Posted by: Colin Wiles04/10/2011
In a nod towards Thatcherite populism, Grant Shapps has pledged to revive the Right to Buy and promised that every sale will be matched with a new affordable home. This may go down well in certain parts of the press, but how it will be achieved in practice is something of a puzzle. The Question and Answer document produced by CLG raises more questions than it answers, as does this blog.
Right to Buy sales last year stood at 3,960 in England compared to well over 150,000 at the height of the RTB boom in 1982. Clearly the only way to prompt more sales is significantly to increase the level of discounts. At present, these range from £22,000 to £38,000 depending on the region. Even if the discounts are doubled will this be enough to tempt buyers, given the drought of mortgage finance? Remember that there are now fewer council houses than housing association properties and the Right to Buy has a shrinking pool of potential purchasers.
But here is the puzzle. According to the government’s own figures the average market value of Local Authority properties sold under the right to buy in 2010/11 was £103,970. The average capital receipt was £77,470 and the average discount was £26,510 per property. But under current Treasury pooling rules 75 per cent of the capital receipt has to be returned to the Treasury for redistribution to receipt-poor areas. Any increase in discounts leads to a reduction in receipts. Let’s say the average receipt drops to £50,000 - that leaves only £12,500 to be re-invested in housing. Even under the affordable rents’ programme, which these receipts will be funding, the average level of grant is around £32,000 so how does a receipt of £12,500 build a new home?
This raises a whole series of questions. Is there to be another source of subsidy to ensure one home is built for every sale? Will Treasury rules be changed to allow for all of the receipt to be retained? Will receipts be ring fenced both to housing and to the local authority? Has the government carried out any financial modelling to see what level of discounts will generate sales?Lots of questions and few answers at this stage.Even if the number of sales increased tenfold, which seems optimistic to me, we would still only achieve fewer than 40,000 sales per annum, so where does Grant Shapps come up with the figure of 100,000 new homes every year?
Sorry to be cynical, but unless the Treasury is willing to relax the current rules on capital receipts this looks like another of those populist conference soundbites that will be quietly buried within a few months.
From Inside out
An independent look at the housing sector and beyond from Colin Wiles