SALE! (while stocks last)
The government hopes a renewed push on the right to buy will trigger a building boom. Gavriel Hollander examines the latest proposals and asks whether they can deliver
Last week saw the release of Margaret Thatcher biopic The Iron Lady. It is timely for the housing sector, given the government has just resurrected of one of her landmark housing policies.
In his autumn statement to parliament, chancellor George Osborne described the right to buy as ‘one of the greatest social policies of all time’. Regardless of whether or not you agree with this statement, it’s hard to argue that the impact of the initiative, introduced in The Housing Act 1980, on the sector was anything less than enormous; in the first two decades of right to buy, an estimated 2 million homes were sold.
When prime minister David Cameron announced at last year’s Conservative Party conference that the coalition would reinvigorate the policy in England by dramatically upping the discounts available to tenants, the idea was that the move would prompt a similar revolution.
So, will the rebirth of right to buy launch a new wave of homeownership and, if so, what will be the impact on the social housing sector?
Some of these questions were expected to be addressed in a consultation paper laying out the government’s proposals, published days before Christmas, but it raises as many questions as it answers.
The paper contains a range of options, both in terms of the level of discount available to tenants and how receipts from sales are distributed. The Communities and Local Government department maintains that it is open-minded about how the policy will ultimately be implemented and is accepting consultation responses until 2 February.
Here, Inside Housing examines the three main areas in the consultation document which are giving social housing professionals cause for
The Communities and Local Government department’s impact assessment details a number of options for increasing the savings available to council tenants looking to buy their homes, including the option of raising the discount to 50 per cent. It was this figure that grabbed the headline when the government unveiled its housing strategy last November.
However, discounts of up to 60 per cent are already available to some tenants, depending on the length of time they have been in their property. Discounts currently start at 35 per cent for houses and 50 per cent for flats, once tenants have rented for five years.
The government’s preferred option is to maintain current discount levels but increase the maximum reduction cap to £50,000. The change is likely
to have markedly different effects across the country.
In many parts of the north of England, the current caps of £22,000 to £26,000 take the discount close to 50 per cent in any case, meaning the new push could have minimal impact. In London, where caps are generally £16,000, tenants will be able to treble their discounts. But, with property
prices much higher in the capital, the extra help is unlikely to allow many more people access to mortgages.
‘Even with increased discounts, there may not be a huge amount that take it up,’ admits one councillor at a Conservative-controlled London borough; a statement that is at odds with the coalition’s target of 100,000 right to buy sales.
A housing chief at another London borough puts it more succinctly. ‘It’s [right to buy] going to be a damp squib and, as far as I’m concerned, that’s a good thing,’ he says, highlighting the fact that, for some councils, retaining stock is the top priority.
Nigel Long, policy officer at the Tenant Participation Advisory Service, adds: ‘It’s small beer and will make little difference to most tenants. It won’t add to the housing supply and that’s the key issue.’
A key difference between Baroness Thatcher’s right to buy and the coalition government’s cuddlier successor is in prime minister David Cameron’s commitment to build one-for-one replacement homes for those sold off.
The idea is simple: councils will use right to buy sales receipts to help build a replacement home, although rents will be set at up to 80 per cent of market rates. Councils will also borrow against this future rental income and provide some financing, which, crucially, could come in the form of land rather than cash.
Some councils are concerned that, without using their own land, building a new home for every one sold will be unworkable. ‘There would have to be free land cost going into the scheme,’ says Ken Jones, director of housing at Barking and Dagenham Council, in east London. ‘There’s no way it’s going to work if you have land costs as well as development costs.’
The wording of much of the CLG’s consultation is vague on replacement housing. It describes one-for-one re-supply, not like-for-like, meaning a family-sized home could be replaced with a one-bedroom flat. Many councils fear like-for-like replacement won’t be viable if there is significant take-up of large discounts.
‘With the value we have in the north west, the capital receipt is not going to be sufficient to deliver a like-for-like replacement,’ warns Paul Beardmore, director of housing at Manchester Council, adding that the policy ‘won’t stack up’ unless councils can keep all sale receipts themselves instead of pooling them.
The CLG acknowledges that the ‘national model’ of pooled receipts - one of a range of options set out in the consultation - would have less support from councils, even if it is more able to deliver one-for-one. The ‘local model’, on the other hand, allows councils to choose to spend receipts on estate renewal or decent homes work, rather than new homes. This option would mean new housing can be built in the same area as the right to buy sale, but could mean that the underlying principle of delivering replacement homes is bypassed.
Assuming that there is sufficient take-up of the new right to buy - and assuming councils have the land to build on - there is another problem that could prevent the policy bearing fruit.
Government calculations on how replacement housing will be funded show that councils would need to borrow around £59,000 per home. The assumption is that they can borrow against future income from the homes, with landlords able to charge up to 80 per cent market rent.
But the loss of existing stock removes some of the leverage councils have to borrow for their existing development programmes. It means any local authority with plans to build its own homes may have to call a halt to them if it is hit with a new swathe of right to buy sales.
London Councils, the body representing local authorities in the capital, has previously called on the CLG to allow flexibility over borrowing caps, imposed as part of councils’ self-financing reforms. A spokesperson said that it was ‘hard to see how [councils] will be able to properly fund new homes’ unless the caps are adjusted.
Anecdotal evidence suggests that many councils are pushing their capacity to borrow even without the extra burden of right to buy, but there has been little indication from the CLG as to whether caps will be raised.
As with much of the detail of the policy, the right to buy consultation looks to be too vague to be able to draw any firm conclusions yet.