Colchester Councillor Paul Smith on council's HRA debt

Colchester Council's Housing Revenue Account is said to be approximately £100 million debt and residents desperately hoping to be offered a council home are having to bear the brunt. 

The debt has accumulated because the authority is recouping enough money from its new social housing properties to pay off the increased interest rates on the money it has had to borrow in order to purchase them.

As a result of stricter Government regulations placed on housing authorities, Colchester Council is also having to spend more money to maintain and repair its older properties in order for them to meet the new higher standard.

According to the council’s housing insight report from last year, its properties also decreased by 26 per cent between 1994 and 2023, from 8,047, to 5,929, mainly as a result of the Right To Buy scheme.

The scheme allows long-term tenants of social housing to purchase the home they rent at a lower price than full market value.

The Gazette understands Colchester Council is losing on average 70 homes a year to the scheme, despite “320 families" in the city currently living in "temporary accommodation".

The shocking revelations were made by Paul Smith, 66, chairman of Colchester Council's Governance and Audit Committee who also serves on the Scrutiny Panel, Crime and Disorder, and Local Plan Committees. 

Wanting to help th situation - Councillor Paul Smith (Image: Newsquest)

He said: “It's a crisis, which requires Government action, otherwise the situation will only get worse.

“You're left with the situation with if we don't build new houses we're facing a declining business and that's not good.

“So, we need some short term help from the Government to get us over those years where the property with interest charges are not being met by the rents.”

Mr Smith says a huge chuck of the housing debt the council has on its books was given to the authority by the Government eight years ago when it was revaluating the country’s social housing stock.

Number 10 is said to have looked at which authorities were in a good position to take on more debt to subsidise others in a worse position.

Colchester Council decided to take on a long-term debt over 50 years in order to benefit from a lower interest rate for the period.

Despite the debt, in order for the council to purchase more housing to keep up with demand, it will have to borrow yet more money. 

Location - an image of social housing on Bevan Close (Image: N/A)

This is because any homes it does sell, the Government only allows council to pocket 50 per cent of the profit.

In effort to help alleviate the debt, Colchester Council has said all new social home purchases will have an increased fixed rent at 70 per cent the market rate. 

And although any new purchase will effectively be a “drain” on the HRA account for the first five years, as rent goes up, the mortgage payments will stay the same, so over a 25-to-30-year period, the property will start to contribute to the HRA account.

Mr Smith added: “It will generate more income, which helps out with our equation and the property move into making a positive contribution in cash flow terms to the operation sooner by doing that.

“It means that the tenant must pay more rent, but at 70 per cent of the market level it's still below the Housing Benefit cap.

“So, if they're on housing benefit their housing benefit will increase to cover the extra rent.”

The council is also reviewing and updating its current model when it comes to operating its social housing and the costs around it to make it more accurate.

If it can show a clear need for more support from Homes England, the Government body can subsidise councils to help buy new properties for social housing. 

A Housing Revenue Account (HRA) is a method for recording the expenditure and income on a council’s owned social housing properties.