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Subject: Building New Council Housing in
London
Report to: Housing and Regeneration Committee
Report of: Executive Director of Secretariat
Date: 25 April 2013
This report will be considered in public
1.
Summary
1.1
This report covers the second part of a two-meeting London Assembly investigation into council
housing in London.
2.
Recommendations
2.1
That the Committee notes the report as background to discussing with experts the
building of new council housing in London.
3.
Background
3.1
This report sets out background information for a discussion with invited experts on the issues
surrounding the building of new council housing in London.
3.2
Key issues to be covered in the discussion will include:

funding available to local authorities arising from Housing Revenue Account reform

innovative methods adopted by London’s boroughs to develop new council homes.
3.3
As elsewhere in the country, numbers of council homes in London have reduced substantially as
a result of stock transfers to housing associations and the Right to Buy legislation. But London
is in desperate need of more housing and must exploit every opportunity to boost supply,
including building new council stock where feasible.
3.4
This second part of the Committee’s investigation will consider the opportunities available to the
boroughs to build new council homes, either using their own resources, or drawing on those of
others, particularly in light of the recent reforms to the Housing Revenue Account.
City Hall, The Queen’s Walk, London SE1 2AA
Enquiries: 020 7983 4100 minicom: 020 7983 4458 www.london.gov.uk
4.
Issues for Consideration
4.1
Housing Revenue Account reform
The Housing Revenue Account (HRA) is the ring-fenced element of a local authority’s budget
dedicated to its housing operations. Following lengthy review, the financing of local authority
housing was reformed in April 2012. This changed the basis for HRA funding from a system of
national subsidy (based on the pooling of rental income and central reallocation) to one of selffinancing (in which authorities would keep their income and be free to invest in housing as
agreed locally, but also be responsible for their own housing debt, either associated with housing
maintenance or with new build).
4.2
The reform was broadly welcomed, though the one-off allocation of the nation's outstanding
housing debt arising from the settlement was somewhat controversial. Authorities are now able
to borrow against their housing assets, but the level of permitted debt remains limited to the
opening level of debt for each authority determined for the self-financing regime. This offers
some authorities the option to make a modest investment in new stock, though because the first
call on any borrowing capacity will be the ongoing housing maintenance programme, others will
be left with no spare borrowing ‘headroom’ or surplus to finance new investment.
4.3
In London twenty nine boroughs still have housing stock and have assumed some £7.2bn of
public housing debt, £17K per council home1. London Councils finds that borrowing headroom
in London amounts to some £1.5bn but is distributed unevenly across the capital2. Because
London has a higher proportion of housing stock which does not meet the Decent Homes
Standard than any other region, the immediate opportunities for capitalising on HRA reform to
build significant numbers of council homes are very limited. Opportunities may present
themselves, however, in the medium- to long-term, particularly where authorities adopt the
above-inflation rental increases assumed in the debt allocation model. So some boroughs may be
looking at ways to draw short-term on the future revenues likely to accrue in the HRA – this
would enable them to start a new council home building programme now, rather than waiting
until these revenues are realised.
4.4
The housing investment landscape outside of HRA
Opportunities for new build council housing were significantly reduced as a result of the 1998
Local Government Act. This directed housing investment away from local authorities and
towards housing associations, with the effect that only around 1,000 council homes were built in
England during 2010-11, compared with almost 13,000 in 1990-13.
4.5
But there continues to be an appetite amongst many authorities for council-owned new build,
especially in London, where council housing is a more significant tenure than elsewhere in the
country. With the move to Affordable Rents, charged at an average sixty-five per cent of market
levels in London, the need, particularly amongst larger households, for social housing at lower
rents has come sharply into focus. Council housing has traditionally offered these lower rent
levels.
Source: PwC Self-financing Model, Department for Communities & Local Government, Feb 2011
From Self-Financing to Self-Determination, London Councils, Nov 2011
3 DCLG live table 209 local authority completions
1
2
4.6
Funding investment in housing remains challenging. The commuted s106 receipts (arising from
the planning process) which had been a key source of funding for social housing are declining in
line with a policy shift aimed at minimising disincentives to development. But some capital
resources remain available to authorities, dependent on their individual circumstances, including
the use of:
 Right to Buy receipts
 New Homes Bonus funding
 land disposals.
4.7
In some cases, authorities have leveraged in support from third parties, for example via the
Private Finance Initiative (PFI). The majority of these programmes have centred around
refurbishment or regeneration rather than new build, however, and PFI has in many cases been
discredited for new build purposes as prohibitively expensive and overly complicated.
4.8
Using the various funding sources for house-building
So some authorities, including in London, are managing to find ways to build new council stock
using a combination of these types of opportunities, for example:
 Barking & Dagenham has one of the country's most ambitious new build programmes for
council-owned housing, using National Affordable Housing Programme money and councilowned land, to develop family-sized housing at social rent levels.
 Westminster has a council home building programme front-funded through the HRA, using
council-owned land, leveraging external finance using its charity Westminster Community
Homes and run by its ALMO, CityWest.
5.
Invited Experts

Mayor Sir Steve Bullock, Executive Head of Housing, and Nigel Minto, Head of
Housing and Planning, London Councils. London Councils is a cross-party organisation,
funded by its members, including all thirty two London boroughs and the City of London. It
lobbies government and others on behalf of its members, seeking to enable councils to do the
best possible job for residents and local businesses.

Richard Parker, Partner, PwC. Richard Parker is author of the influential report Making
the Most of HRA Reform, which examines the potential investment opportunities offered to
local authorities by the move to self-financing. PwC undertook the modelling underlying the
debt allocations made by the Department for Communities & Local Government in the selffinancing settlement.

Melissa Dillon, Head of Regeneration and Development, London Borough of Camden.
Camden has a 15-year Community Investment Programme, aiming to make best use of its
buildings and land to release investment funds including for housing. It plans to deliver 500
new council homes for rent and replace 400 existing council rented homes as well as
developing units for shared ownership and for market sale to local people.

Daniel McCarthy, Head of Housing Strategy, London Borough of Westminster.
Westminster established a subsidiary, Westminster Community Homes (WCH), to address
housing supply issues prior to the reform of the Housing Revenue Account. It is now front-
funding a regeneration programme from its HRA, as well as providing land and loan finance
to WCH to develop new social and intermediate rented tenures.

6.
Alan Benson, Senior Manager (Strategy), Housing and Land Directorate, Greater
London Authority.
Legal Implications
6.1 The Committee has the power to do what is recommended is this report.
7.
Financial Implications
7.1
There are no direct GLA financial implications arising from this report. Financial implications
for the individual programme of work in 2012/13 will be dealt with separately in reports to the
Committee as and when the Committee is required to make relevant decisions.
List of appendices to this report: There are none.
Local Government (Access to Information) Act 1985
List of Background Papers:
Project Scoping Paper, Housing and Regeneration Committee, 23 January 2013
Review of the Key Issues Affecting Council Housing in London, Agenda Report and Minutes - Housing
and Regeneration Committee, 13 March 2013
Contact Officer:
Telephone:
E-mail:
Lorraine Ford, Scrutiny Manager
020 7983 4394
[email protected]