www.pwc.com
Making the most of HRA
Reform
Harrogate
21 June 2011
Key findings
 HRA reform will put councils in control of their housing assets –
forecast to generate more than £300bn rent over 30 years.
 More than £50bn of new investment resources could build up over
30 years.
 Councils will be able to shape their “housing business” to deliver
against their local service and investment priorities.
 In the past, meaningful HRA strategic financial planning has been
impossible – now it will be essential.
 There are a range of options for unlocking HRA investment capacity.
Making the most of HRA reform
PwC
June 2011
2
Self-financing debt allocations
Debt allocations
HRA reform - debt allocation by region
Region
Properties
Allocation Per property
'000
£m
£000
London
422
7,227
17
South East
187
4,093
22
South West
102
1,461
14
East
157
3,577
23
West Midlands
210
3,514
17
East Midlands
185
2,672
14
North West
113
1,474
13
North East
117
1,476
13
Yorkshire & Humber
238
2,924
12
1,730
28,418
16
Total
Making the most of HRA reform
PwC
• Based on discounted cash flow of
future net rental income
• Builds in uplifted allowances for
management, maintenance and life
cycle investment needs
• Discount rate of 6.5% (real) to
reflect risks taken on by councils
• Debt allocations represent the
“debt capacity” of the housing
June 2011
3
Managing HRA debt and delivering investment
 £28bn (average of £16,000 per property) is an assessment of the
initial “debt capacity” of the housing.
 With sufficient investment to maintain its value, housing should be
able to sustain its initial debt capacity (in real terms).
 Some authorities are looking at paying down debt – this is not
necessary and may not support a sound asset management strategy.
For many councils the real issue is how best to match
tomorrow’s surplus resources with today’s urgent capital
needs – particularly with the HRA borrowing limit.
Making the most of HRA reform
PwC
June 2011
4
Potential new investment resources
Assumptions
HRA reform - new investment resources
Region
Rent
Surplus
Per property
£m
£m
£000
London
101,576
15,618
37
South East
39,038
7,191
39
South West
18,231
2,761
27
East
32,183
6,124
39
West Midlands
38,064
6,177
29
East Midlands
31,577
4,986
27
North West
19,209
2,949
26
North East
19,323
2,688
23
Yorkshire & Humber
39,307
5,527
23
338,508
54,023
31
Total
• Based on published PwC/DCLG model
and assumptions
• Rent increases as government policy
• Council expenditure reflects uplifted
allowances
• No repayment of debt – interest paid
for full 30 years
• Excludes interest received on surplus
balances
Source: PwC self-financing model, DCLG 1 February 2011
Making the most of HRA reform
PwC
June 2011
5
Securing investment resources
 The full potential of the reforms could be very significant – councils could
generate more than £300bn of rental income and £50bn of new investment
resources over the next 30 years.
 To identify actual resources, councils will need to take a view of their local
circumstances – including their ability to increase rents and manage costs.
 Whilst there are risks – there are now real choices for councils in developing
strategic investment plans.
We would expect councils to develop medium to long term business
plans that are influenced by investment need, underpinned by risk
analysis and integrated with funding solutions that are robust and
sustainable.
Making the most of HRA reform
PwC
June 2011
6
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