Posted by: Jules Birch15/03/2012
I’m never quite sure about those ‘buy one, get one free’ offers in the supermarket. So can I really believe in ‘buy one, build one free’?
My local Shapps & Cameron hyperstore is offering me a ‘rebooted’ right to buy. Is it like it sounds - a desperate attempt of a 21st century marketeer to rebrand a tired old product from the 1980s as something exciting and new - or is there something in it?
Before I go loading up my car with pies I’ll never eat and bananas that will go off before I munch my way through them, in this case I already know there are some big catches. The ‘terms and conditions may apply’ in small print below this particular offer includes the fact that this is more ‘buy one, build a bit of one free’ provided I put up free land and borrow a lot more. If I want it to be affordable rather than ‘affordable’ I’ll have to do even more. And it could play havoc with my sums on self-financing.
But, hey, beggars can’t be choosers and these supermarket promotions look like running out soon. I’ve cashed in my clubcard points from last year’s ‘affordable’ range and there are few signs of any other special offers from Shapps & Cameron. Certainly till 2015 and probably beyond. Isn’t BOBOF better than nothing?
So far, reactions have been mixed. The CIH supports anything that will boost investment but said there were ‘both pluses and minuses’ in the announcement. The LGA wanted areas to be able to determine their own discounts, criticised the centralised way the system was being implemented and warned that ‘some areas in need of affordable homes may actually be left with fewer’. The NHF also warned that receipts in low-value areas may not be enough for replacements.
I’ve been looking at more of the small print after noting the rather curious way that Shapps answered a question in parliament on Monday. His former Labour shadow Alison Seabeck asked him to clarify. ‘He spoke today of replacement on a one for one basis. Does that mean he does not mean like-for-like replacement in the same area?’
Any supermarket customer service person would have been proud of the evasive and non-committal answer from Shapps. ‘Where local authorities can provide the new homes in the same area, we will certainly look to keep the money locally and build in the area,’ he said.
Back to that small print. It was always clear from the original consultation published on December 22 that BOBOF will only apply to homes sold ‘above current predicted levels’. And the Inside Housing feature by Gavriel Hollander in January revealed the depth of the scepticism on the ground.
It’s clear the changes go beyond just tweaking the government’s preferred option of the existing discount rate with a £50,000 cap to the existing discount rate with a £75,000 cap. That’s important in itself of course and on the face of it makes one for one replacement even harder.
The official explanation in the new impact assessment (IA2) is that: ‘It was considered to best meet the policy objectives, in particular the potential to increase take-up of right to buy whilst at the same time ensuring that receipts would be sufficient to enable one of one replacement with affordable rent properties. The £75,000 cash cap also limits the potential for large windfall gains that an “uncapped policy” would lack. The 30-year net present value under this approach is positive and the policy option results in significant economic benefits.’
However, there is an interesting change to the way that this option is evaluated. IA1 said that the implied average net sale receipt after paying local authority debt would be £55,500. It went on: ‘This would be sufficient for one for one replacement without the need for conversions beyond the current Spending Review period, but we estimate that there could be a small funding gap within the current Spending Review period under this policy option.’
IA2 also predicts an average net sale receipt of £55,500 but goes on: ‘Under our central assumptions we estimate that this would be sufficient for one for one replacement without the need for conversions within and beyond the current Spending Review period.’ I’ve asked the DCLG why the ‘small funding gap’ has disappeared and am waiting to hear back.
The sums have also changed on the assumed costs. The net present value of the £75k option after 30 years has reduced from £21,100 to £19,800 per home while after 60 years it has reduced from £100 to -£700. The explanation for this appears to lie in two changed assumptions about housing benefit.
First, like virtually everyone apart from Joe Halewood, the DCLG had missed the freeze in local housing allowance rates announced by the DWP for 2012/13 in IA1. IA2 corrects this by reducing the LHA rent inflation assumption from 3.7 per cent to 2.0 per cent for this year. That will presumably reduce the housing benefit saving from people on LHA moving in to the replacement homes.
Second, IA1 had assumed that many of those exercising the right to buy would be on partial housing benefit and estimated this would be the equivalent of 15 per cent of them on full housing benefit. Following discussions with the DWP that has been changed to 10 per cent. This reduces the housing benefit saving that comes from these tenants becoming RTB owners.
On the central assumption, IA1 estimated that the housing benefit impact per unit would be +£3,000 over the three-year spending review period and +£600 on 30-year net present value but -£12,300 on 60-year net present value. IA2 revises those figures significantly so that there is a positive impact of +£2,100 per unit over the spending review but a negative impact of -£3,100 over 30 years and -£16,100 over 60.
Another significant change, presumably after lobbying from the NHF about public-private status, is that there is explicit statement in IA2 that ‘housing associations are independent organisations and we cannot therefore mandate the use of any receipts from right to buy sales that they retain, including for one for one replacement’. The government expects that receipts will be recycled in practice but a proposal in IA1 to ‘incentivise’ developing associations to do so through the affordable housing programme seem to have been dropped.
However, there are all sorts of issues not covered in the impact assessment. All of the comparisons are with an alternative of keeping the sold-off home in the social rented sector. Little wonder the comparison looks favourable, when the alternative does not include any residual long-term value for the home. And are the BOBOF homes really additional when all the free land would probably have been used for new homes anyway?
Strangest of all, in what is meant to be an impact assessment, there is no attempt to estimate the number of people who will buy (which may depend not just on individual tenants but perhaps their families too). Or when they will do it – there is no time limit so some people who can buy may prefer to wait until after the recession. Or how long the likely purchasers have been tenants – and therefore how much discount they will get. Or where they will do it, because the sums will stack up very differently between high and low value areas and between authorities with headroom to borrow under self-financing and those with little scope to borrow.
Perhaps, in fairness, the vague answer from Shapps on Monday reflects some of those uncertainties. Some authorities may be able to build a replacement home in the same area but others will not and wouldn’t it be better for housing as a whole if their receipts are recycled elsewhere?
Back in the Shapps & Cameron store, the managers are hoping that the £75,000 headline offer and BOBOF will be enough to tempt the punters. But they don’t really know because nobody really knows.
Only one thing really seems certain. Love it or hate it, Right to Buy 2 looks like being the only special offer around for some time to come.
From Inside edge
Housing commentator Jules Birch puts the latest news in context