Temporary accommodation – can councils weather the storm?

There is nothing 'perfect' about the storm local housing authorities are facing – and at the eye of that storm is temporary accommodation. The scale of the problem is daunting and, quite apart from the human cost, the financial cost is staggering, write Scott Dorling, Ian Doolittle and Sarah Monaghan.

This has increased hugely in recent years, and the pressure on council budgets has contributed to headlines about the "end of local government". This clearly cannot be dismissed as General Election year hyperbole. The figures speak for themselves. Everyone involved in council housing needs to engage with the issue and think hard about solutions.

What can we suggest to clients and colleagues? As lawyers, we specialise in rules, legal or otherwise – and the flexibilities within them. But before discussing those rules it is worth stepping back to emphasise, first, councils' strengths. We sometimes focus overly on vulnerabilities. In other words, what 'cards' do councils have in their hands?

• Housing income – it is easy to forget that amid all the gloom that council housing generates income. Most other council services are just that – services with no income to pay for them. Income does not just fund services – it can be leveraged, i.e. support borrowing to fund capital expenditure.
• Access to lenders – councils have straightforward and cost-effective access to the capital markets through the Public Works Loan Board – and (presumably) because housing is income-producing there is no need to add to cost of that borrowing by making the minimum revenue provision to which other council borrowing is subject.
• An unimpeachable 'covenant' – this forbidding term refers to a council's financial power. Council may not feel powerful, but third parties know that they can rely on councils' statute-based strength. They do not have to worry about their local authority borrower becoming insolvent.  
• Professional expertise – councils have long corporate memories, based on decades of dealing with all the challenges that changing social and political circumstances throw at them. Decision-making is certainly 'bureaucratic' (because that is what public service dictates), but it is based on the input of a wide range of professional skill and experience.  

How then could councils use these general strengths to help deal with the provision of temporary accommodation?

Allocating costs – many councils may assume that temporary accommodation is 'simply' a General Fund issue. That is understandable. The costs of discharging a council's homelessness duties under part 7 of the Housing Act 1996 must indeed be allocated to the General Fund. But the accommodation itself, whether 'ordinary' housing or hostel/move-on accommodation, can be provided under part 2 of the Housing Act 1985 – in which case the cost of doing so is allocated to the Housing Revenue Account. The distinction is between 'bricks and mortar', on the one hand, and homelessness services (assessing applications, determining whether a duty exists, and so on), on the other. The former is a ring-fenced HRA cost (off-set by the rent or fee income), while the latter is a General Fund cost (borne by the council, outside the ring-fence).   

Using capital not revenue – the HRA may or may not be under less severe pressure than the General Fund, but both find revenue hard to release. Capital may be less constrained; and the key point – sometimes overlooked – is that the HRA ring fence applies to revenue. The capital account sits apart from the two revenue accounts. If the capital derives from borrowing it is only the borrowing (revenue) costs which must be allocated according to the ring-fence rules. This points to ways of funding additions to the council's own stock, rather than paying third parties to provide expensive and (sometimes) unsatisfactory accommodation. And the strength of a council's 'covenant' means there is potential to access institutional investment at scale, not forgetting the acquisition programmes supported by such investment?

Acquiring homes – or building new ones – councils have been trying hard to increase their stock in recent years and are increasingly familiar with the opportunities and constraints. Finding the right approach depends on a combination of grant rules, s106 requirements, RTB receipt rules, statutory consents, and so on. Many councils have established their own housing companies. Few however have adopted programmes aimed at 'producing' temporary accommodation. It is easy to understand why, but with costs escalating to unsustainable levels the benefit of a joined-up approach – general needs and temporary accommodation together – has obvious attractions.  

Maximising cost recovery – there are two issues here. As far as rent is concerned, there is an exclusion from the Rent Standard for temporary social housing, though not for property held in the HRA or for freehold - and certain leasehold - property held in the General Fund. The Rent Standard however only applies to below-market rents – and the use of Local Housing Allowance rates should – in principle - ensure that this is not the case. There are however technical issues to work through: the possible application of the requirement to set 'reasonable' rents and the way temporary accommodation is defined for Subsidy and Universal Credit purposes. As for other charges, these are most likely to relate to personal support – with most costs of this kind costs met out of the General Fund, not the HRA. We describe the application of the HRA ring fence to welfare and similar costs in our Unofficial HRA Manual. 

The spiralling costs of temporary accommodation would not be causing such widespread concern if there were easy solutions; but this analysis demonstrates that there is flexibility in the 'system' and scope to make effective use of both councils' current resources and any additional support the Government provides. 

Scott Dorling is a Partner, Ian Doolittle is a Consultant and Sarah Monaghan is an Associate at Trowers & Hamlins. Contact them for further information and to obtain a copy of the firm's Unofficial HRA Manual.