Housing Revenue Account Mark Swallow mswallow@arlingclose.com

They say that everything eventually comes back into fashion and a recent report in Inside Housing (Inside Housing - News - Hampshire council to reopen HRA) provides details of the latest Council looking to re-open their HRA.

Local authorities’ responsibility for affordable housing goes back to the “Addison Act” of 1919 which placed a duty on councils to consider the provision of housing for the “working classes” but the 1985 Housing Act is the most recent piece of legislation that local councils rely on for their powers to provide housing. The 1989 Local Government and Housing Act introduced the concept of the Housing Revenue Account which ensures rent payers’ money only gets spent on housing related expenditure.

The 1950’s saw a surge in local authority house building which continued through the 1960’s. However, the introduction of the Right-to Buy policy in the early 1980’s resulted in a sell-off of council housing stock and with restrictions placed on the use of the capital receipts, local councils could not replace the homes sold with new housing stock and the number of council houses fell.

The policy of not being able to build new homes resulted in many housing authorities choosing to dispose of their housing stock through Large Scale Voluntary Transfers (LSVT) to housing associations. Housing associations were able to obtain grant funding from central government and local councils, who were able to recycle the capital receipts obtained from the LSVT through social housing grants and so housing associations became the main provider of social housing.

Further changes to the housing landscape came under New Labour who introduced the Decent Homes programme which set a target to ensure that all social housing met a standard of decency by 2010. Local authorities were given a choice on how to do this, either by setting up an Arm’s Length Management Organisation (ALMO) or to undertake LSVT where this had not already occurred.

Those that decided to retain their stock did so under the housing subsidy system, but this ended in 2012 in England and 2015 in Wales. Local councils were given self-financing powers which allowed them to keep all their income from housing rents rather than the redistributing it via the subsidy regime. Initially, this freedom came with strings attached in the form of the HRA borrowing cap but in 2018 the cap was scrapped which effectively gave those councils with a HRA the freedom to borrow to provide new council homes.

The powers provided by the Localism Act 2011 have been used by some local authorities to provide housing outside of the 1985 Act powers, using their General Power of Competence and therefore removing the perceived hamstring of the HRA and Right-to-Buy through wholly owned companies. However, government guidance issued in 2019 (Housing Revenue Account - GOV.UK) provided local councils with the freedoms to hold up to 200 units of accommodation in the General Fund before needing to consider a HRA, thereby removing some of the perceived advantages of a wholly owned company.

As a result of the abolition of the HRA borrowing cap, local authorities are no longer constrained over borrowing for housebuilding and several local authorities have reopened their HRA to build and manage more homes directly. The use of the HRA can provide local authorities with more control over the provision of housing in their local area, the freedom to borrow to provide this housing at PWLB rates and some additional benefits may also flow in terms of recharging some General Fund costs to the new HRA.

If you are a local authority looking to deliver more affordable homes and do not currently operate an HRA then perhaps it is time to re-consider this option as a cost-effective method of housing delivery.

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