Councils have warned they will have no choice but to scale back their social housing construction programmes unless they receive more financial support.
Written evidence submitted to an inquiry by the Commons’ Levelling Up, Housing and Communities (LUHC) Committee – which is investigating the finances and sustainability of the social-housing sector – revealed that some councils had already paused their programmes due to squeezed budgets, with others set to do so.
The Local Government Association (LGA) said that “there is rising concern that the council-housing system is the scene of a perfect storm of pressure”, resulting from national, global and local issues.
Problems include reduced income due to inflation that exceeds rent caps and a right-to-buy scheme that leaves councils with “too little to replace the homes sold”, the LGA said.
The association added that higher construction costs and interest rates were currently being absorbed by most councils. But it warned that, without additional support, “the impact is much more likely to be felt on programmes which commence from next year, with the very real potential for programmes to be scaled back significantly”.
Total social housing delivery is estimated at up to 2,500 new homes per year, with 40 per cent of them in London. The LGA argued that increases in central grant subsidies or more flexibility on using right-to-buy receipts will be needed “in order to maintain programmes at the rate envisaged”.
Assuming inflation in construction costs of 10 per cent, the LGA said that additional grant funding of £25,000 for each unit will be needed to stop delivery totals falling by 8 per cent.
If inflation in construction costs was 18 per cent, the extra grant funding needed would be £45,000 per unit to prevent a 14 per cent drop in total delivery.
Collective organisation London Councils said that build programmes in the capital “face serious viability pressures and some development is being paused”.
One unnamed borough experienced a build-cost increase of 30-35 per cent across its development programme. The programme is now in deficit by more than £26m, doubling the subsidy needed from the council.
Building safety works are also contributing to financial pressures, with another London borough saying these were costing an extra £75m a year. For this council, “the investment needs of the [housing] stock exceed the financial resources available to fund it”, London Councils noted in its evidence.
The council’s housing revenue account has a shortfall of more than £100m over the next five years, despite it pausing the uncommitted stages of its new homes delivery programme.
Hull City Council warned in written evidence to the LUHC that “we are going realistically to have to scale back our overall aspirations for new-build properties over the medium term”.
The council is continuing with schemes already begun, but said future new-build projections have been halved. Hull explained that “costs are rising faster than income and we expect a series of additional challenges through net zero and building safety costs”.
Southwark Council said it had a “pipeline of housing projects ready to go” but that “the current system provides an unsustainable model of funding” to take its housebuilding programme forward.