crisis, we have to stop and ask how best to grasp this opportunity. Do we want a 70s style explosion of soulless estates? (And no, we haven’t yet learnt that lesson). Do we have a proper understanding of how to create socially diverse, mixed use, well-connected neighbourhoods that will be the thriving communities of the future? (And no, despite examples of excellence we aren’t learning from them either). A development machine driven by economic expediency and negotiation simply isn’t fit for delivering our future social housing.

    So what now? It’s imperative to rise to the social challenge this represents and to ensure clear principles underpin development – we have ‘spatial design principles’, so why not ‘social design principles’? These boil down to initial evaluation (use the wealth of data available to gain a thorough understanding of social context, needs and infrastructure); collaboration (acknowledge the right to self-determination and the value of local knowledge and sense of identity); and preventing the displacement of existing communities. To build proper foresight into the process isn’t romantic idealism, it’s common sense. But it must be defined, applied and made enforceable.

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