Jobs, Growth and Social inclusion

Councils call for lifting of housing borrowing cap

Councils call for lifting of housing borrowing cap
Councils are calling on the Chancellor to lift restrictions on the amount they can borrow to fund house building in next month’s spending review.

Local authority leaders are urging the Chancellor to give the construction industry a shot in the arm by removing unnecessary restrictions on council investment in new housing.

Research shows that councils could build up to 60,000 new homes over the next five years if they were allowed to invest in housing under normal borrowing guidelines.

This would deliver a 0.6% boost to GDP and create new jobs and reduce the benefit bill by increasing the provision of much-needed new social housing.

Earlier this month London mayor Boris Johnson’s London Finance Commission called for borrowing caps to be lifted for local authorities in the capital.

Council housing leaders said this could strengthen the case for a rethink of the caps when chancellor George Osborne announces his spending review on 26 June.

Government figures released last week show that the numbers of new homes completed in the first quarter of this year continues its downward trend.

The Local Government Association, which speaks on behalf of more than 370 councils in England and Wales, said thousands of 'shovel-ready' sites could be kick-started into action if a Government-imposed block on council investment in housing was lifted.

Councils have not been able to invest in new housing on such a scale since the early 1990s.

Cllr Mike Jones, Chairman of the LGA's Environment and Housing Board, said:"Councils have excellent credit ratings and want to use our assets to help kick-start the housing recovery but our hands are being tied.

"At a time when housing waiting lists are rapidly expanding, levels of house building are languishing and the economy is still struggling, it makes no sense for Government to continue preventing local authorities from investing in the new homes the country badly needs.

"Councils, the markets and the construction industry all agree that the housing borrowing cap is unnecessary and only serves to hinder the housebuilding recovery.

"The Chancellor has an unrivalled opportunity to create jobs, provide more homes and help the economy without having to find a single extra penny.

New homes are badly-needed and councils want to get on with building them. The common sense answer is for the Treasury to remove its housebuilding block and let us get on with it."

Research carried out last year for the LGA showed that the investment would be very low-risk and paid many times over by future rents on new homes.

Under the current rules, councils would be able to borrow no more than £2.8bn to invest in housing – enough to build 15,000 homes.

Without the cap, councils could borrow up to £7bn to invest in housing over five years, under existing prudential borrowing rules.


 

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