Caps off for May

5 October 2018

In the 1970s, local authorities built roughly 40% of all new homes. In 2016/17, this figure was less than 2%.

As the Conservative Party Conference came to a close, delegates and Party members drew a collective sigh of relief. The Prime Minister completed her closing speech with no major disasters, and even managed to lift the mood of a rather downbeat audience with her ABBA themed ‘walk-out’. After the initial joviality of the May-bot entrance routine, there was a particularly significant yet unexpected policy announcement.

May revealed that the Government is planning to scrap the Local Authority Housing Revenue Account (HRA) borrowing cap placed on councils. The cap, which was agreed between the Treasury and councils in 2012, dictated that local authorities must ‘self-finance’ the construction of new affordable homes, rather than borrowing from the Government against the value of their housing assets.

Pressure to remove the cap has been exerted on the Government for some time, as various experts, think tanks and lobby groups have increased calls for its scrapping. Earlier this year, the Treasury Committee recommended that the HRA cap should be removed to help the Government meet its 300,000 homes a year target. Lord Porter, the Conservative peer and Chair of the Local Government Association, has also consistently called for its removal. The figures aid their case. In the 1970s, local authorities built roughly 40% of all new homes. In 2016/17, it was less than 2%.

The Ministry of Housing, Communities and Local Government estimates that the proposal will allow for an estimated 10,000 additional homes a year. This is also supported by research from Savills, which suggests that the lifting of the cap could result in extra borrowing to the tune of £15 billion.

Politically, the policy reminds us of the Prime Minister’s ambitions set out in her inaugural Downing Street speech. Nick Timothy, May's former special adviser (now a toxic figure in Tory circles following his disastrous advice to call a general election in 2017), wrote earlier this week that the Prime Minister's decision displays her privileging of pragmatism over ideology. Indeed, the policy announcement cannot be understated. Since the 1980s, the Conservatives have consistently reigned in the role of councils as housebuilders. Faced with a Labour Party brimming with confidence and radical proposals, it shouldn’t be too surprising that May has opted to rescind a policy many blame for the lack of affordable housing supply.

Moreover, some have argued that the reversal is an admission that the Government has recognised that accusations of ‘land-banking’ and the imposition of a moral duty on the private sector to replace the state in providing subsidised housing has not resulted in a solution to the housing crisis.

Whilst the re-entry of local authorities to the housebuilding sector is likely to be a gradual process, some experts have speculated that the decision could spell an end to private/public joint ventures. 

MHCLG added “the cap will be lifted as soon as possible”. In practice, however, opposition politicians remain sceptical. Labour’s Shadow Minister for Housing, John Healey, warned that the devil would be in the detail. We wait patiently for further clarity in the Autumn Budget.