Plans for budget-friendly housing in Surrey have been temporarily halted due to increasing expenses.
In a significant development, Surrey Council is contemplating the suspension of its affordable housing plans due to the escalating interest rates. This potential shift was discussed at the Spelthorne Council's Policy and Finance Committee meeting in September 2023.
The decision comes as a direct response to the increasing financial burden that the rising interest rates have imposed. According to a report to be presented at the meeting, the additional interest charge between 2.3% and 5.42% amounts to £350.5m over 50 years. This equates to an average additional interest charge of £7m per annum for the council.
The report also points towards construction inflation as a contributing factor. Average construction costs rose by 1.5% in the final quarter of 2022, standing 9.7% higher than a year earlier. New build projects saw the sharpest annual increase in costs, at 11.8%.
The Public Works Loan Board (PWLB) lending rates were relatively low at 2.3% in 2018, when Surrey Council decided to build new homes as part of its housing strategy. However, they have since risen to 5.4% as of August 2023. The current PWLB interest rate, with further rises predicted, has made the current direct housing development plan financially unviable for the council.
Officers recommend that the council no longer directly bear the risk associated with residential development due to the rising risks. The report also suggests that the council must reconsider its options going forward due to the financial impact of rising interest rates.
It's important to note that the report does not discuss any legal plea for financial help by Birmingham City Council, nor does it mention any images from Ambitious Studio or Rick Barrett.
The council borrowed £1bn to help with the costs of building new homes. A meeting of the corporate policy and resources committee on 11 September is set to debate officers' plans to pause council housebuilding in the borough.
This potential shift in Surrey Council's housing strategy underscores the broader challenges that local authorities across the UK are facing in the current economic climate. As interest rates continue to rise, the financial viability of various public projects, including affordable housing, is being scrutinised.
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