Switch to resource accounting may make council rents soar

16 Sep 99
Council rents could be thrown into turmoil by the introduction of resource accounting, housing finance officers have been warned.

17 September 1999

Many local authorities will be under pressure from the Treasury to raise rents and show that they are gaining sufficient return on housing assets, Ken Lee, chairman of CIPFA's housing panel, said last week.

Speaking at a CIPFA seminar on developments in housing finance, Lee said valuations carried out prior to the introduction of resource accounting in 2001 would reveal exactly how much capital local authorities have tied up in their housing stock.

Councils failing to charge rents that lead to the guideline 6% return on capital will be asked to explain themselves and, within about five years, told to put up rents so that they are closer to market levels.

'The Treasury will have actual valuations to determine rent guideline figures. They will cause turbulence in the system,' he predicted. 'The biggest worry is that accountants and financiers will determine what happens, rather than people's needs.'

Lee, director of corporate resources at West Lancashire District Council, dismissed government suggestions that resource accounting will have a neutral impact on rents. Local authorities in 'leafy suburbs', he added, would be under greatest pressure to raise rents as government resources were switched to urban areas.

But he warned that all councils must be 'on their mettle' so they could explain rent increases to tenants. 'We will need to simplify presentation of housing revenue accounts,' he said.

Local authorities have been promised an extra £15m during each of the next two years to cover the cost of valuations. Lee, however, suggested the exercise may take longer and cost more. 'Once you have valued, you must keep on valuing,' he said. 'We may need to press for resources over a longer period.'


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