02/11 New financial deal for council housing
7 February 2011
In 2004, a major bank asked me to look at how private finance could help fund repairs and new housing within local authorities. They were keen to advise and lend, and on very competitive terms. Prudential borrowing was allowing car parks, care homes and business parks to be built by councils from general revenues. Why not build new homes using housing revenues?
Within a year the project had floundered. The Housing Revenue Account ringfence; the restrictions on securitisation of rents under local authority finance law; requirements for passing up capital surpluses from sales to central government; and accounting treatment (for the local authority and for public sector borrowing requirements) conspired against commercial goodwill. Over the next few years, the housing associations benefited from huge amounts of private finance at fantastically low rates; councils were left behind.
Fast-forward to 2011, and the banks could do worse than brush off those old plans and aspirations. Councils could do worse than renew private finance and advisory contacts. The Localism Bill, currently making its way through parliament, is dismantling the HRA ringfence and creating an environment for councils to use their rents and land to stimulate new housebuilding, financed through public loans and private loans.
There is still detail to be worked through as the bill becomes law. Some councils are lobbying hard for special treatment in public sector and local government accounting to make it easier for them to raise money to build housing without it damaging their balance sheets. EU public procurement restrictions raise other hurdles to an equal playing field in the housebuilding arena. But there is no doubt that the Localism Bill makes a real step change in the ability of councils to manage and build local homes. And for private finance to come in and lend to them.