You are viewing 1 of your 1 free articles
Why replacing Right to Buy homes is so difficult
As the government looks at allowing councils to use Right to Buy receipts to buy homes for shared ownership, here is a reminder of an Inside Housing piece from 2015 explaining why replacing homes sold is not straightforward
This article was originally published by Inside Housing on January 16, 2015
In 2012, the government announced it was revitalising the Tory party’s most famous council housing policy. Right to Buy, which had faded into obscurity during the recession, was coming back with a bang, with tenants offered £75,000 off the sale price of their home. But the coalition also promised any additional social homes sold would be replaced ‘one-for-one’ with affordable rent properties. Since then, 22,900 homes have been sold. But promised replacements are not coming, with just 4,800 started and 10,000 planned. Inside Housing takes a trip to Toyland to explain why
Sale
Here is a brick house. Yesterday, it was part of Toyland District Council’s stock of 4,000 properties, providing a home at social rent to the town’s many minifigures that couldn’t afford to buy one at the full toy shop rate.
Now it’s been sold under Right to Buy. This pile of bricks represents the market value of the home, which the council has to use to build a replacement.
Toyland is in the south east, giving the pile a value of £200,000 – enough for a new home. But most of it will go elsewhere.
READ MORE
Discount
Immediately, a big chunk of the pile disappears in the discount given to former social tenants, Mr and Mrs Block. The discount is now £77,000 – raised from £75,000 in August to account for inflation. It will continue to rise annually.
This leaves £123,000 – still a pretty big pile – but Toyland is lucky in this respect. In London, the discount is £102,700. And in many parts of the country, homes are worth much less. Under the current rules, the discount can wipe out up to 70% of the original value of the home.
Debt
And there is more to come. In 2012, councils were allowed to keep the rent from their homes, rather than pay it back to government for the first time. But in return they had to take on a share of the historic debt these homes carry.
The government formulas meant Toyland District Council was given £40m of this debt, and were expected to use the rent paid by tenants to cover it.
When the government agreed this settlement, it assumed some homes would be sold. But the big discounts on offer mean Toyland has sold 120 homes since 2012 – 80 more than the government predicted.
This means it is getting less rent, and has less income to pay the debt. So it needs to take a chunk of the receipt to pay this debt back.
Here, Toyland takes £17,000 to repay debt. Of the original pile, £106,000 is left.
Inside Housing revealed paying back historic debt has accounted for £368.3m of the £1.54bn raised through right to buy since 2012.
Formula
Now it gets tricky. Before the policy was revamped in 2012, the Treasury took roughly 75% of the cash from sales and the council kept the rest.
When the discounts were increased, neither the Treasury nor the councils wanted to lose this income. So a formula was devised to predict how much each would have received, and they still get to keep this share.
In Toyland, the formula assumed the council would have sold six homes in the last quarter of 2014. This would have seen the council get £450,000 and the Treasury £1m. This £1.45m still needs to be handed out before any cash is used for replacements.
But with Mr and Mrs Block, and the other tenants, getting a much bigger discount than they did before, Toyland has to sell 10 homes to generate £1.45m – not the six originally assumed.
It’s impossible to calculate how much of each sale goes to the Treasury and council general funds. It depends how many others have been sold. But since 2012, £151m has gone into council general funds from Right to Buy sales and £358m has gone to the Treasury – roughly a third of the total generated.
What’s left?
Toyland takes a further £1,300 out of the pile to cover the administration of the scheme. While this doesn’t seem like a lot, it comes to £12.7m nationwide.
Now it needs to build the replacement home. But as you can see, the pile it’s left to work with is pretty measly.
The government told the council to borrow 70% of the cash to build new ones – but has limited the council’s borrowing power to £170m, a figure which is very close to being reached.
It has also told them to rent the new house out at ‘affordable’ rents, which means most minifigures would need housing benefits to live there.
Councils like Toyland now say delivering the government’s promise of one-for-one replacements is impossible, unless the government lets them keep a few more bricks.
