Prime Minister Theresa May has announced that she will scrap the Housing Revenue Account cap to support local councils’ efforts in building new homes.
In her speech at the annual Conservative Party Conference in Birmingham, the Prime Minister focused at large on the current issues faced within the UK’s housing market, stating that resolving the problems within the ‘broken’ market would be the “biggest domestic policy challenge of our generation”. She went on to say that the only actionable approach to fix the market would be to build more homes, and that it was her personal mission to solve the housing issues.
The last time the UK was building enough homes to meet demand was over 50 years ago, something local councils played a major role in. But with the restrictions caused by the Housing Revenue Account cap, it’s now more difficult than ever to fund developments.
What is the Housing Revenue Account cap?
The current cap limits the amount of money local councils can borrow against their housing revenue account assets, to build new homes with. Before the cap was introduced under the Margaret Thatcher government, councils built around 10,000 homes a year, however that figure has dropped to as low as 100.
The amount of extra investment created by scrapping the House Revenue Account cap could be around £1bn a year, however this figure is down to how many councils wish to borrow money against their assets.
So how will scrapping it help?
Through removing the cap altogether, local councils now have the opportunity to borrow against their Housing Revenue Account assets and use the funds to help build new developments.
In short, it’ll help councils fund much-needed new housing.
Lord Porter, the chairman of the Local Government Association, commented on the news: “It is fantastic that the government has accepted our long-standing call to scrap the housing borrowing cap. We look forward to working with councils and the government to build those good quality affordable new homes and infrastructure that everyone in our communities need.
“Our national housing shortage is one of the most pressing issues we face and it is clear that only an increase of all types of housing – including those for affordable or social rent – will solve the housing crisis.”
The Chartered Institute of Housing welcomed the announcement, describing it as “excellent news”, whilst the Royal Institute of British Architects also said it was “delighted” at the Prime Minister’s decision.
Help to Buy and stamp duty
In the conference’s closing speech, Theresa May told the audience of the successes of government-backed initiatives such as Help to Buy, stating that over 500,000 people had been able to take their first steps onto the property ladder thanks to these funded schemes.
Mrs May also reiterated her recent announcement around the increased stamp duty rates for those purchasing property in the UK but not paying tax, to stop housing prices being driven upwards due to foreign investment. Overseas individuals will be forced to pay a stamp duty surcharge of between one and three per cent, with the extra taxes being put towards appeasing the UK’s rough sleeping crisis.