Councils have warned they will have no choice but to scale back their social housing building programs unless they receive more financial support.
Written evidence submitted to an inquiry by the Commons Leveling, Housing and Communities Committee (LUHC), which investigates the finances and sustainability of the social housing sector, revealed that some councils had already stopped their schemes because of the reduced budgets, with others they start to do it.
The Local Government Association (LGA) said “there is growing concern that the council housing system is the scene of a perfect storm of pressure”, stemming from national, global and local issues.
Problems include shrinking incomes due to inflation pushing rent caps and a right-to-buy scheme that leaves councils with “too little to replace homes sold”, the LGA said.
The association added that most councils are currently absorbing the higher construction costs and interest rates. But he warned that without additional support, “the impact is much more likely to be felt in programs starting from next year, with the very real potential for programs to be significantly reduced.”
The total supply of social housing is estimated to be up to 2,500 new homes per year, with 40% of these in London. The LGA argued that there will be a need for increased central grants or more flexibility in the use of right-to-purchase receipts “in order to maintain the programs at the planned pace”.
Assuming construction cost inflation of 10%, the LGA said an additional grant of £25,000 per unit would be needed to prevent delivery totals falling by 8%.
If construction cost inflation were 18%, the additional subsidy required would be £45,000 per unit to avoid a 14% drop in total delivery.
Collective organization London Councils said building programs in the capital “face serious viability pressures and some development is being held up”.
An unnamed municipality experienced a 30-35% construction cost increase in its development program. The program is now in deficit by more than £26 million, doubling the required council grant.
Building safety works are also contributing to financial pressures, with another London borough saying they cost an extra £75m a year. For this council, “the investment needs of [housing] actions exceed the financial resources available to fund them,” London Councils noted in its evidence.
The council’s housing revenue account faces a shortfall of more than £100m over the next five years, despite pausing uncommitted stages of its new homes delivery programme.
Hull City Council warned the LUHC in writing that “we will realistically need to reduce our overall aspirations for new build properties in the medium term”.
The council is continuing projects already started, but said future projections for new construction have been halved. Hull explained that “costs are rising faster than revenue and we expect a number of additional challenges through net zero and building security costs.”
Southwark Council said it had “a portfolio of housing projects ready to go” but that “the current system provides an unsustainable funding model” for taking forward its housebuilding programme.
