Councils could build 60,000 new homes if government scrapped unnecessary borrowing cap

Row of houses
Published on Thursday, 22 November 2012 09:45
Posted by Vicki Mitchem

Councils would be able to build 60,000 new homes over the next five years if government gave local authorities more discretion over borrowing, a new report published today has found.

The coalition of leading housing organisations behind the report, which include the Local Government Association and the National Federation of Arms Length Management Organisations, is calling on government to seize a 'golden opportunity' to stimulate the economy, create jobs and help solve the housing crisis.

The report 'Let's Get Building' argues that a shortage of finance is the main obstacle stopping contractors getting to work – and that councils could help plug the gap if a centrally imposed debt ceiling which prevents local authorities from maximising the value tied up in their housing stock was removed.

Under current estimates, councils would be able to fund the building of 15,000 homes over the next five years. But if the cap were to be removed, this figure could be quadrupled.

As the Growth and Infrastructure Bill is debated by MPs today, the LGA is asking government to use the Bill to give councils greater freedom to invest in building new homes.

Councillor Mike Jones, Chairman of the LGA's Environment and Housing Board, said:

"With house-building stalled and a lack of finance for development, now is the time to lift the restrictions on local government's ability to invest in housing to provide the homes we so badly need and to release millions of pounds of economic activity and jobs in construction.

"Government's growth strategy risks missing a golden opportunity if it fails to tackle the lack of available finance, which is the real barrier to getting Britain building again.

"Councils have a proven track record of responsible borrowing. Their credit rating is excellent and interest rates would be low.

"We need the Treasury to free up councils to get local economies growing and play their part fully to provide the new housing the country desperately needs."

The report argues that if investment was accounted for in the same way as it is in many other countries, national borrowing figures would be reduced. It urges the Government to adopt internationally recognised rules to measure government borrowing which would acknowledge that extra investment for council housing would not count as adding to government borrowing levels. Such a rule change would bring the UK into line with international regulations which are already used by markets and bodies such as the IMF to assess sovereign debt.

Money invested by local authorities in new housing would be paid for many times over by future rents on new properties.

Source: ©LGA

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