Caps on council borrowing are hindering the building of much-needed affordable homes

A government that is desperate to boost house building shouldn’t look a gift horse in the mouth. That’s the argument behind the report Let’s get building, published at the end of last year by the National Federation of Arms-Length Management Organisations. But after some promising noises from officials in the run-up to the autumn statement, the potential for higher levels of house building by local authorities and ALMOs was disappointingly overlooked.

The obstacle is the caps on council borrowing for housing investment which the government imposed when self-financing began last April. There is a compelling case for removing or reviewing these caps, both because of the urgent need for affordable housing and because it would give a massive boost to the construction industry.

At the moment, councils plan to construct around 3,000 homes per year. But this could increase to 15,000 annually if they were given more freedom to borrow. Even this would require them to use only one third of their borrowing potential and would be well within financially prudent limits.

Even though removing these caps would add to government borrowing, house building is such an effective economic stimulator that much of the additional spending would come back in extra taxes or in benefit savings. Furthermore, councils would make savings on the use of expensive private sector accommodation.

Let’s get building also argues that reform of council housing finance makes the case for a permanent change in borrowing rules even stronger than before. There is no reason why councils shouldn’t simply manage their own prudential borrowing, as the Chartered Institute of Public Finance and Accountancy has argued. Going further, there are now fewer obstacles to the government adopting international borrowing rules which would take council housing investment out of the main measure of government debt. The report shows in detail why and how this could be done.

It’s in the interests of the whole social housing sector to maximise our ability to provide affordable homes, using not only the borrowing capacity of housing associations but of local authorities too. There is tremendous political interest in getting more houses built, yet an obvious channel is being overlooked. Building more homes is an issue that unites local authorities across the political spectrum and this report supplies them with the arguments to put to ministers in 2013.

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