Council housing rents across the country will have to increase, and many councils will be forced to draw on their financial reserves, due to the ongoing financial pressures facing Housing Revenue Accounts (HRAs) according to a new survey by the Local Government Association (LGA).
The survey, sent to councils ahead of the Spending Review to assess the financial stability of Housing Revenue Accounts (HRAs), revealed that 72 per cent of all respondent councils with an HRA are ‘very’ or ‘fairly’ likely to draw down on reserves to balance budgets for 2025/26.
Additionally, 100 per cent of councils who responded to the survey anticipate raising rents within allowable limits (CPI + one per cent) with 67 per cent also expecting to reduce real terms spending on supervision and management, and 57 per cent on repairs and maintenance.
Government is currently consulting on a long-term rent settlement for the sector, and is offering CPI+1 per cent over five years.
However, only 38 percent of respondents were confident that the new settlement would allow them to invest in planned new build programmes.
This would have a knock-on effect on the Government’s housebuilding aims, with fewer councils having the necessary funds to invest in new developments.
Furthermore, the survey found that, only 61 per cent of respondents said that they were very or fairly confident that this settlement would allow then to balance their budgets over this period.
Many councils face an impossible choice between running HRAs into deficit or failing to meet statutory repair obligations, including new requirements under Awaab’s Law.
The cost of required capital investment has surged from £64.2 billion in 2012 to £96.1 billion today, leaving local authorities with a £31.8 billion shortfall.
Compounding this, day-to-day repair costs are rising sharply due to increased demand for hazard mitigation under Awaab’s Law and broader cost increases driven by labour and supply chain challenges. New regulatory requirements and proposed professional qualification standards for housing staff will add further strain.
The LGA is calling on the Government to use the Spending Review to restore over £600 million in lost revenue due to the rent cap in 2024/25 and to provide a long-term rent settlement that supports financial stability for HRAs.
Without immediate action, councils will also struggle to finance new affordable homes, undermining the Government’s ambition to build 1.5 million homes over the next five years.
To address the funding gap, the LGA proposes a 10-year rent settlement allowing annual rent increases of up to 1 per cent above CPI, which would help balance HRA income and expenditure over 30 years. However, even with such measures, an income shortfall of between £6 billion and £7 billion is expected in the initial 5 to 10 years.
Cllr Adam Hug, housing spokesperson for the LGA, said:
“These findings are yet another example of the financial pressures facing councils with HRAs.
“The situation is untenable and unsustainable, and without urgent action, councils – and the communities and people they support – will be severely impacted.
“Specifically, the impact of the proposed five-year CPI+1 rent settlement needs to be looked at. The survey shows not only that while many councils see a proposed five year settlement as a step in the right direction, there are concerns that this is not long-enough to give them the certainty they need to ramp up their new build housing programmes in the way they would like. A sizable minority are reporting real concerns around balancing their budgets over the next five years due to the pressures they face. The upcoming Spending Review is the opportunity to help give the sector the certainty it needs to build more homes and better look after its residents.”
