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The build up to HRA reform

With self-financing for council housing just 139 days away we can expect a plethora of reports and advice to councils on what they can do to maximise the benefits.  The latest has been produced by Navigant for London Councils, which adds to an earlier one by PwC for the Smith Institute.  CIH has been producing bulletins for members and has teamed up with CIPFA to create an online resource on self-financing.  What are they all saying?
As everyone knows, the big prize from self-financing is that councils get to control their rental incomes for the first time (or, at least, for the first time in recent memory).  PwC emphasises the magnitude of this by assessing the total income as being more than £300bn over the next thirty years, though of course the real figure could be very different from this.
However, as everyone also knows, the big snag is the cap that will be imposed on each council’s borrowing, which will vary in its effects: some councils will have very little ‘headroom’ above the cap for extra borrowing on top of the new level of debt they have to service, others will have quite a lot.
For the first time, there are real political decisions to be made about setting rents and using the revenue they generate.  Not surprisingly, this is also causing real tensions. First, do you put rents up to maximise income and borrowing, or do you keep them down to reflect tenants’ difficult financial circumstances, particularly those who pay rents from their own incomes?  There is no formula that can give an answer to that conundrum and each council will have to decide for itself, hopefully in full consultation with tenants.
The second tension is how to spend the spare cash.  There are multiple choices here too:
completing decent homes programmes where there is still a shortfall, doing works to improve the security of and amenities in estates, starting to make the stock energy-efficient through retrofit programmes and – of course – new build.
A common feature of all the advice being published is that the key to maximising resources is creative asset management.  Until now, council haven’t had the same incentives to manage their assets constructively as housing associations have had, and there are still limitations on what they can do, but for example it might make sense to demolish some stock that is no longer in the highest demand and is costly to improve.  It is also going to be vital to reconfigure planned maintenance programmes so that they take account of the need to radically improve energy efficiency, factoring in outside resources such as the Green Deal.
These are demanding tasks, and the key question is whether or not the resources expected to be available from April onwards will be enough to satisfactorily manage and maintain existing assets, before even contemplating new build.
The London Councils report suggests that some boroughs (the public document doesn’t say which) will struggle to balance their business plans, ie. both meet the new debt costs and effectively invest in and maintain their assets.  Most, though, will have some headroom, limited of course by the cap.
What is clear though from the various reports is that no one has yet come up with an idea for adding to councils’ resources beyond the basic options that have always applied, which are:

  • fully use the funding you will have in the self-financed HRA – including potentially build new homes with grant from the HCA if you are willing to go for ‘affordable’ rents
  • lever more funds into the existing stock through PFI
  • transfer the stock
  • use land and other assets to bring in affordable housing through other routes, mainly via housing associations.

Even the new options for ALMOs, which I blogged about in June, involve transfer, albeit to a community-led body and maintaining a close link to the local authority.  The London Councils report suggests transfer as an option, too, but focuses on the merits of using it for parts of the stock – either good stock that will bring in some money, or poor stock that will remove a liability.  But will partial transfer be attractive either to councils or to tenants?
My conclusion from reviewing this material is that the choices largely remain as they were when the current self-financing deal was put on the table.  Given that the government (like
the previous one) insists on sticking to the current borrowing rules, the options for bringing in resources that are ‘off balance sheet’ are essentially the same ones, with their respective pros and cons.
Councils without ALMOs are well-advised to concentrate on making the most of what they have already got, and be as well prepared as possible to finalise and start to implement their business plans when the final debt levels are known in the New Year.  For councils
with ALMOs the advice is the same, but those who are planning to close their ALMO down should be aware that – whatever the other arguments – they are foregoing options that just might be attractive once self-financing gets underway.