Creating a new form of arm’s length management organisation could benefit tenants while also allowing borrowing at levels beyond the cap now facing councils
Which local government service is likely to see its income go up rather than down next year? Probably the only one of any significance is council housing, when authorities that still own their housing stock start – from next April – to keep almost £7bn that they receive in rental income, no longer with any obligation to pay a large proportion of it to the Treasury.
As everyone involved knows, there is a price for this: they take on a total of £28bn in debt. Some, indeed, will carry housing debt again for the first time in years.
The deal’s biggest snag is that each council will have its debt capped, set at a level it can afford but almost certainly less than the amount it could borrow under prudential rules. For some councils, there will still be enough headroom to borrow to invest in their stock – for instance, to complete their decent homes programmes. But others will struggle and most will find they have no leeway for building new homes.
In a new report, the National Federation of Almos suggests ways in which the arm’s-length management organisations that run half of England’s council housing might step into this breach. The idea is to reconstitute an Almo so that it is no longer exclusively owned by the council. Each council would work with tenants to build on the strong role that they already have in most Almos, taking a larger ownership share and a bigger role in the governing board.
This achieves two objectives: full community ownership of council housing, and creating a body which can then borrow privately to supplement the council’s borrowing – outside the cap.
This is very different from stock transfer, whichever of the NFA options is considered. One would keep the Almo as the housing manager, as now, and the extra borrowing would be against its income stream. Another option is that the community-owned Almo becomes the stock owner, but with a strong financial bond to the council through a covenant to pay the council’s housing debt.
In the next few months councils are going to be so preoccupied with getting ready for self-financing that none of these options is likely to be much explored. However, one of councils’ key tasks will – for the first time – be to produce proper, long-term business plans. In many cases this will reveal the extent of the investment shortfall facing them if they have to stay within the government-imposed cap.
Recently in two areas (Welwyn Hatfield and East Kent) Almos were created simply because councils decided they are a good way to manage their stock and to get tenants on board. Once self-financing has started, it is going to be interesting to see if other councils – including those who currently don’t have Almos – suddenly find the new options more attractive than simply hanging on and doing the best they can under the deal that the government gives them.
John Perry writes on housing issues and is one of the authors of the NFA report
