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Croydon Council to invest Right to Buy receipts in charity
A south London borough yesterday unveiled plans to invest its unspent Right to Buy receipts in a charity which will buy up street properties to provide affordable homes.
Croydon Council’s cabinet approved an initial investment of £25m in the new charity, Croydon Homes, which will buy 250 homes in the borough.
The homes, which will be two and three-bed properties, will be let at 65% of market rents on three-year assured shorthold tenancies. This would see a typical rent of £1,380 per month in Croydon reduced to £900.
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Croydon approved the investment at its council meeting last night.
It will use the properties to move households out of emergency bed and breakfast accommodation and into longer-term tenancies, which it hopes will generate a saving of £1.2m per year.
The council said it would fund the charity in part with cash from Right to Buy receipts, which it is currently unable to spend due to restrictions on its own housing budget.
Right to Buy receipts can only fund 30% of the value of developing a property and cannot be mixed with other forms of grant. Councils’ borrowing through their own Housing Revenue Accounts is capped by government, meaning they struggle to raise the debt necessary to spend the receipts in the three-year time frame.
Croydon anticipates £30m of unused receipts through to 2020/21, according to a briefing document submitted to its cabinet meeting last night. If it did not use the receipts it would be required to repay them to government with interest.
That document said the estimated cost of the total programme, including purchasing the homes, would be approximately £100m.
This investment would be funded by the £30m of Right to Buy receipts and £70m of debt which will come at least in part through the revolving £25m loan from the council.
The charity is expected to make a modest surplus of £21,000 in its first year.
The briefing document said: “It is important to realise that this type of street purchase scheme does not generate significant annual revenue returns and, without the use of Right to Buy receipts, it would not be viable. A surplus of £21,000 on an investment of c£100m is an exceptionally low return on investment.
“It is therefore essential to view the financial benefit to the council of enabling this scheme through the cost reduction or avoidance from expensive temporary and emergency accommodation.”
It said the council had decided against handing the Right to Buy receipts to a housing association as “no provider identified that would deliver units at a sufficient scale to utilise the level of right to buy receipts held by the council”.
Alison Butler, deputy leader of the council and cabinet member for homes, regeneration and planning, said: “Renting privately is expensive for many Croydon people, which is why this council is taking action to make it more affordable for them.”