The housing takeaway

Sales of council homes in Wolverhampton have risen sharply since right to buy discounts trebled just over a year ago.

Tenants can now get up to £75,000 off the cost of their house, compared with £26,000 before April 2012. Last year, the local authority sold 119 homes – up from 60 the year before.

The attraction of the discounts to people who wouldn’t previously have considered buying can perhaps be summed up by the fact that the first Wolverhampton tenant to buy after discounts were raised was a pensioner in his 90s, who was eligible for the full £75,000 discount.

And so although the pensioner’s four-bedroom semi-detached house was valued at £135,000, Wolverhampton Council received just £60,000 for the property in the desirable Penn area of the city. According to Chris Hale, head of housing at Wolverhampton Council, the ‘reinvigorated’ right to buy is ‘eroding the amount of council housing’ for the 12,000 households on its waiting list.

The maximum discount of £75,000 – tenants qualify for a 35 per cent discount after five years and this increases by 1 per cent a year thereafter – is in line with the rest of England outside London. In the capital, the maximum discount was raised in March to £100,000 as the government aimed to give the scheme a further shot in the arm.

Bearing this in mind, can government ministers really justify their claim that all homes sold as a result of the reinvigorated right to buy will be replaced? A year since the changes were introduced, are Wolverhampton and other councils actually planning to build anywhere near an equivalent number of homes?

One-for-one replacements

The loss of the pensioner’s four-bedroom home would not be too bad for Wolverhampton if it was confident of replacing this and other properties. Unfortunately, this isn’t the case, with the Labour-controlled council saying it can only afford to build 26 homes with last year’s receipts – less than a quarter of what it sold.

While right to buy sales doubled in Wolverhampton last year, the local authority’s receipts rose by just  50 per cent, from £3.2 million to  £4.7 million. With the Treasury claiming the lion’s share for sales that were already projected before the discounts were increased, the council calculates that – following other deductions, such as administration costs – it has just £788,000 left to put towards new housing.

The council plans to use this cash to fund 30 per cent of the cost of building new homes, says Mr Hale. This is a national benchmark figure identified by the government last year when it tried to revive right to buy sales and promised that homes sold would be replaced on a one-for-one basis.

Even assuming that Wolverhampton can raise the remaining 70 per cent through borrowing or other means, any development programme will amount to no more  £2.6 million. With the average cost of building a home about £100,000, that means just 26 of the 119 homes sold in 2012/13 will be replaced.

‘We still have to pay a contribution [of right to buy sales receipts] back to the government and pay for any debt,’ says Mr Hale. ‘We only get to keep a small proportion.’

According to the Communities and Local Government department, 160 out of 167 English stock-owning local authorities (including those with arm’s-length management organisations, like Wolverhampton Council) signed agreements to keep some receipts and put the money towards new homes. The alternative was for the Homes and Communities Agency or Greater London Authority to redistribute money nationally.

Figures published by the CLG in May show £368 million was raised in 2012/13 from 5,942 sales (up from 2,638 in 2011/12), with councils acquiring or making starts on 844 homes – an 86 per cent shortfall.

Time limit

Local authorities have three years to spend receipts from right to buy sales not anticipated prior to the discount changes, or else this money must also be paid to Whitehall. For projected right to buy sales, councils still pay the government 75 per cent of receipts, as they did prior to April 2012.

Experience in Wolverhampton and elsewhere begs the question as to whether homes sold through right to buy are likely to be replaced on anything close to a one-for-one basis, as the government pledged.

Steve Partridge, who was director of financial policy and development at the Chartered Institute of Housing until he left the institute last month, points out the government only promised one-for-one replacement on a national basis, not in each local authority. Also, the pledge only applies to additional homes sold following the discount changes, not sales previously forecast.

Nevertheless, he says, there is strong evidence that councils in the north and midlands are struggling to replace even the extra homes sold. This is because agreements allowing councils to build are only ‘triggered’ after each authority hands over the receipts that were expected from those previously projected sales – but with discounts going up on every property, projected sales take much longer to translate into the level of receipts previously anticipated.

