Black hole in housing quango’s budget means it has to review Kickstart scheme and this year’s funds

The Homes and Communities Agency is unlikely to be able to fund residential schemes for a year because of a £610m hole in its accounts.

The deficit at the housing quango has emerged because the Treasury has told it that £780m previously promised from other government departments to fund last year’s £1.5bn Housing Pledge is now “not secure”. Monday’s announcement by chancellor George Osborne of £170m of funding for social housing merely cuts this to £610m.

The HCA said this week it had put all funding decisions on hold until at least the emergency Budget on 22 June, as it wants to see what the Treasury will do about the deficit. It will then review £263m of money already allocated to housebuilders to unlock stalled private sites under its Kickstart programme.

If the hole is not filled, the money will have to be made up from this year’s budget. The agency has a £6bn annual budget, but this is largely pre-committed, and two HCA sources said finding an extra £610m could mean it had no money to spend until March 2011.

One source said: “It’s potentially a serious position, and would effectively mean no new allocations all year.”

The impact of a prolonged funding freeze could be huge, with the Home Builders Federation (HBF) this week estimating that the HCA has supported the construction and sale of 40,000 private homes over the past two years; it estimates that its HomeBuy Direct programme alone has generated £2bn of sales. This is in addition to funding for an expected 27,000 homes for social rent a year.

The review of Kickstart could be damaging for housebuilders such as Persimmon, Barratt and Redrow, which have provisional allocations of £27.5m, £10.85m and £9.85m respectively.

An HCA source said the Kickstart review would not begin until it was known whether some of the £610m hole could be filled. At this point the agency will use the existing bids to decide which schemes proceed.

The funding gap is in addition to £230m of cuts from this year’s budget, including £100m for new social housing, £50m for the housing market renewal pathfinder scheme and £50m from Kickstart.

The HBF described the news as “extremely disappointing”, and Graham Cherry, the chief executive of Countryside, which has three Kickstart schemes under review, said: “This means that projects that were going ahead will be put back on hold.”