The HRA cap maybe lifted but there are still barriers to councils building homes

10 Dec 18

Councils will not be able to build the homes needed unless we also address how we train and expands the construction industry workforce, argues think-tank Localis’ Bethanie Roughley.

Housing - Photo: Shutterstock


The Housing Revenue Account borrowing cap was devised by a Treasury distrustful of local authorities and keen to limit national debt figures.

As an exchequer policy it succeeded as planned and greatly restricted the ability of councils to fund the building of new homes.

In late June James Brokenshire, the recently appointed secretary of state for housing, communities and local government, reaffirmed an additional £1bn of HRA borrowing in June 2018 for councils in areas of ‘high affordability pressures’. This was originally announced by Philip Hammond in the autumn Budget last year.

National government was seen to have heeded calls made by the local government lobby over many years. 

This extra borrowing headroom was acknowledgement of the dynamic contribution local authorities could play, alongside private developers, in boosting housebuilding volumes that would help meet ambitious top-down targets of 300,000 new homes of all types and tenures a year by 2020.

Although the bidding process for the funding had closed a mere three days before the Conservative Party Conference, Theresa May used her headline speech to announce the complete removal of the borrowing cap - a bold, unexpected gesture of sweeping political theatricality.

Some 60 local authorities have pledged to exploit the lift of the cap including Newcastle, London, Cambridge, Ipswich, York, Stoke and Taunton. And recent analysis conducted by the Local Government Association estimates that investment in social housing could generate returns up to £320 billion over 50 years based on four different scenario calculations, with every £1 invested in a new social home generating £2.84 for the wider economy.

A survey by Public Finance found the majority of councils were planned to use their newly given borrowing freedom.

However, lifting the borrowing cap will not by itself overcome the many challenges that stand in the way of councils getting fully back into the housing game. Disincentives and NIMBYist local resistance to build remain.  And with many councils facing budget crises - in the face of well-rehearsed pressures of funding statutory adult and children’s care services - they still need extra support to maintain good quality housing and planning services

Councils typically built more than 100,000 homes per year in the 1970s, but they built fewer than 3,000 in 2016-17 – suggesting a return to volume building at this scale will take time.

If the intention to build is there, we must acknowledge the capabilities are lacking.  And one of the major barriers facing local authorities as builders is the impending skills shortage in the construction industry. With all the political will and money in the world, the homes of the future aren’t going to build themselves.  Not even the modular homes.

To build these houses local authorities will need skilled construction workers. On current trends, the supply of workers is likely to decrease in line with steadily falling EU migration. This is exacerbated by the prime minister’s commitment to reducing low-skilled immigration post-Brexit – a policy causing concern for construction businesses

EU workers have become essential to the construction industry, particularly in London in which 28% of all workers are from the EU. The industry also faces the prospect of approximately 400,000 workers retiring or leaving the industry by 2027. Despite this, the Migration Advisory Committee’s recommendations for skilled workers, adopted by government, do not consider any site trades as skills the country is in need of.  We must question whether there will there be a trained workforce of sufficient size to build all these new homes.

How do we train and bring on enough construction workers domestically is the other side of the coin.  The Autumn Budget announced a halving the co-investment rate from 10% to 5%, adding an additional £695 million to help smaller firms increase the number of apprentices. However, the apprenticeship levy is not very well understood - and this measure seems unlikely to increase the uptake of workers within construction apprenticeships.

The threat of structural labour market pressures will seriously constrain the capacity and ability for all industry sectors, including local authorities, to build new homes at a pace to match need and demand.  Ultimately, the UK construction industry needs a steady supply of additional domestic and overseas workers to continue delivering on housing and infrastructure.

As a comprehensive place-based answer, bold policy choices are needed.  At the level of strategic authority in England – which Localis defines as combined authority or county council area but would extend to Local Enterprise Partnership geography if that’s what it takes – there should be freedom to issue work visas to reflect local skills needs.  And the building and construction industry must count as vital skills.

It is encouraging to see many authorities offering central government big strategic housing offers. 

Although, it’s unlikely that we will ever return to the era of Regional Spatial Strategies, it is right that we should go back to the future in all but name to encourage better co-ordination of limited planning resources and develop bold housing plans at a bigger and better strategic level.

This path will encourage a joined-up approach to building in the necessary infrastructure alongside new homes, promote connected thinking within localities and urge a better use of common resources such as the public estate to unlock land for housebuilding.

So lifting the HRA borrowing cap is a big win for councils. 

But the prize of restoring a dynamic role for local government as national scale housebuilders will not be won unless we resolve the choppy political conundrum of domestic construction skills and international workforce supply and set their contribution in an appropriate strategic place context.

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