Council housing faces ‘perfect storm’ of competing pressures and requires urgent Government action

The future of council housing finances hangs in the balance with rising costs and increasing pressures pushing budgets to the brink, new analysis published by the Local Government Association (LGA) reveals. 

Conducted by Savills and commissioned by the LGA, the National Federation of ALMOs and Association of Retained Council Housing, the analysis explores the cumulative impact of historic and proposed government policies and wider economic factors on the viability of council Housing Revenue Accounts (HRAs). 

The new report – published at today’s LGA Annual Conference, finds the financial challenges which are plunging the future of council housing in serious doubt are the result of a combination of different pressures. 

Many councils will therefore face the impossible choice between HRAs going into deficit or failure to meet statutory repair obligations, including the newly proposed Awaab’s Law which will require landlords to fix reported hazards, such as mould and damp, within specified timescales. As a result, councils will also be unable to finance the building of new affordable homes to help government achieve its ambition to build 1.5 million new homes over the next five years.

Ahead of the Autumn Budget, councils and ALMOs are urging government to restore lost revenue due to the recent rent cap, estimated to be more than £600million and to strengthen HRAs via a long-term rent settlement to give councils certainty on rental income and support long-term business planning.   

The analysis finds HRAs are buckling under: 

• The impact of rent cuts from 2016-2020 and the rent cap in 2023 resulting in much lower levels of anticipated income than had been promised by the then Government.
• The increase in the amount of capital investment needed for existing council housing. This includes for maintaining and repairing existing homes to bring them into line with current and proposed future requirements, for instance building and fire safety requirements, a new Decent Homes Standard, as well as minimum energy efficiency and net zero carbon requirements. In 2012 this was estimated as £64.2 billion over 30 years; it’s now up to £96.1 billion – a difference of £31.9 billion that local authorities need to find.
• Day to day repairs costs that are spiralling well above the rate of CPI inflation, as demand increases in the light of Awaab’s Law and the need to address problems with damp and mould, and cost increases due to labour and supply chain shortages.
• Pressures arising from enhanced regulation and proposed requirements for professional qualifications for housing staff.

The pressures are in part due to recent turbulence in the economy and markets – with high inflation and interest rates – but also a result of a range of national government policy interventions since the 2012 HRA self-financing settlement was agreed, including the fact that rent increases have been cumulatively well below inflation over the last eight years.  

Even if councils could increase rents back to what they would have been without the 2023 rent cap, additional finances would still be required into HRAs to keep them afloat in the short term.    

The research shows that a 10-year settlement allowing annual rent increases of up to 1 per cent above CPI would eventually balance HRA income and expenditure over 30 years, but in the short-term would still leave an income shortfall over the initial 5 to 10 years of between £6 and £7 billion.  

Ahead of the Budget we are calling for:  

• Restoration of lost revenue due to Government mandated below inflation rent increases, and a clear path to bring rents to the formulae the government itself has set.
• An urgent review and revision of the current self-financing council housing regime which has been in place since 2012, to ensure it can deliver both current and future requirements for council housing.
• A long-term rent deal for council landlords to allow a longer period of annual rent increases for a minimum period of at least 10 years. This should include flexibility for councils to address the historic anomalies in their rents as a result of the ending of the rent convergence policy in 2015. 
• New burdens funding to cover additional requirements falling on councils - including the decarbonisation of homes, professionalisation, enhanced regulation and minimum energy efficiency standards.
• Increased Affordable Homes Programme (AHP) grant levels to help councils build desperately needed new, high quality affordable homes.

Cllr Adam Hug, the LGA’s housing Spokesperson, said: 

“This is the most precarious position that council housing has been in for over a decade, and urgent action is needed to ensure that local government can keep up with its obligations around providing decent quality council housing.  

“We need to strengthen and provide stability to Housing Revenue Accounts by agreeing a long-term rent settlement, restoring lost revenue due to the rent cap and reviewing the self-financing settlement of 2012. This would provide councils certainty on rental income and support long-term business planning to ensure they can deliver high quality homes and associated support for their tenants. However, it is important that to ensure there is further government investment to help respond to priorities- from retrofit to building new council homes- to avoid, all the pressure falling on the HRA and the residents whose rents and services charges fund them.” 

Mike Ainsley, Chair of the NFA said:

“This report is solid evidence that our national housing catastrophe cannot be addressed without a strong council housing sector. The Savills data paints an unambiguous picture of the dire state this sector is in after years of decline. We urgently need a strong financial settlement to restore lost rent revenue and make HRAs viable. Only then can we provide the good quality social housing that the country needs.” 

Cllr Aydin Dikerdem, Chair of ARCH said:  

"Councils are, rightly, expected to ensure that all their tenants' homes meet at least the basic requirements of the Decent Homes Standard, and are being held to account by Government and the Regulator where they fail to do so.  For its part, the Government has a reciprocal obligation to make sure councils have the funding necessary to meet these obligations." 

Notes to Editors

The NFA represents council-owned specialist housing organisations in England, advocating for the vital role of council housing in a well-supplied housing market that offers sufficient and affordable choice of tenure. NFA members deliver landlord services behalf of their parent local authorities to the residents of almost 200,000 homes.  

ARCH (the Association of Retained Council Housing) is an association of councils in England which have retained ownership and management of their council homes.  We aim to get the best deal for councils and their tenants.

The Housing Revenue Account (HRA) is intended to record expenditure and income on running a council’s own housing stock and closely related services or facilities, which are provided primarily for the benefit of the council’s own tenants. For more information, please see here: https://www.gov.uk/guidance/housing-revenue-account 

Report: Housing Revenue Account research update