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Housebuilding projects prioritised despite 1% rent reduction losses

Councils are prioritising housebuilding over maintenance as they struggle to absorb government-imposed rent cuts.

Analysis of housing revenue account business plans for 13 of the largest stock-owning councils, carried out by Construction News’ sister title Local Government Chronicle, found many are reinforcing their commitment to housebuilding despite facing a combined loss in rental income of more than £450m by 2020.

The prospect of having to sell high-value assets to fund the extended Right to Buy to housing association tenants has been cited as a key driver as councils attempt to replace homes likely to be sold and maintain rental incomes.

As a result, more savings are being found from back-office functions and maintenance or repairs budgets, while planned works are being pushed back.

Chancellor George Osborne announced social housing rents would be cut by 1 per cent a year for the next four years in last July’s Budget.

This led the Association of Retained Council Housing, which represents the 162 stock-owning English councils, to warn that 20,000 homes would go unbuilt by 2020 due to a £2.4bn loss of rental income.

None of the 13 plans examined, which account for more than 250,000 council homes, proposed reducing housebuilding programmes.

Southwark Council, which stands to lose £62.5m by 2020, is pressing ahead with plans to build 11,000 new homes over 30 years.

Cabinet member for housing Richard Livingstone told LGC there was “no threat or danger” to plans to build the first 1,500 homes by 2018.

“I don’t think the rent reduction policy puts [the council’s housebuilding programme] at risk directly,” he said. “What it gives us problems about is the maintenance of our current stock and getting tenants the service they need.”

Mr Livingstone said savings over the next four years would come from back-office job losses, cheaper repairs contracts, reducing debt repayments and slowing down the rate at which improvement works are carried out. For example, a programme to upgrade kitchens and bathrooms will take eight years instead of five.

Earlier this month Sheffield City Council approved a plan under which a programme to build 1,000 new homes by 2020 “will be maintained”.

Cabinet papers said it was “increasingly important because the number of social rented homes in the city will now reduce more quickly” as a result of the sale of vacant high-value housing to fund the extended Right to Buy.

The council plans to allow “some slippage” to its £50m-a-year investment programme in order to plug the gap left by a loss in rental income of £27m a year by the end of the decade.

Sandwell Council is planning to build more than 100 homes. Deputy leader Steve Eling told LGC his council would borrow to help bridge the gap left by the loss of £33m in rental income by 2020.

“That will enable us to keep the programme running, but that’s only a short-term fix and the judgement day still arrives in 2021 when we would have to significantly scale back investment into existing housing stock or building new stock,” Mr Eling told LGC.

Leicester City Council faces a cumulative loss of income worth £27.3m by 2020. However, it is planning to ringfence £1m to build up to 20 homes next year, with savings instead coming from maintenance and repairs budgets.

Newcastle and Camden councils, which each need to find savings of about £4m next year, are also planning cuts to maintenance budgets.

ARCH policy adviser Matthew Warburton said most properties had been brought up to the Decent Homes standard in recent years, which meant councils could afford to focus savings on maintenance and repairs budgets.

However, he warned that was not sustainable in the long term. “Existing maintenance and repairs will be met but [councils] won’t be building up adequate funds for the investment that needs to take place in 10 years’ time,” Mr Warburton said.

A Local Government Association spokesman said LGC’s research showed councils were “doing what they can to adapt to funding pressures in a way that protects their investment plans”.

However, he warned the cut to social housing, coupled with proposals contained in the Housing & Planning Bill, would hamper councils from being able to invest in new housing in the long term.

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