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OBR: scrapping borrowing cap will deliver only 9,000 additional homes
Scrapping the borrowing cap will deliver only 9,000 new homes over the next five years, the Office for Budget Responsibility (OBR) has said.
In its response to today’s Autumn Budget, the OBR gave its verdict on the government’s policy, announced by Theresa May earlier this month, to scrap the cap on the amount councils can borrow against their housing revenue accounts.
The government announced the policy as a way of reviving council housebuilding, and consultancy Savills estimated that local authorities could use it to build “at least” 15,000 homes a year.
According to the OBR’s more conservative estimates, councils will build 20,000 extra homes between now and 2023/24 as a result of the scrapping of the cap.
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This increase, however, will be partly offset by a decrease in housebuilding by private housebuilders and housing associations, the OBR predicted, leading to a net increase of just 9,000 homes over the next five years.
According to government estimates in the Budget, scrapping the cap will cost £4.66bn over five years, starting at £95m this year and rising to £1.24bn by 2023/24.
Key Budget measures for housing:
- £1bn to help fund the implementation of Universal Credit over the next five years
- £500m in Housing Infrastructure Fund to unlock a further 650,000 homes
- The next wave of strategic partnerships with nine housing associations, which will deliver 13,000 homes
- British business bank guarantees for SME house builders
- ‘Simplification’ of process to convert commercial properties to new homes
- Providing funding to empower 500 neighbourhoods to allocate homes to local people in perpetuity
- Help to Buy equity loan scheme extended by two years to 2023 and limited to first-time buyers
- Retrospective inclusion of first-time buyers of shared ownership in stamp duty relief
The OBR said in its response: “The government’s announcement that it will lift the Housing Revenue Account borrowing cap with immediate effect is expected to lead to higher housebuilding by local authorities, although we have assumed that this partly crowds out some private sector housebuilding.”
In 2016/17, councils in England built just 3,500 homes, and so an increase of 4,000 council homes a year, though falling below some estimates, would still be a fairly significant increase on the current level of council housebuilding, which is at a historic low.
Plans to scrap the cap were announced to great fanfare by the prime minister at the Conservative Party’s annual conference in Birmingham earlier this month.
Council leaders have since responded enthusiastically to the extra borrowing capacity, saying that it would help them to increase the number of homes they build.
The extent of local authority interest in extra borrowing was revealed last week by Inside Housing, which reported that councils had swamped a previous £1bn programme to increase borrowing.
Just 12 councils exhausted the entire £1bn of extra borrowing headroom they were previously offered by the government, before it decided to scrap the cap entirely.
