Back through the looking glass
Sue Finch hails the deal on self-financing that puts council house building back on the agenda at last
Put April 6, 2015 in your diary and prepare to celebrate the start of a new era for housing in Wales: a national registration scheme for the private rented sector begins; homelessness legislation fit for the 21st century will be in place; and councils can start building again.
At long last the 11 landlord councils will be freed from the inscrutable ‘Alice in Wonderland’ world of the Housing Revenue Account Subsidy (HRAS) system. It must have made sense to someone at the start, or perhaps the system was just a creature of its time, ultimately however the subsidy system designed to support council house building almost killed it off by diverting significant amounts of rental income to the UK Treasury. It is no wonder that councils have struggled to bring their homes up to standard and 11 Welsh authorities transferred their stock. But that is about to become history, a deal has been done with the UK Treasury and council house building is back on the agenda again in Wales.
After years of pressure from local government, agreement has finally been reached between the Welsh Government and UK Treasury that will allow the 11 councils with housing to buy their way out of the HRA subsidy system at the end of 2014-15. There are two parts to the deal. First the 11 councils will buy themselves out by replacing the current £73 million annual payment to the UK Treasury with an annual interest payment of £40 million on a Public Works Loan Board (PWLB) loan. Every landlord authority will be better off and able to retain more revenue to invest in existing and new homes and free for the first time in a generation to plan for the long term and develop a strategic vision for their HRA.
Cap on borrowing
The second part of the agreement imposes a cap on HRA borrowing in Wales of £1.85 billion. The cap will include the ‘buy out’ figure estimated to be £919 million, existing borrowing of about £459 million and approximately £358 million required to bring every home up WHQS work. This will leave about £112 million of borrowing for new build and regeneration programmes.
In the short term the borrowing cap will limit the ability of authorities to build again, although councils will be able to increase their borrowing headroom over time and who knows exactly how long the cap will remain place.
Distribution of the UK-imposed borrowing cap across the 11 authorities will be a difficult balancing act, with some authorities wishing to surge ahead with large scale building programmes while others, particularly those with the biggest backlog of WHQS work, will be wanting to start building after reaching WHQS. Some form of periodic review of the distribution of the borrowing cap is likely to be part of the solution, but we must avoid the danger of replacing the restrictions and short-termism of the HRAS with our own homegrown version.
In the meantime at a national level the 11 authorities, the WLGA, Welsh Government and other key organisations such as Welsh Tenants, CIPFA and the Wales Audit Office are working frantically to ensure new arrangements are in place for April 2015. And at a local level authorities are putting project teams in place to steer the transition to the brave new world of self financing.
Opportunities ahead
So what will this new freedom mean for local authorities and what are the opportunities ahead? Crucially, self- financing will allow authorities to plan strategically for the long term and provide certainty for tenants and communities. In terms of the housing stock there will be increased revenue to bring forward WHQS work, increase energy efficiency, regenerate neighbourhoods, build new homes and acquire existing homes. Equally important is the opportunity to maximise the role that HRA investment can play in addressing wider community priorities including job creation, skills development, boosting the local economy, regeneration and improving health and well being.
To expect a significant house- building programme across Wales in the short term perhaps is overly optimistic, although a handful of authorities can’t wait to get started and others are starting to plan. What is perhaps more significant for Wales is that escaping from the HRAS has put council house building back on the political agenda again, not just in the 11 authorities with stock, but across all of local government and in Welsh Government too. Can authorities with access to cheap PWLB loans deliver more affordable homes for less? Can a local council house building programme help
to meet local authority priorities in these difficult times?
There are not many good news stories in local government at present, but self- financing is surely one of them and the journey is just beginning.
Sue Finch is policy officer (housing) at the Welsh Local Government Association