London set to start building council houses again

Aaron Morby 12 years ago

Government plans to allow London local authorities freedom to run their own housing finance  is set to see the return of mass council house building in the capital.

The Government’s looming reform of Housing Revenue Accounts is being described as the biggest change to council housing since ‘Right to Buy’.

From April, 33 London council will be free to use rental income and borrow against existing housing stock to fund council house building and repairs.

A report published by London Councils, the body representing the capital’s 33 local authorities, predicts the capital could soon be building significant numbers of new homes for the first time in decades.

It was commissioned to look at ways councils could work either individually or in groups to maximise their opportunities to invest in housing given this new freedom to borrow.

The body’s executive member for housing, Mayor Sir Steve Bullock, said: “This is the biggest change in council housing since Right to Buy. For the first time in recent history councils will be able to keep all of the rent they collect and invest it locally to improve housing for their tenants.

“The reform of the Housing Revenue Account is a major opportunity for councils to maintain and expand their housing stock far more effectively for the people they accommodate.

First councils will need to put in place measures to clear an estimated £7.2bn of government housing debt accrued from years of financing council house building.

All boroughs will initially pay off their share of the £7.2bn debt using loans from the Public Works Loan Board – the government’s lending agency, but may look at other financing instruments to manage the whole debt portfolio in the long term.

They will then repay any debt through their Housing Revenue Account. This is a fund specifically kept for housing income and expenditure which is separate from a council’s main budget.

Once the debt to government is paid, councils will be able to borrow cash against the strength of their rental income, although the government is setting a limit on how much money each council can borrow.

The research, which looked at HRA business plans drawn up by a representative sample of a dozen London local authorities, highlighted that although some boroughs will take on more debt than others, all could benefit from the new housing finance arrangements.

At first some boroughs are expected to concentrate on paying off their loans. But other have said they will use their freedom to borrow by investing in repairs and modernisation of their current housing stock, or building much needed new affordable homes.

There are currently 420,000 council-owned homes in London. This is a quarter of the country’s council-owned housing which accommodates almost one in six London households.

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