7 May 2012 | By Gavriel Hollander, Inside Housing

MPs have called on the government to rethink the ‘unnecessary’ cap on council borrowing as a way to increase investment in new housing supply.

A report from the communities and local government select committee’s inquiry into housing finance, published today (7 May), recommends a wide range of measures aimed at attracting more funding to allow both housing associations and local authorities to build more homes.

Labour MP Clive Betts, who chairs the committee, said that councils should play a vital role in addressing the need to increase housing supply.

‘The challenge is that we need to build a quarter of a million homes a year and the private sector has never built more than 150,000, so the rest has to come from somewhere,’ he said.

The move to give councils greater borrowing power was backed by the Local Government Association.

‘The committee recognises that councils already play an important role in meeting housing need but currently have had their hands tied behind their backs due to the restrictions on borrowing,’ said Clyde Loakes, vice chair of the LGA’s environment and housing board. ‘The committee describes the borrowing cap as “unnecessary” and recommends it be lifted, and we are urging the government to consider this as a priority.’

The report is also critical of a number of current government policies, including the affordable rent programme run by the Homes and Communities Agency. It recommends that the government bring forward proposals on how to deliver affordable housing after the end of the programme in 2015 so they are in place by the end of 2012. It also calls for the ‘rebalancing of subsidy arrangements’ to take some burden away from housing benefit.

‘For decades, successive governments have failed to deliver sufficient homes to meet demand,’ said Mr Betts. ‘The country faces a significant housing shortfall and the financial crisis has amplified the problem. We have to muster all the resources we can.’

Other recommendations in the report include:

The establishment of a housing investment bank, run by housing associations

A consultation on the status of historic grant to housing associations following suggestions that it could be written off

A move to ensure that homes sold under the right to buy are replaced on a ‘like for like’ as opposed to one for one basis

The release of public land, on a local and national level, to allow more house building

Further legislation to help create residential real estate investment trusts

The establishment of a fund to encourage councils to support volume self-build projects.

The government is obliged to consider the report, and issue a formal response to each of its recommendations in due course. Housing minister Grant Shapps said he welcomed the publication of the document.