29 March 2023
How do we do that?
Chloe Fletcher
NFA Policy Director
A reclad high-rise at Granville Road, Barnet
Councils don’t have enough money to do all they are being asked to do.
This conclusion, from the independent investigation into local government housing finance we commissioned with our sector partners in council-managed social housing, is no surprise to us. But it’s good to see the evidence in black and white in Research into expenditure within the Housing Revenue Account from Savills Affordable Housing Consultancy.
Around 1.5m UK homes are managed by councils, and it’s crucial to understand that their housing managers cannot access the financial markets in the same way that housing associations do when they need to improve the fabric of their stock or build new homes. First and foremost, housing managers cannot borrow what they are unlikely to be able to pay back. In practice, for councils and ALMOs, this means that the contents of the Housing Revenue Account – the pot into which rents, and nothing but rents, are paid – is all they have to spend. And if rents cannot cover costs, they are broke.
Local authorities have been walking Micawber’s tightrope for many years now and know how fine the line has become between the happiness of balanced books and the misery of a ‘must do’ list that gets longer every year.
Net zero and energy efficiency. Vital but unfunded new building safety standards. The rising price of materials, construction and labour that not only pushes up maintenance costs, but also pushes the building of new and truly affordable homes beyond reach.
Predictions of the consolidated inflation for housing management budgets has recently been estimated at 16.4% for 2023-24 and 9.4% for 2024-25. Rent rises will be capped this coming year at 7%, and many landlords will try to keep rises even lower than that to help hard-pressed tenants, but they can ill afford to give up the income.
The day-to-day impact of all this can be seen, for instance, in the repairs services that are right now running out of money because they are working to budgets agreed almost a year ago when inflation was still around 2%. Councils and arms-length housing managers face a stark choice: bail those services out from an all but empty war chest – or leave the work undone. They can’t spend money they don’t have.
Much of the damage was done long before COVID-19, between 2016 and 2020, when government forced council house managers to cut rents by 1% a year for four years. Demands on the Housing Revenue Account rose and rose, the amount coming in dropped and dropped. It’s estimated that £2.6 billion was stripped from local authority housing management budgets, and we will never recover that lost income.
The consequences ripple endlessly outwards. The NFA’s latest annual survey results are in; they show our members cannot meet their own modest targets for much needed additions to social housing stock.
While all council housing managers have been left short of money by government policy, some are more hard-hit than others. For instance, inner cities with more tower blocks are really struggling because:
– flats are more expensive to maintain than traditionally built homes; yet
– they are lower rent, so bring in less income; and
– solving new problems caused by the vital removal of dangerous cladding after the Grenfell tragedy – exposure of high rise towers to bad weather, for instance – has shoved down the line other major capital programmes such as upgrading, new build and repainting, and with no real hope of filling those funding gaps anytime soon.
The consequences ripple endlessly outwards. The NFA’s latest annual survey results are in; they show, for instance, that Stockport Homes, one of our multi-award-winning members, aimed to build 200 homes this last year and built just 65. Reasons? “Land cost and interest rates slowed and reduced development progress, along with rising costs of construction and borrowing.”
Like all our members, they continue to travel hopefully. Stockport tell us they plan to build 655 new homes over the next five years – but average it out, and that ambitious target comes to just over 130 homes a year instead of the 200 that seemed possible last year.
Back in 2012, a self-financing settlement between local authorities and government was welcomed on all sides. It moved away from a government grant and subsidy system, but also allowed council landlords to plan long-term for investment in their stock – and, if resources permitted, to build new homes.
Had that settlement been left alone, it might have been sufficient to meet the needs of council housing stock over the decade since. Certainly we would not be standing here now with our pockets turned inside out.
Even in the best of times, no-one can do everything. But the quality of more than a million homes is our sector’s responsibility and it’s alarming to contemplate how little we have the means to do.
Only health and safety work is our one immutable certainty, simply because it has to be; and if, after that, there’s anything left in the kitty, we can ask our residents what they’re willing to give up and what they can’t do without. Residents and housing managers should be making decisions locally about the housing service needed by the communities they know better than anyone.
But there are some choices that aren’t really choices and are wholly national issues – energy efficiency, climate change work, healthy homes and the desperate need for many, many more truly affordable homes.
If government wants all this, then it will also have to come up with credible explanations for how we pay for it.
Chloe Fletcher is the NFA’s Policy Director. She began her career as a housing officer in London and moved into the policy arena at the London Housing Unit and then worked for the think-tank and lobbying organisation London Councils. She joined the NFA in 2007 and has a Masters in housing from the LSE.