East Devon District Council needs to borrow an extra £12 million to help plug a financial hole in its social housing budget.

The cash comes as the council claims it has to meet increasingly stringent and wide-ranging requirements on social landlords, such as councils, who are facing rising costs, and to rectify the impacts of historic underspending.

The council’s cabinet heard this week (Wednesday 10 July) that it needed £2.5 million to balance the budget of the last financial year that ended in April, having overspent.

It also requires an extra £9.2 million to fund the current financial year’s capital programme, which covers aspects such as physical repairs to properties, taking the total to £11.7 million.

The council already has £85 million in borrowing for housing, costing nearly £3 million a year in interest, which will rise if it borrows more money.

Major issues also include a significant number of long-term empty homes. It acknowledged that longer turnaround times between departing and arriving residents dented earning potential, and that it had properties that required “significant investment” to be brought back into use.

It had used its “entire usable” reserves of £9.3 million for the previous financial year, and will now have to tap into what it calls ‘last-resort reserves’.

These sit at £3.1 million, but councillors were being asked for £1.75 million more to meet revenue costs, which include salaries in the housing department.

The council is proposing to save £250,000 a year over three years from its housing revenue budget to replenish those reserves.

Cllr Ian Barlow (Independent, Sidmouth Town) said there were “almost unbelievable things” in a report to councillors.

“You’ve got a budget that is somewhere in the region of 50 per cent overspent and we’re just hearing about it now for the 23/24 financial year,” he said.

He acknowledged that the council is dealing with 10 years of under-investment, but “this leadership has been in charge for four or five years”.

“I’m not political, and don’t care who is in charge, but we need to see action here and not just more pushing the issue down the road,” he said.

Cllr Barlow said that councillors had been waiting for a housing stock report about the authority’s social rented houses: “for as long as I have been a councillor, which is about a year and a bit.

“I’ve been told it’s coming but we haven’t seen it,” adding that he also felt that the authority’s housing review board hadn’t suggested things were as bad as they are.

Cllr Christopher Burhop (Independent, Newton Poppleford and Harpford), who sits on the council’s housing review board, said key performance indicators for the social housing department were “monitored meticulously” and that there had been progress which help tenants.

“But if I was going to be critical of the report, it’s about the surprise which is the level of borrowing we are now being asked to sanction to fund a historical underspend, which to my mind, and I’ve been a member of the council for the past year, is a complete surprise.

“I’ve been on the housing review board and audit committee and have not seen any indication that we are going to be needing this level of borrowing and that frankly needs to change.”

Cllr Burhop suggested a new monitoring system for housing-related finance may need to be created to help councillors better oversee it.

Cllr Dan Ledger (Independent, Seaton), portfolio holder for sustainable homes and communities, stressed the council was not alone in such challenges.

“I was informed earlier that Islington needs around £1.8 billion over the next 30 years for housing, that’s their shortfall, and around 20 councils have written to the new government about issues with shortfalls that exist now and that are expected over the next 20 years due to rent caps, regulatory conditions and other things we are expected to do,” he said.

“They are things that we should do to protect our residents, and we are not sitting on our hands but have identified the issues and are responding with an emergency budget so officers can act and deliver for residents.”

Simon Davey, director of finance, said the prospect of an overspend had been flagged in previous reports to cabinet and the housing review board, but that perhaps the seriousness should have been emphasised more.

“I take on board what councillors are saying,” he said. “I could point to reports to cabinet and the housing review board that talk about the potential for an overspend and that we might need to use up reserves, but I think what has come as a genuine surprise is the level of spend needed going forward,” he said.

“It’s only due to the work we have done to assess our stock that this has come to light in terms of the scale of spend that is needed to go on.”

Council leader Paul Arnott (Liberal Democrat, Coly Valley) added the new management team in the housing department is what “has made this degree of understanding possible”.

And new chief executive Tracy Hendren, who was appointed in May, said the council is trying to “be open and transparent about the funding required to make housing safe for next year.

“What we are doing is waiting on reports from some national bodies and the stock condition survey so we can be absolutely confident on what spend is needed for the medium and long-term strategy for our housing stock, which we will bring back in the autumn,” she said.

The cabinet approved the borrowing, which will be split between £4.4 million from a so-called voluntary revenue provision – which allows it to borrow against previous overpayment of debt – and £7.3 million of new borrowing, which could be from an external lender or internal reserves.

Should it come from external sources, it could cost an estimated £365,000 a year in interest.

The cabinet also approved an additional £35,000 to fund an extra accountant to oversee the housing revenue account budget.

The recommendations will now go to full council for final approval next week on Wednesday 17 July.