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Leading land agent Aston Mead has hit out at local councils for spending taxpayer’s money on building risky commercial property on their land, to make up for government budget cuts, instead of prioritising affordable housing which is in higher demand.

The land agent has argued that there is a greater need for affordable housing across councils all over the UK, due to the current shortage of affordable housing stock. They argue that councils could instead borrow money to build affordable homes on their land and rent them out to tenants on their long waiting lists, according to Aston Mead.

There are guidelines in place to restrict the amount of land that local councils can sell for commercial property development, but some local authorities are continuing to spend £100 million a month on retail units, large retail centres and offices.

LOFT – MPU

Speaking out over the controversial way that local councils are spending on commercial property, Adam Hesse, land and planning director for Aston Mead commented: “Not only is it unnecessary to risk to bet taxpayer’s money in this way, but the authorities concerned are spending vast amounts of money on assets which may not be worth anything like what they are paying for them.

“Local authorities may be able to borrow at low interest rates from the Public Works Loans Board, but there are no limits to how much they can borrow, and they don’t even have to prove that they can afford it. Consequently, the risks of councils finding themselves over-exposed are enormous.

“What’s more, they could borrow the money to build affordable homes on their own land and rent them out to tenants on their waiting list. The return from doing so would certainly be better than some of the assets they are buying at the moment, and waiting lists would be reduced at the same time. It’s a win/win solution!”

There are a large number of people still dependent upon local councils being able to provide affordable housing for them to live in which is in short supply, despite the recent 63 per cent increase of new homes that were started during the 1st April to the 30th September, according to recent data from Homes England.

This news has come at a time when overall rental value growth for commercial property remained flat for the third consecutive month in October 2018. Retail capital values fell by 0.6 per cent and retail rental values fell by 0.2 per cent, and shopping centres also witnessed a decrease in capital value of 0.2 per cent, according to the recent CBRE United Kingdom Monthly Index report.

UK local councils are in for a tight squeeze next year

Local councils have already experienced huge budget cuts from their government funding in 2018 alone since the 2008 recession. Many local councils have had to make budget cuts in the year, have faced overspend or are unable to balance their accounts, according to the Local Government Association.

The government grant dedicated for funding local services will receive a further 36 per cent cut of £1.3 billion in 2019 to 2020, which will affect 168 local councils, which is almost half of those in the UK, according to recent data released by the Local Government Association in October this year.

These budget cuts planned for next year and onwards into 2020 will mean that many local councils will have to address the shortfall from government funding through their savings to make ends meet.

Chancellor Paul Carter, chairman of the County Council Network commented: “Counties will work hard to deliver the savings required, but the scope for making deliverable savings has dramatically reduced, and decisions for next year will be truly unpalatable if we are to fulfil our statutory duties.

“Without additional income, the worst is yet to come.”

Although the many local councils that are investing in commercial property may be a boon for commercial property investors, there is an inherent risk in this strategy that many are concerned about.

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Steven Taylor
Steven reports on the daily churn of the property news cycle, often reporting on the stories you may have missed during the week. He covers a range of topics, including market sentiment, new findings and announcements by policy-makers.

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