Research: Options for reducing Housing Revenue Account debt

Shelter commissioned Savills to research options for reducing the debt attached to local authorities' Housing Revenue Accounts. Housing Revenue Accounts are effectively councils' landlord accounts, which manage the income and expenditure related to council housing.

The 2012 HRA self-financing settlement totalled around £29bn of debt to local authorities. Since then, rent reductions, higher Right to Buy discounts, new regulatory standards, and inflation have undermined the financial assumptions. HRA debt has risen to approximately £31.8bn, significantly inhibiting the ability of authorities to invest in both existing stock and new homes.

Shelter commissioned Savills Affordable Housing Consultancy to deliver research to understand the scale of debt removal necessary and the impact of debt removal on social rent delivery nationally, regionally and locally. The research found that the original HRA self-financing settlement has been fundamentally undermined by successive policy changes and adverse movements in the markets and economy. Current debt levels restrict both investment in the existing stock but, critically, the delivery of new social rent homes at scale by local authorities. Only large-scale or full write-off of HRA debt restores capacity to both maintain the existing stock and build at scale.

Debt reduction could unlock significant new supply of social rent homes. Per £1bn of debt written off, around 8,900 new social rent homes could be delivered. Borrowing can never cover the full cost of delivery, particularly given rising costs of development and construction. Such additional delivery would require additional subsidy – which could be from grant funding, section 106 schemes and/or cross-subsidy from the rest of the HRA, though the latter would necessarily be constrained by the need to provide for the existing stock. Nationally, this equates to around 190,000–280,000+ social rent homes depending on the scale of write-off.