Report by CIH and Savills calls for a re-opening of the 2012 local authority self-financing settlement
A new report by the Chartered Institute of Housing in partnership with Savills has found that the Housing Revenue Account debt settlement needs to be reduced by £17bn to address councils’ underinvestment in housing.
The Housing Revenue Account (HRA) debt settlement between the government and local authorities, agreed on in 2012, was set at approximately £29bn.
The Chartered Institute of Housing (CIH) and Savills have estimated that to meet current and future quality and regulatory standards, the sustainable level of debt for local authorities with HRAs has now dropped to £11bn.
This means that an estimated £17bn in unsustainable debt would need to be transferred from local authorities to central government, to enable council housing finances to become sustainable again for the long term.
The 2012 HRA self-financing settlement allowed local housing authorities to retain all rent revenue to provide services to tenants and aimed to make the level of HRA debt held by each local authority sustainable, enabling growth and investment in housing.
However, the report states that councils now face unsustainable debt levels and that “there is simply not enough money in the system to allow council housing to be run properly.”
The paper, ‘Why councils are underinvesting in housing and how an updated debt settlement could put that right’, cites the impact of rent controls, sustained higher-than-expected inflation, loss of stock through right to buy, and new regulatory burdens as factors that have undermined the original settlement.
The legislation allows for the settlement to be re-opened where there has been “a change in one of the factors taken into account in calculating the previous payment”.
The CIH and Savills report states that revising the existing debt settlement will ensure that the homes of 1.6m tenant households remain at affordable rent levels, by securing council housing finances over the long-term.
Gavin Smart, chief executive of the Chartered Institute of Housing, said: “We are living in a very different place than the one we were in 2012 when the government first outlined their plans for a debt settlement.
“It is vital that all government decisions are made with the most up-to-date information possible, especially when local councils are struggling so much against spiralling debts.”
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Smart added: “Unlocking new funding to reduce council debt will enable councils to provide new homes and to bring the properties they currently have up to the standards people deserve.”
A separate report published by 20 local authority landlords last week said council landlords across England face deficits of over £3bn in their HRAs over the next ten years.
The report called for a new, fair and sustainable HRA model, stating that: “Unless something is done soon, most council landlords will struggle to maintain their existing homes adequately or meet the huge new demands to improve them, let alone build new homes for social rent.”
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