Taking a big gamble
The coalition has announced it is resurrecting right to buy but what will this mean for councils and housing revenue account reform? Nick Duxbury finds out if ministers have the odds in their favour
Thirty-one years ago last week then prime minister Margaret Thatcher introduced a policy that has been responsible for the biggest increase in homeownership in the past 50 years.
Last week the coalition government marked the birthday of right to buy by re-launching it as central to prime minister David Cameron’s ‘Conservative housing revolution’.
Addressing delegates at the Conservative Party conference in Manchester last Sunday, Mr Cameron said he would be raising right to buy discounts in order to make it attractive once more for council tenants in England to take out mortgages and buy their homes.
Predicting that 100,000 council tenants would step up and buy their home, Mr Cameron pledged to use the receipts from sales to replace every sold council house with a new ‘affordable’, rather than social, home. This means local authorities would charge a rent at up to 80 per cent of the market rate.
But will Mr Cameron’s move really deliver the new homes he is banking on to kick-start the faltering economy?
And, if it does, will it derail the government’s flagship reform of the housing revenue account subsidy system, which is due to launch in March next year but is set up based on right to buy sales rates of just 8 per cent over 30 years.
As gambles go it’s a big one.
For a start, the government has given no indication of the discount level, time frame, or whether councils will get to keep the sales receipts (at the moment 75 per cent goes to the Treasury) to reinvest into the new homes. A meeting between civil servants and local government representatives last Thursday failed to shed any light on this.
‘If they get this wrong then we could be left with a big hole in our business plans [under the HRA reform],’ says Ken Jones, head of housing strategy at Barking and Dagenham Council, who attended the meeting.
‘At the moment there aren’t any hard and fast decisions that have been made,’ says Mr Jones. ‘There was a strong view from local government representatives that we want to be able to keep 100 per cent of sales receipts. Anything else would be at odds with self-financing.’
Mind the gap
The budget hole, of course, might not be as big as councils fear. According to research published last week by HSBC Bank, in the past 30 years councils sold 2.5 million council homes worth £85.9 billion in total, making right to buy the largest privatisation initiative the country has ever seen.
But many councils doubt that in today’s economic climate even increasing discounts will lead to similar sales.
‘I don’t think the discount will make that much of a difference,’ says Pete Jarman, managing director at Carrick Housing, Cornwall Council’s 3,800-home arm’s-length management organisation.
‘Around 50 per cent of the stock in Cornwall has already been bought, and what’s left is occupied by people who are not in a position to buy. Only about 20 to 30 per cent are working so most couldn’t afford to buy regardless of a discount.’
‘It’s a conference stunt, in my view,’ says David Hibbert, a Labour councillor in Oldham. ‘Right to buy is a policy that’s past its day. The homes that people might buy are already gone - and the remaining properties are unsuitable.’
Data from the Communities and Local Government department shows that right to buy sales were at an all-time low of just 4,622 in the tax year 2009/10, down from 6,716 in 2008/09 and a massive 193,600 sales in 1982/83.
This decline began in earnest when the maximum discount for buyers was reduced, while the qualifying period increased in 2003/04 and sales started to fall from 91,988.
‘In Southwark, you probably had fewer than 10 right to buy sales in the past 12 months so it’s been fairly negligible,’ says Ian Wingfield, cabinet member for housing at Southwark Council. ‘If banks are willing to lend people money [for mortgages] that might change but I can’t see it happening.’
There is also considerable scepticism about the government’s ability to deliver its pledge to build a new home for every one sold. Housing minister Grant Shapps has assured the sector ‘there will be no net loss of housing’, but for many, the idea seems unworkable.
‘If we sold off some of our homes we would not get a high market value so how could we afford to build another one up to a good standard?’ asks Mark Kaczmarek, cabinet member for housing and regeneration at Cornwall Council. ‘How can they say it will increase social housing when we are selling them off? To build we may have to buy land and that is quite expensive.’
‘I just can’t see how it will work,’ agrees Robin Tebbutt, associate at consultancy Housing Quality Network. ‘You can’t have a situation where councils don’t get the money from the sales and potentially also lose a revenue stream.’
According to Mr Tebbutt the problem is not just whether or not councils will get to keep their receipts - it is also whether they will be the ones to rebuild the homes that are sold.
Mr Shapps has maintained there will be no impact on the deals struck with local authorities to reform the HRA due to come into force in just five months’ time - despite the fact that the calculations underlying them are based on assumptions of a sales rate of just 8 per cent.
Some councils are concerned that the increased sales will lead to an unplanned loss of revenue and point to a host of potential complications emerging on the horizon.
‘It’s a minute to midnight and they [the government] are changing the rules of engagement,’ concludes Nigel Minto, head of sustainable communities at London Councils.
If the government succeeds in boosting right to buy sales back to 1980s levels, Mr Cameron’s Conservative housing revolution will have a major impact on councils. Whether the gamble is likely to pay off will hopefully become clearer when it publishes its housing strategy in November.
In numbers: the past 30 years of right to buy
- In the past 30 years councils have sold £85.9 billion of council housing, which today has a value of £185.6 billion
- Councils have received £45.5 billion of capital receipts from right to buy sales
- By selling at an average discount of 47 per cent, the value of the assets given away is £40.4 billion. This equates to the loss of 2.5 million of the 5 million council properties available when the policy came into force on 3 October 1980
- At the beginning of 1980, one in three people in England were council tenants - a figure that has dropped to just 11 per cent today
- Scotland offered the most generous average discount of 55 per cent, followed by the south west and south east at 47 per cent over the past 30 years. The smallest discount was 44 per cent given in the north east and Yorkshire and Humberside