Download View item 4. as RTF 98 KB - Greater London Authority

Homes for London (HfL) Board
Date of meeting:
12 February 2013
Title of paper:
Housing Revenue Account self-financing
To be presented by:
Alan Benson
Cleared by (name of
Executive Director):
David Lunts (Executive Director Housing & Land)
Richard Blakeway (Deputy Mayor Housing, Land &
Property)
Classification
Public with reserved appendix
1
Purpose of this paper
1.1
To update the Homes for London (HfL) Board on London’s Housing
Revenue Account (HRA) self-financing settlement and its implications for
investment in housing in London. To seek agreement for further work to be
undertaken by GLA, London Councils and borough officers.
2
Recommendations
2.1
That HfL notes the contents of the background report (appendix A).
2.2
That HfL agrees
(i)
that the GLA and London Councils should develop a robust lobbying
position for the lifting of the HRA debt cap. This should be based on
the principle that London will make robust and realistic commitments
to deliver new housing in return for a reform of the borrowing rules;
(ii)
that GLA officers work with boroughs to investigate potential
investment models that could build on the opportunities of HRA selffinancing, including ‘bridging finance’; and,
(iii)
that GLA and borough officers should share information and
intelligence about how HRA business planning and other associated
issues, such as local authority new build programmes, can align with
Mayoral investment and programmes.
3
Key information / issues arising
3.1
The new, devolved system of council housing finance came into force on 1st
April 2012. Under the new system, London’s 29 stock-owning local
authorities have been given full control of their housing income and
expenditure and, in return, each has been allocated a share of the national
housing debt. The issues arising from the reforms are explored in a
background report attached to this paper (appendix A).
3.2
The settlement left London boroughs with significant additional borrowing
headroom of £1.4bn, almost half of the England total. Much of this
headroom can be utilised to increase investment. However, the distribution of
headroom around London is not particularly well-matched with investment
needs and the government has imposed a fixed cash limit on HRA debt. This
prevents sustainable borrowing for investment purposes, including for the
development of new housing.
3.3
Most HRAs are projected to accumulate significant operating surpluses over
time because the growth in rental income is expected to exceed growth in
expenditure. PwC estimates that HRA surpluses will equal £15bn in London
over a 30 year period, or £7.5bn in today’s money. However, this projection
relies on a range of assumptions about rental growth and costs and is
dependent on a level of stability in government rent, welfare and inflation
policy that would be unprecedented. This is a significant risk facing
boroughs. Moreover, most boroughs anticipate that they will have to wait for
between seven to ten years before their HRAs are consistently in surplus.
Therefore it is necessary to consider investment models that would allow the
benefits of these future surpluses to be brought forward to stimulate housing
investment now.
3.4
HRA reform in London clearly presents a significant opportunity to increase
investment in housing and this is already happening in many boroughs.
There are also some Londonwide opportunities that need to be explored,
such as looking at new investment models, capacity-building the local
authority new build (LANB) sector, and generally improving the links
between GLA and borough investment programmes. This paper therefore
includes a recommendation that GLA and borough officers should continue
to work together on opportunities to align Mayoral and borough investment
programmes and to develop new models that can capitalise on HRA selffinancing.
3.5
However, in order to realise the full benefits of HRA self-financing, further
government reforms are urgently required. Most importantly, a relaxation of
the HRA borrowing rules could potentially stimulate a significant increase in
council house building activity. Government has so far been reluctant to
entertain further reforms because of their potential impact on the national
debt, and the lack of safeguards that could ensure that borrowing was used
chiefly to stimulate house building activity.
3.6
It is therefore proposed that GLA and borough officers work up a case for the
relaxation of HRA borrowing rules that meets London’s requirements for
new homes while also addressing the government’s concerns. The ‘tests’ of
such a proposal could include the following:

demonstration to government that additional council borrowing arising
from any further HRA reforms would be sustainable in of itself and in
terms of the national finances

a robust and realistic commitment from London boroughs to utilise more
HRA borrowing flexibility to develop additional homes, i.e. homes that
would otherwise not have been constructed

a commitment from the Mayor to actively support boroughs through the
use of his own powers and investment capabilities.
3.7
GLA and borough officers will also explore further options for making the
most of HRA reform in London. These should include the possibility of a
‘bridging finance’ approach under which the GLA would invest grant or
equity now and be reimbursed from future HRA surpluses. Receipts could
then be reinvested in the fund, enabling it to fund more affordable housing in
the future.
3.8
This work needs to be completed as soon as possible so as to be considered
by government in time for its decisions about future spending rounds. It is
therefore proposed that a joint position be developed by London Councils and
GLA officers and approved, in consultation with HfL Board members, by the
Deputy Mayor for Housing, Land and Property and the London Councils
Executive Member for Housing.
3.9
In addition to the work outlined above, the GLA is also exploring other
opportunities to support borough investment in new housing supply. This
includes conventional grant funding of LANB programmes, an equity fund to
‘pump-prime’ LANB, and other models that would build on HRA selffinancing and the GLA’s new housing investment powers.
4
Relevant background information
4.1
The key issues and recommendations outlined above are based on a review of
HRA self-financing undertaken by GLA officers. The results of this review
are in the attached background report (appendix A).
5
Risks arising / mitigation
5.1
There are no specific risks associated with this item.
6
Financial comments from the Executive Director Resources
6.1
This item has no financial implications.
7
Next steps / conclusion
7.1
The GLA will report progress to HfL on a regular basis.
Appendices
Appendix A: GLA background report on HRA self-financing