Most councils have not been able to build their own new council houses since the 1980s.

In the '80s, Margaret Thatcher pioneered the Right to Buy, which is now seeing a return under David Cameron.

Since 1990, annual housing completions have never exceeded 170,000 and they have averaged 140,000.

In 2012, just 115,000 new homes were built in England and Wales, according to Government figures, but there are 1.8m families on social housing waiting lists.

Chancellor George Osborne pledged to do more in his 2014 Budget.

Local authorities have an important role to play to increase the availability of housing of the right size and at the right price to meet demand.

Vice-president of the Local Government Association (LGA), Lord Shipley, has said councils could raise a further £4.2bn above their £2.8bn borrowing headroom if the Government removed the housing borrowing cap.

Lord Shipley estimates councils could build up to 60,000 more homes over the next five years and has called on the Government to ‘start to see local councils as part of the solution in building more social homes for rent’.

His views have been echoed by LGA chief executive Carolyn Downs.

Many local authorities are already building small numbers of new council houses, including East Riding of Yorkshire, Wolverhampton City Council, Epping Forest DC, Ipswich and Luton BCs, Haringey LBC and Wandsworth LBC, which announced in October 2013 it would use money generated through previous Right to Buy sales in the borough to help fund the development of 58 homes for low-cost rent.

Leeds City Council, where the waiting list for council homes is 27,000, has drafted a comprehensive plan for development, utilising many different methods: money from right to buy, freeing up brownfield sites, converting derelict offices and buying sites themselves.

Southwark LBC has pledged to prioritise housing and last year announced it would build more than 10,000 new homes over the next 30 years.

But councils’ ability to build is limited by these centrally-set borrowing caps, meaning build rates are depressed below their potential levels.

The 2013 autumn statement included an announcement that the borrowing cap would be lifted by £150m in 2015/16 and a further £150m in 2016/17

All stock-owning authorities will be eligible to apply for additional borrowing capacity through a competitive process in partnership with their local enterprise partnership and through local growth deals.

Chancellor George Osborne said the £300m increase would help build 10,000 new affordable homes across England.

It is understood that the decision resulted from a deal negotiated between the coalition parties, in which Mr Osborne agreed to raise English council borrowing limits in return for a further increase in right to buy discounts.

In areas of particularly acute housing need, it is believed there will be flexibility to increase borrowing headroom.

Labour has said Britain has an ‘acute housing shortage’ and has pledged to build at least 200,000 homes a year by 2020.

The Government and Labour have both commissioned authoritative reviews of housing.

The Local Government Association (LGA) believes that removing the Housing Revenue Account (HRA) borrowing cap would lead to a wider economic impact of £20bn.

A LGA spokesman said: ‘The centrally-set cap is distributed unevenly and bears little relation to overall housing need.

‘This means some authorities have little or no borrowing headroom to invest in the smaller properties they need to meet demand.

‘The LGA will continue to press Government to lift the borrowing cap and to trade borrowing headroom to allow greater investment in new affordable housing.

‘The current housing crisis means that councils must be provided with the flexibilities to allow them to invest fully in new housing.

‘The Government has recognised the LGA’s argument that the current approach to constraining local authority borrowing for housing investment is not fit for purpose.

‘This establishes an important principle and the provision of a £300m borrowing capacity over two years is a welcome first step.’

LGA chair Sir Merrick Cockell said: ‘The easing of restrictions on housing investment does not go as far as we would like, but it does show that our call for more local flexibility to drive economic growth has been recognised.’

London Councils’ executive member for housing, Mayor Sir Steve Bullock, said:

‘By 2021, more than 800,000 new homes will need to be built in London, but the government’s latest attempt to address this crisis through increasing councils’ borrowing capacity does not go far enough and has too many strings attached.

‘In order to qualify for extra borrowing capacity, councils will have to sell off high value vacant housing stock.

‘This unfairly prejudices London, which has both the most acute housing need and the highest value stock in the country.

‘London Councils will continue to call for the complete removal of the artificial housing borrowing cap, among a raft of other measures, so that boroughs can properly address London’s housing crisis.’

Chief executive of the Chartered Institute of Public Finance and Accountancy (CIPFA), Rob Whiteman, said: ‘CIPFA has long campaigned for the HRA borrowing cap to be lifted to allow local authorities to build the homes their communities need.

‘It’s therefore massively disappointing to see it increased by only £150m next year, but also that this money comes with a host of strings attached with the government creating a complex competition before authorities can hope to see the benefits.

‘If we are to tackle the housing challenge that our country faces, we need to see the HRA borrowing cap lifted and new thinking from the government on house building.’

The Association of Retained Council Housing (ARCH) has said an additional £7bn of borrowing would result from the cap being removed.

ARCH believes this would be well within what councils could reasonably afford to borrow.

Research by ARCH has found that more than three-quarters of councils that still own housing are planning to build new homes.

ARCH treasurer Paul Price said: ‘We would welcome anything that takes us forward in terms of lifting the caps.’

A recent report by ARCH read: ‘The sector has the financial capacity to do more within the constraints of the debt caps and even more if they were removed.

‘There is a growing sense that councils and their arms-length management organisations are beginning to expand their programmes and deliver against their priorities.’

National Housing Federation chief executive David Orr said: ‘We welcome the announcement to raise the borrowing limits for local authorities by £300m over two years.

‘Allowing local authorities to use their assets to raise additional finance will help provide much needed local investment in new homes.

‘We also welcome the expectation that delivery will be achieved through closer partnerships between local authorities and housing associations.

‘While £300m is a modest step in the right direction, it could provide a much-needed short-term boost to housing supply.’

Adam Terry, of housing and homelessness charity Shelter, said: ‘The announcement that local authorities will be able to borrow up to £300m more to pay for house building is certainly good news and something that Shelter has called for in the past.

‘Divide that £300m between England’s 326 local authorities though and it doesn’t look like the game-changing figure that we had hoped for.’

Adrian Waite, managing director of AWICS, a management consultancy and training firm that specialises in providing support in finance and management to clients in local government and housing, said: ‘Councils had argued that the cap should be raised by £7bn or even repealed altogether so the announcement provided only 4% of what councils had asked for and slightly less than £1m a year for each stock-owning local authority.’

The Chartered Institute of Housing (CIH) is a big supporter of allowing councils to borrow more to build new homes.

CIH chief executive Grainia Long said: ‘We are pleased that the chancellor has acknowledged the principle that councils should be allowed to borrow more so they can build more homes, which we have been calling for, but the steps are far too modest and there is a risk that any gains could be offset by the requirement to sell high-value social housing and the expansion of Right to Buy.

‘Increasing local authority borrowing caps by £7bn rather than £300m would allow councils to build 75,000 new homes over five years, creating 23,500 jobs and £5.6bn of economic activity.’

Further reading

News

Miliband gets tough on 'home-block' local authorities

Call to relax restrictions on housing loans

Features

Sir Michael Lyons, former Birmingham City Council chief, embarks on another mission
to create policy – this time helping Labour on housing

Homing in on communities

Opinion

Only local authorities can co-ordinate building of places people want to live in, argues LGiU's Andrew Walker

John Healey argues the Treasury must bite the bullet and allow state investment in social housing for the national good

Corporate director of environment and regeneration at Luton BC, Colin Chick, on how his area is facing a chronic housing shortage

Editor Heather Jameson on how housing faces a tough fight with the Nimbys