What will the lift in the Housing Revenue Account cap mean? Tiffany Cloynes looks at the possible outcomes.

The Government’s decision to lift the Housing Revenue Account borrowing cap could help to stimulate housing development but more action is needed to ease the pressure on housing needs.

When the current system of self-financing for the Housing Revenue Account was introduced in 2012, there was a limit on the amount of debt that could be held against the Housing Revenue Account. This meant that local authorities were limited as to the amount that they could borrow for housing purposes. With the many pressures on local authority finances, the use of borrowing powers provides useful access to resources, so limits on borrowing for housing purposes constrained the ability of local authorities to develop housing. In an effort to address this, the Government announced in its budget in Autumn 2018 that it would abolish the limit.

Increasing the potential for borrowing could have a significant impact on the financial pressures that have held back progress on building new homes but it will require careful effort from local authorities to take action to take advantage of this. Although the relaxation on borrowing could help, there will still be a need to find sources of finance and to agree appropriate arrangements. An established and recognised source of funding would be the Public Works Loan Board but there may be other sources which could provide new opportunities, as long as local authorities take account of the risks. In order to make full use of the borrowing opportunities open to them, local authorities need to identify all possible sources of funding, research them thoroughly and ensure that they agree borrowing terms that are in the interests of the authority, impose rigorous obligations on the lender and contain safeguards to ensure that the authority knows as soon as possible if there are any concerns about the lender’s solvency.

There is also a need to address the need to deliver homes, taking account of the requirements for land acquisition, planning permission and any other required consents, and procurement processes if they are commissioning construction. There is also the question of the time it will take to build new houses. Initiatives such as modular house building, which are being used by developers in some areas and attracting interest from providers of housing and those in need of housing, might help in that respect. The use of modular housing, in which houses are built off-site, whilst the foundations are being laid, provide an option to build sustainable and energy efficient houses in a relatively short timescale. Moreover, as UK businesses develop modular housing operations, there is potential for employment opportunities to emerge and develop. As local authorities address high demand after several years of lack of available housing, they will need to explore all ways of bringing forward housing.

Local authorities might also find it helpful to review what structures they use to deliver housing. These might include engaging in joint ventures with others and establishing companies to develop and commission the provision of housing. In the past, the borrowing restriction might have been an incentive for local authorities to operate through a housing company but there are other reasons which would still be relevant, such as delivering corporate services efficiently through a service level agreement between the local authority and the company. The local authority would need to take account of the tax requirements that would be imposed on a company but appropriate tax efficient structures could be used to address that.

An increase in the borrowing potential of local authorities is an important step but it needs to be used as part of a thorough strategy for addressing housing needs.

This article was originally published in Local Government Lawyer.


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TIFFANY CLOYNES

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