The housing crisis will worsen unless government guarantees it will match the amount lent by the European Investment Bank in England after Brexit, local councils have warned.
The Local Government Association says the EIB, an EU institution, plays a vital role in providing affordable housing as well as key infrastructure.
The bank granted loans worth €13.5bn in the UK in the 18 months before the Brexit vote, but has dispersed just €3bn since the June 2016 referendum, according to analysis by the Institute for Government.
These include a €1bn loan to build more than 20,000 affordable homes in areas including Wigan, Scarborough, Bradford and Cambridge; a £700m loan for the Thames Tideway Tunnel; a new super sewer in London; and a €220m loan for new trains on Merseyside. It has also provided hundreds of millions of euros in loans to small and medium sized businesses in the north and Midlands.
The LGA says the government must provide immediate assurances that equivalent lending alternatives will be made available to councils and SMEs after Britain leaves the EU.
It also wants councils to be allowed to build more homes by lifting the housing borrowing cap and permitting them to use receipts from council house sales to tenants.
Some 217,350 new homes were completed in England between April 2016 and March 2017, a 15 per cent increase on the year before. The government has an annual target of 300,000.
As an EU member the UK is a 16 per cent shareholder in the EIB and will have to sell its stake after Brexit. It has been the fifth largest recipient of EIB loans since it joined the bloc in 1973, with €165bn of projects, almost 9 per cent of the total.
The EIB offers cheaper long-term finance than commercial lenders and lends to projects they would consider too risky.
The joint EU-UK report on Brexit negotiations, published late last year, states that the UK wants to explore a “continuing arrangement between the UK and the EIB”. The government has insisted it will provide alternative funding if necessary but provided no details.
However, lending has already slowed. There have been just 39 deals in the two years since the referendum, compared with 74 in the 18 months before the vote.
Losing this funding source could result in a reduction of housing developments, council tax receipts and overall revenue
Cllr Kevin Bentley, chairman of the LGA’s Brexit Taskforce, said access to cheap long-term financing was vital for the UK.
“Major affordable housing developments and large infrastructure projects, as well as smaller investments and SMEs, have benefited enormously from this access. Councils are raising legitimate concerns that losing this funding source could result in a reduction of housing developments, council tax receipts and overall revenue of councils that is used to fund essential services.”