Shelter and Savills recently released a research report Options for Reducing Housing Revenue Account Debt, an investigation that does exactly what it says on the tin, aiming to identify the most efficient ways to reduce the Housing Revenue Account (HRA) debt. The report argues that the burden of HRA debt is neutralising councils potential to effectively expand and maintain their social housing stock, and makes a number of recommendations to help alleviate the pressure.
Analysis finds that the levels of debt faced by local authorities today has become unsustainable, and the assumptions and context of the 2012 HRA self-financing settlement has changed significantly since the agreement was made. Successive policy changes, rising standards, inflation and higher costs of borrowing have compounded with successive rent freezes and a depleted housing stock to leave many councils with business plans that are no longer financially viable.
Councils have a massive part to play in delivering the amount of social homes needed to reduce rampant homelessness and temporary accommodation use. Their financial position today however is grim, with council expenditure on temporary accommodation (TA) having increased by a massive 1077 per cent in real terms between 2011/12 and 2024/25.
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Depending on the approach, the report claims that accommodating for the numerous changes in policy and standards since the 2012 agreement would reduce debt for councils by roughly £21.6Bn, compared to the £31.8Bn debt currently held by local authorities. If accounting for future and current standards (Fire and Building Safety, Decent Homes, MEES along with the additional services pressures) in the original settlement, the debt write-off would exceed the total owed by councils and result in a complete debt write-off.
The report concludes that a complete debt write-off would give the optimal chance for councils to expand their housing stock whilst ensuring that new and existing homes are to the appropriate standard. A debt-write off of this degree could enable the delivery of over 280,000 additional new social rent homes, a figure that the report says could continue to grow as the stock is added to.
The report concludes with four final recommendations:
- Government should commit to the write-off of all Housing Revenue Account debt – this is consistent with the principles of the self-financing settlement; only a complete write-off enables local authorities to deliver the investment needed within the existing stock and unlocks the capacity and potential to deliver new social rent homes at scale and make a contribution at
scale to the Government’s 1.5million homes target. - Establish a Housing Delivery Compact linking debt write-off to new delivery.
- Maintain and potentially significantly enhance capital grant programmes for local authorities, especially to support the delivery of new social rent homes.
- Government to consider reform of the fiscal rules to support local authority housing investment.
- The Government should commit to long-term rent policy certainty, which is critical for local authorities to unlock investment into new social rent homes.
Although such a debt-write off may seem optimistic thinking, there is no question that since 2012 the financial burden on councils has changed significantly, and the current status quo for local authorities is reaching boiling point. Andy Burnham has made clear his intention to make the expansion of council housing a priority for his government, and councils will have a huge part to play if his goals are to be realised.
