Transferring Temporary Accommodation Units from the General Fund to the Housing Revenue Account Mark Swallow mswallow@arlingclose.com

Local authorities in England managing temporary accommodation face increasing pressure to ensure cost efficiency while maintaining housing services. One potential strategy to optimise financial management is the transfer of temporary accommodation units from the General Fund (GF) to the Housing Revenue Account (HRA). This insight examines the potential for such transfers, the process involved, and the associated benefits and challenges for housing authorities.

Legislative Framework

It is our understanding that the statutory basis for any potential transfer lies in the Local Government and Housing Act 1989 (LGHA 1989), which regulates the operation of the HRA. Section 74 of the LGHA 1989 requires local authorities to maintain a separate HRA to manage income and expenditure related to housing held for social housing purposes. Crucially, Schedule 4 to the Act specifies which types of housing expenditure must be accounted for in the HRA.

Temporary accommodation typically falls under the GF because it is used to discharge homelessness duties under Part VII of the Housing Act 1996, rather than being classified as social housing. However, the 1985 Housing Act gives the power to a housing authority to provide housing accommodation by erecting or acquiring houses (and houses for these purposes include lodging-houses and hostels). It could therefore be possible for this to include housing used to provide temporary accommodation and therefore any temporary accommodation erected or acquired under the 1985 Act powers would need to be accounted for within the HRA in accordance with the requirements of Section 74(1) of the local Government and Housing Act 1989.

Process for Transfer

Before any transfer takes place, a local authority must consider the following:

  • Assessment of Property Use - Local authorities must evaluate whether the temporary accommodation meets the criteria for inclusion in the HRA. This includes assessing the property's intended use, security of tenure provided to tenants, and alignment with HRA regulations.
  • Valuation and Accounting Adjustments - When transferring assets, properties must be valued appropriately to ensure compliance with accounting standards. The transfer may require adjustments between the General Fund and the HRA, often involving a debit or credit to reflect the asset value.
  • Regulatory Approvals - The Secretary of State’s consent may be required under Section 74 of the LGHA 1989 for such transfers unless the properties meet prescribed exceptions under Directions or secondary legislation.
  • Tenancy Agreement Amendments - Where required, tenancy agreements may need to be revised to reflect the transition from temporary accommodation to permanent housing, which may include offering secure or introductory tenancies.

Benefits of Transferring to the HRA

In our opinion, there are several financial benefits to considering this type of transfer, including:

  • Cost Savings - Temporary accommodation within the General Fund is often funded through short-term income streams, including housing benefit subsidy capped at Local Housing Allowance (LHA) rates. By moving these units to the HRA, authorities can benefit from the more stable financing structure of the HRA, including access to rental income and reduced reliance on General Fund resources.
  • Revenue Generation - Properties in the HRA can generate rental income aligned with social housing rent policies, providing a predictable and sustainable revenue stream.
  • Access to HRA Borrowing Powers - The removal of the HRA debt cap in 2018 allows authorities to use borrowing more flexibly within the HRA to fund improvements or acquisitions and with the HRA discount in place there is added incentive to provide as much property in the HRA as possible.
  • No requirement for MRP – If temporary accommodation remains in the GF, it may be subject to MRP; however, transferring it to the HRA would eliminate this charge.
  • Alignment with Strategic Housing Goals - Transferring properties to the HRA can better integrate temporary accommodation into long-term housing strategies, reducing the administrative burden of managing homelessness services through the General Fund.

Challenges and Considerations

Whilst the process of transfer seems like the answer to the current cost pressures associated with providing temporary accommodation other issues would need to be considered.

  • Regulatory Compliance - The process requires careful navigation of statutory regulations to avoid breaching the "ring-fence" rules governing the HRA.
  • Impact on General Fund - Transferring assets to the HRA may reduce GF reserves and alter financial planning for homelessness services. Local authorities must ensure that remaining resources are sufficient to meet ongoing obligations.
  • Tenure Conversion and Tenant Expectations - Tenants currently in temporary accommodation may need to be transitioned to secure or assured tenancies, which could affect housing management policies.

Conclusion

The transfer of temporary accommodation units from the GF to the HRA can offer significant financial and operational advantages for housing authorities in England. By leveraging the HRA's more sustainable funding mechanisms and strategic housing focus, councils can enhance their ability to provide long-term, affordable housing solutions. However, the process must be underpinned by robust legal compliance and financial planning to manage risks effectively and ensure successful implementation.

If this is an area that you are interested in exploring in more detail we have recent experience in modelling the financial impact of considering such a transfer on both the GF and HRA. Please contact mswallow@arlingclose.com for further discussion.

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