Neil Merrick 18 June 2018

Time to restructure Right to Buy?

Time to restructure Right to Buy? image

It took until March for the Government to admit what councils have known for years. Homes sold under Right to Buy (RTB) are not being replaced on a one for one basis.

One for one replacement was a key feature of the relaunch of RTB six years ago, with higher discounts. Local authorities were promised they could keep some receipts and use the money to build or acquire new homes - so long as they worked within government rules.

But the rules are so rigid that councils are struggling to replace more than a fraction of what they sell - even within the three years permitted. By the end of 2017, just 15,981 new homes had been built or acquired since 2012-13.

To hit the three-year target, councils needed to build or acquire 17,072 homes. But even this underestimates the real shortfall, as ministers only require replacement of ‘additional’ sales, not sales forecast prior to higher discounts.

John Bibby, chief executive of the Association of Retained Council Housing (Arch), says the target was missed for many reasons, not least the fact councils can only use receipts to cover 30% of replacement costs. ‘It was not a surprise to anybody working in housing or local government,’ he says.

As councils have limited borrowing headroom, can be difficult to raise further funds. Together with bodies such as the Chartered Institute of Housing (CIH) and the National Federation of Arm’s Length Management Organisations, Arch has compiled a list of ways the system might be improved [see box at end].

It remains to be seen how many are included in a forthcoming consultation on new flexibilities that should appear in the next few weeks along with the promised green paper on social housing.

The Government could, for example, allow councils to combine RTB receipts with grants from the Affordable Homes Programme, or to set discounts locally. Or even keep all the money raised from RTB sales, though that is likely to be resisted by the Treasury, which currently recoups about 20%.

As things stand, says Mr Bibby, councils are bound to borrow prudently. There is vast uncertainty over the future of social housing, including rent levels and the possibility councils will be required to sell high-value stock. ‘The Government needs to instil confidence back into the sector,’ he says. ‘We need to go back to the principles of self-financing.’

Depending on how long they have been with the council, tenants qualify for a discount of up to £80,900 (£108,000 in London). A study in February by the Local Government Association suggested tenants in England and Wales have received £3.5bn in discounts since 2012. RTB is being phased out in Wales this year and has been abolished in Scotland.

English councils in areas with low house prices face the greatest problem replacing properties. After the discount is applied, they are left with a relatively small receipt, some of which is paid to the Treasury or used to pay off debt.

Since 2012, Stoke-on-Trent has raised £29.6m from the sale of nearly 800 homes. Just 27 have been replaced by the council, plus a further 90 by housing associations using receipts passed to them by the local authority.

Had the council kept all receipts, director of housing Carl Brazier estimates it might have built about 250 homes, perhaps 330 if it combined receipts with grant.

Brazier would also like councils to have freedom to spend receipts on refurbishment (including fire safety). ‘If it wants local government to manage its business, then the Government should give it flexibility to do what’s best for its area.’

In Newark and Sherwood, the council sells between 20 and 30 homes per year. In 2017/18, its retained receipts totalled £14,500, yet it costs up to £130,000 to build a new home on infill sites.

Furthermore, the council is unable to pass receipts to its arm’s length management organisation - Newark and Sherwood Homes - even though the almo has its own building programme and manages council development schemes. Rebecca Rance, the almo’s chief executive, would like to see fewer restrictions on use of receipts, plus local discretion on discounts. ‘We are using every penny of the housing revenue account that we can to build,’ she adds.

Homes built with RTB receipts are mostly let at affordable rent (up to 80% of market rents). The CIH estimates that, since 2012, about 150,000 social rented homes have been lost due to RTB, while another 80,000 could go by 2020. David Pipe, CIH policy and practice officer, cannot see any justification for receipts continuing to be paid to the Treasury. ‘We should be striving for genuine one for one replacement, so councils replace all the homes they sell,’ he says.

A recent study by property firm Savills for the LGA found two thirds of councils will have no chance of replacing homes on a one for one basis in five years unless the RTB scheme is significant restructured.

The loss of housing through RTB can be traced back to the 1980s. During this time, Sheffield has sold about 32,000 homes, leaving it with about 39,000 properties. On some estates in popular areas, as many as 70% of homes have been sold, some of which are now let privately.

In the past six years, the council has sold just over 2,000 homes but replaced only 400. ‘The RTB is in urgent need of review,’ says director of housing Janet Sharpe. ‘It has created mixed tenure communities but has gone too far and created issues that are destabilising the housing market in some areas.’

Options for improving right to buy:

1. Allow councils to keep 100% of receipts.
2. Permit receipts to cover more than 30% of the cost of replacing homes.
3. Let councils combine receipts with government grant.
4. Allow councils to set discounts locally.
5. Give councils five years (instead of three) to replace each home.
6. Allow local authorities to pass receipts to almos.
7. Reduce discounts under the cost floor rule when a council has taken over or improved a home in the past 25 years (not 15).

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