The funding pot used by local authorities to deliver housing services and building safety is likely to plunge into the red in the next two to three years, a new report has suggested.

Housing consultants Savills’ report concludes that the combined impact of rising prices, new regulation and four years of enforced rent cuts have stretched the Housing Revenue Account – the ring-fenced money collected mostly from rents that councils are allowed to use for housing services – to the limit.

Research into expenditure within the Housing Revenue Account, commissioned by the NFA and its partners, predicts that consolidated inflation for housing management budgets will be 16.4% for 2023-24 and 9.4% for 2024-25.

Given that rent rises will be capped this coming year at 7%, and many landlords will try to keep rises even lower than that to help hard-pressed tenants, the report concludes: “Whilst some building safety or zero carbon costs could therefore theoretically be contained within this level of headroom … there is little further headroom within HRAs to achieve higher [housing] standards.

”In fact, net revenue pressures may well send the HRA projection into significant net deficit in the next two to three years as authorities adjust expenditure budgets to reflect the extensive inflationary pressures which may not be covered by rent increases.”

The report highlights the extensive additional capital burden being placed on local authorities who have had to shoulder much of the financial cost of the new building safety regime, and who are also being asked to meet demands for more energy efficient homes, climate change work, healthier homes and to increase the supply of more truly affordable homes.

Chloe Fletcher, Policy Director of the National Federation of ALMOs, said: “Councils simply don’t have enough money to do all they are being asked to do on housing.

“This conclusion is no surprise to us. But it’s good to see the evidence in black and white in this independent investigation into local government housing finance from Savills.

“Health and safety work is our one immutable certainty, simply because it has to be; and if, after that, there’s anything left in the kitty, we can ask our residents what they’re willing to give up and what they can’t do without. Residents and housing managers should be making decisions locally about the housing service needed by the communities they know better than anyone.

But some of these choices aren’t really choices at all – climate change and the housing shortage, for instance, are wholly national issues. We need credible solutions about where the funding comes from, because as this report makes clear, the HRA cannot do all of this.”