‘Where discounts have increased, receipts may go down,’ says Mr Partridge. ‘You may have to sell more properties to get up to the same receipts and build homes.’

The other barrier facing councils is raising the extra 70 per cent to complement the receipts. ‘It generally comes from borrowing or other finance and so clearly the debt cap [on each authority] is going to be  a constraint,’ he says.

Mixed reviews

Not every council is as pessimistic as Wolverhampton. Conservative-run Brentwood Council, in the constituency of communities secretary Eric Pickles, sold 11 homes through right to buy last year compared with five in 2011/12.

Malcolm Knights, head of housing at the Essex council, says it can afford to replace homes lost. Brentwood isn’t necessarily using a model that all other councils can easily replicate, however – it can only achieve the required numbers by using its own land. ‘If we were in the position of having to purchase land, it would be a much greater challenge,’ Mr Knights says. ‘You somehow have to get subsidy in there.’

In housing minister Mark Prisk’s constituency, Hertford and Stortford, East Hertfordshire Council is ploughing right to buy receipts into its general fund (see box: Close to home).

In London, Southwark Council is confident of building 1,000 new homes by 2020 to replace the number it expects to sell through right to buy. Last year, sales rose from 24 to 94, while net receipts increased from £3.5 million to  £8.5 million.

Higher property prices in the capital mean it has less trouble reaching the level of previously forecast right to buy receipts and the local authority can therefore keep a larger proportion of money it receives from additional sales.

But Ian Wingfield, cabinet member for housing at Southwark Council, is concerned that with the local authority now predicting it will sell 250 homes next year, its annual rent income is falling by £1.2 million. Equally, its efforts to increase the stock of affordable housing are severely hampered.

‘We are selling old stock and building new stock, but we’re chasing our tails to stand still,’ he says.

Gateshead Council sold 51 homes last year (up from 22 the year before) but collected net receipts of just £653,000. In theory, this could make up 30 per cent of a £2.2 million development programme that might build 17 homes, but the council is not optimistic of raising the extra 70 per cent.

Michael Laing, director of social care and independent living at the council, says: ‘There is a gap between the number of homes we sell from maintained stock, the capital receipt, and our ability to build new homes. We can’t replace on a one-for-one basis.’

Not all northern councils are struggling. Manchester sold 55 homes last year – 11 fewer than projected. ‘People are still struggling to get [mortgage] finance,’ says Paul Beardmore, its director of housing. The council kept 40 per cent of the £2.2 million raised (about £880,000) and this will be put towards a much larger affordable housing scheme, part funded by the HCA, if required.

A spokesperson for the CLG confirms that the department is still committed to a one-for-one replacement policy. ‘The one-for-one replacement policy was set up to achieve one-for-one replacement at a national level,’ she adds.

Welwyn Hatfield Council, in the constituency of former housing  minister and current Conservative Party chair Grant Shapps, is studying alternatives for replacing the 69 homes it sold last year – up from 10 in 2011/12. The council received a total of £6.9 million in receipts last year, and has £3.4 million left to put towards new housing after paying the Treasury and other deductions.

Options include buying homes on the open market, funding other registered providers to build, and acquiring homes through section 106 agreements.

Acquisition is more expensive than giving grant to a housing association but it means the council ends up owning an asset, points out  Welwyn Hatfield’s head of housing, Sian Chambers. ‘Our aspiration is that we will be able to replace the homes sold,’ she says.

Perhaps tellingly for the constituency of Mr Shapps – who delivered the one-for-one promise and is one of the biggest cheerleaders for right to buy – Ms Chambers admits that, while it has the ‘aspiration’, the council hasn’t ‘done the full maths yet or got the schemes in place’. A year on and there is clearly much work to do before Mr Shapps’ promises can be delivered, even in his own backyard.

Indeed, just over 12 months after the return of right to buy, the only certainty is that tenants with sufficient money can buy their homes for less than before.

Whether councils raise enough cash to build new housing depends in part on where they are and the options available. Ministers, meanwhile, are looking on in the hope that their promise of one-for-one replacement does not come back to haunt them.