Calling off the Cap - Housing Revenue Account

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27 November, 2018

The 29th of October 2018 marked a momentous occasion for social housing. It was on this date the wishes of many local authorities, housing associations and developers were granted as Theresa May fulfilled her pledge and officially abolished the Housing Revenue Account (HRA) borrowing cap.

Prior to the lift, each local authority could borrow money within their HRAs to build more or regenerate existing homes. However, each local authority encountered a restriction on how much they could borrow against their HRA. This restriction faced many complaints, as whilst the demand for new housing is a national priority, local authorities did not face a similar cap when borrowing for commercial property developments.

The government believes the lift will give councils the tools they need to build up to 10,000 additional homes per year, and take a significant step in fulfilling the UK's growing appetite for new housing. It will provide local authorities with the opportunity to increase their delivery of new homes by creating partnerships with housing associations and developing quality, sustainable homes which coincide with local plans.

Local authorities will therefore embrace the cancelling of the cap, and the Government's recognition of the significant contribution they can make to housing supply, but they will also feel the pressure of having the responsibility to commission housing delivery back on their shoulders when for many this was a resource which was transferred to housing associations as part of an LSVT. Whilst policy details are being confirmed, we anticipate it may be the case that housing associations and local authorities may seek to collaborate. Cities that have the money and drive to tackle their housing problems will want to grasp the opportunity. Local authorities with retained HRA will be wishing for no limiting requirement as to what is a tried, tested and working prudential financial code for borrowing. Others will focus on financing.

On the other hand, some local authorities may feel as though they do not have sufficient capacity to deliver up to 10,000 homes per year. The decline in house building over the last 50 years, with local authorities building over 40% of permanent homes in the 1970s and only 1.68% last year, together with a decade of austerity has left a number of local authorities without the capacity to start building. Local authorities will need to decide whether they will build housing directly via a development company or perhaps obtain a short-term treasury loan / form partnerships with housing associations in a bid to ratchet up the number of houses they will build. This could have two distinct impacts on housing associations, one positive and one negative. As some local authorities lack the capacity to build on a large scale, they will rely upon bringing in resources and expertise via partnerships with housing associations. Doing this will relieve the pressure on the cost of homelessness whilst also offering the benefit to stem the larger pressure in social care. On the other hand, a potential negative is that local authorities will stop their rare gifts of land to housing associations, which enables housing associations to use government grants and private borrowing to build homes. Instead, local authorities may want to build on their own sites.

Although the calling-off of the cap will not cause immediate results in helping 'build Britain', we feel it is a step in the right direction and is a great opportunity for housing associations to make partnership offers to local authorities.

For more information contact Aisha Bhailok in our Housing & Regeneration department via email or phone on 0333 207 1130. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Housing & Regeneration department here

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