By Daniel Hunter

A council-backed programme to build tens of thousands of new homes could spur on a housing recovery, if Government removed restrictions on local authority housing investment.

Official Government figures released today show that the numbers of new homes completed in the first half of this year was down on the same period last year.

The Local Government Association (LGA), which represents more than 370 councils in England and Wales, is calling on the Government to remove onerous restrictions on council investment in new housing, which are preventing councils from playing a key part in the recovery.

Thousands of shovel-ready sites could be kick-started into action if the Treasury-imposed housing borrowing cap was lifted.

Recent research shows local authorities could build up to an additional 60,000 homes over the next five years if they were allowed to invest in housing under normal borrowing guidelines. This would deliver a 0.6 per cent boost to gross domestic product (GDP), create new jobs and reduce the benefit bill by increasing the provision of much-needed new social housing.

Cllr Mike Jones, Chairman of the Local Government Association's Environment and Housing Board, said: "Councils are still approving nine in every 10 planning applications we receive and, as we have seen this week, more first-time buyers are getting mortgages. The challenge now lies in getting more new homes built.

"Local authorities have excellent credit ratings and we want to use our assets to help kick-start the housing recovery but our hands are being tied.

"Government has an unrivalled opportunity to create jobs, provide tens of thousands of homes and help the economy without having to find a single extra penny. New homes are badly needed and councils want to get on with building them. The common sense answer is for the Treasury to remove its house building block and let us get on with it."

Government has set every council a cap on the total amount it can borrow to invest in new housing. The level of the cap bears no relation to the number of new homes needed in each of these areas.

It means that some authorities are barely able to invest in the building of any new homes at all while others are only able to build far fewer than they would like to.

Research by a coalition of housing organisations including the LGA last year found that removing the cap would help create up to 60,000 new homes over five years, delivering a 0.6 per cent boost to gross domestic product.

Market analysis has shown that the investment would be very low-risk and paid many times over by future rents on new homes.

Under the current rules, councils would be able to borrow no more than £2.8 billion to invest in housing — enough to build 15,000 homes. Without the cap, councils could borrow up to £7 billion to invest in housing over five years, under existing prudential borrowing rules.

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