Boroughs in the capital must reduce their spending on council housing by £264m to avoid busting their budgets over the next three years, a new report from London Councils reveals.
Boroughs fear the collapse of their council housing finances unless the government takes action to stabilise the social housing sector.
Ahead of the government confirming future social rent levels, London Councils’ analysis shows boroughs’ costs of managing their council housing have spiralled while income has failed to keep pace, after many years of national policy limiting social rent increases below inflation [1].
The report – Crunch point for London council housing finances – warns that boroughs are “not in a position to maintain spending in real terms” on their council housing stock, despite the “urgent need for investment” in priorities such as improving housing conditions and building new homes.
The analysis highlights the following:
London local authorities own and let around 390,000 social homes – housing more than one in 10 London households.
The capital contains a greater proportion of tower blocks and other forms of high-density council housing compared to the rest of the country, which are more costly to maintain. The capital’s local authorities are therefore particularly affected by national policy on social rent failing to deliver funding in line with the higher maintenance costs of these housing types.
London boroughs will need to reduce their council housing spending over the next three years to avoid their HRAs going bust, with London Councils estimating that a £264m real-terms reduction is planned by boroughs. Five boroughs could completely exhaust their HRA reserves before 2027/28.
The report, which London Councils produced with the London Housing Directors’ Group and Society of London Treasurers [3], makes several policy recommendations for “securing a better future” for council housing in the capital.
Boroughs’ top priority is a return to social rent convergence. This was a policy the government implemented between 2002 and 2015, and which established a national rent formula aimed at ensuring social housing tenants pay similar rents for similar properties, taking into account local incomes and property values.
In London this approach helped raise social rents and better reflected the costs of managing the capital’s social housing stock. London social landlords’ income has been especially impacted by this decision to drop convergence, since the gap between formula rents and average rents remained relatively high in the capital when the policy ended.
After a long period of interventions to cap social rent levels, boroughs are grateful for the government’s commitment to longer-term certainty. London Councils is pushing for a 10-year settlement with rent increases tagged to CPI+1%, alongside action to reduce local authorities’ HRA debts in recognition of the contribution government policy has made to driving up debt levels.
Cllr Grace Williams, London Councils’ Executive Member for Housing & Regeneration, said:
“We have reached crunch point for London’s council housing finances.
“Boroughs are frustrated that at a time when we want to invest in our council housing and build new social homes, the grim reality is that many will need to make deep cutbacks. We are dealing with fast-rising costs but also the legacy of years of government underinvestment and budget squeezes.
“Boroughs play an essential role in modernising older properties and building the new affordable homes Londoners are crying out for. A better future for London’s council housing is possible but it requires national policy decisions that give us secure and sustainable finances. We remain committed to working with the government on our shared ambitions for council housing.”
London Councils’ analysis follows warnings from local authority landlords across the country. Earlier this year a coalition led by Southwark Council highlighted that two-thirds of council housing budgets are “on the brink of collapse” based on a national survey of 76 stockholding local authorities.
