A new report by APSE and the Chartered Institute of Public Finance and Accountancy (CIPFA) shows that an increasing number of local authorities are acquiring property for investment purposes to plug the funding gaps created by ongoing austerity in local government.
The report, Bricks – Mortar – Money: Property investment as a potential means of securing an additional and sustainable source of revenue, shows that significant changes to funding for local authorities has led to many councils searching for new sources of revenue to supplement their income and balance the books. This increase in property investment highlights that councils throughout the UK are concerned that they will potentially be left with a shortfall in their revenue budgets, on top of the reduction in real terms that they are already experiencing.
Local authorities are believed to have spent more than £1 billion on property assets in 2016 as part of a strategy to provide income to mitigate central government funding cuts and the withdrawal of Revenue Support Grant. Using revenue from such investments has allowed councils to support public services, with a small number of councils claiming that using such income will assist them to become fully independent of national grant funding.
Speaking about the report, APSE Chief Executive Paul O’Brien said, ‘Many councils across the UK are now forced to consider new ways of raising the money necessary to continue to offer the public excellent neighbourhood services. This report shows that property investment, if conducted properly, provides councils with the opportunity to raise substantial funds. APSE is not arguing that all councils can use this to meet their budget needs, but it is a further mechanism that councils can deploy to generate much needed funding to plug the gaps created by ongoing austerity. Essentially, what we are seeing is investment for social purpose.’
Report author David Bentley, Head of Asset Management at CIPFA, said ‘Councils have been investing in property for decades but the renewed efforts to use investments to generate additional income is a growing phenomenon. Whilst we do not endorse any particular approach the document has drawn together some interesting examples of this emerging area from a variety of Local Authorities. We do advise that Local Authorities ensure they have the right advice for these kinds of deals within a sensible framework that considers risks and rewards for both themselves and their communities.’
This report aims to disseminate information across the sector. There are a number of different methodologies currently being adopted, which are laid out in the report. The report also offers advice and support for local councils who are just getting started, alongside eight case studies that show local authority initiatives in action.
The report is now available to download here.