Right to Buy: can the Tories finish what they started?
Published by Jon Land for 24dash.com in Housing and also in Communities, Featured, Local Government
Right to Buy: can the Tories finish what they started?
The Government’s bid to revitalise the Right to Buy has been driven on the desire to generate more funds for new supply. However, critics have questioned whether the demand is still there and how the Government will meet its ambitious pledge to build a new home for every one sold.
24housing deputy editor Ross Macmillan outlines current thinking ahead of the Government's housing strategy - due to be published next month.
Experts claim the profile of council tenants has changed dramatically since the 1980s and 1990s when the scheme flourished. Professor Colin Jones of Heriot-Watt University – who has co-authored a book on Right to Buy (RTB) – says around two thirds of council tenants fit into the “economically inactive, unemployed or elderly” category, and questions where the demand is going to come from. However, Government statistics show that out of the 2 million plus households that will be eligible for Right to Buy, nearly 40% are well off enough not to need housing benefit and could afford to buy their home at a discount.
It’s also worth considering that 20 to 30 years ago, it was often the tenants' working children that put up the finance for the parents to buy their homes under RTB - as it provided a nest egg for the future. However, with fears over the economy and rising housing costs, offspring might find it considerably harder to find the extra cash to buy their mum and dad’s home.
Assuming demand is there, how will lenders view RTB mortgages. Again, there are mixed views. Professor Colin Jones says that over the last decade the majority of Right to Buy sales have been made using sub-prime mortgages which aren’t around anymore. However, the housing minister Grant Shapps says RTB applicants are a “safe bet” for lenders given the discounts.
Having said that, surveys of mortgage holders have previously found that RTB purchasers were twice as likely to have troubles maintaining payments, and were twice as likely to have other loans secured on the home – calling into question lender confidence in RTB purchasers.
Tenants could also face high-pressure sales techniques from cold call scammers pushing unsuitable and unaffordable mortgages. It’s led some to question the motives of Government – if homeownership is the objective, might subsidised mortgages in the private sector be a greater springboard – thus lifting tenants out of social housing?
Whilst Right to Buy means a stake in a property, it also means that repairs and maintenance bills are transferred to the individual. With many likely to be mortgaging themselves up to the hilt, the prospect of paying £2-3,000 for a boiler replacement for example could tip some over the edge. There are also the complexities of leasehold agreements through Right to Buy where homeowners living in ex-council homes, are part of the same block of existing tenants. That leaves them exposed to service charges and sharing the cost of major upgrades. Considering most of the best homes have been bought through the programme already, what we’re left with is not exactly going to be top of the range stuff and could require significant work over the coming years. New homeowners could find themselves stretched.
‘One bought one built pledge’
The Conservatives have dressed the reinvigorated scheme up as a way of increasing supply. If councils keep the funds locally it won’t work. We shouldn’t forget that councils will still have to submit 75% of the RTB sales to Treasury coffers. There is also the issue of unpaid debt attached to each property. The more likely option is that the Government will pool the cash from sales and channel it to housing associations through the Homes and Communities Agency. As the new homes will be let at near market rents, not social rents, this would allow associations to leverage more borrowing. Grant Shapps has repeatedly said the Affordable Rent programme was oversubscribed, and we know that housing providers were submitting HCA bids based on grant rates of £15,000 – £20,000 a unit, where traditionally it has been 50% and over. Speaking to 24dash in September, North Hertfordshire Homes – who was unsuccessful in its HCA bid – said it went in with what it considered to be an “extremely competitive" bid. Nick Wright the managing director of its new development arm said: “We went in at around £20,000 a unit and the average awarded in the East of England region in the end was £15,900 per unit. Which is, I think, about the lowest in the country, which is surprising given how close we are to London and the South East."
Following the resistance from some councils – during the Affordable Rent discussions – blocking housing associations re-letting homes at higher rents, one can’t help but look at what the impact of building new homes out of the Right to Buy cash might look like. One can imagine all sorts of fractious dialogue between associations and councils over the location of new homes, land prices, rent prices and having to re-let more social homes at higher rents. While councils are clearly adept at working with housing associations they may demand much more of a say than they’re getting under the Affordable Rent programme.
Eating away at social stock
The original scheme came under attack for not replacing the sold stock, but this time the Tories want to build one home for every one sold. While they might be replacing the sold stock this time around, new properties will be let at higher rents. Coupled together with a benefit cap of £21,000-worth of rent a year, there will be some people falling through the gaps. In any case, traditional social homes risk being consigned to history. If the funds raised from RTB sales are channelled through the HCA to top up the Affordable Rent programme, more existing social homes will have to be re-let at higher rents to make providers' bids stack up. In short, both Right to Buy and Affordable Rent will shrink the cheap stock. In defence, the Government has said – through the Affordable Rent programme – the average rent in London was around 64.5% - below the maximum of 80%. However, this is still a jump from where social rents are. It’s also worth noting that Grant Shapps’ parliamentary private secretary claimed this month that the original Right to Buy scheme actually cut waiting lists and reduced the costs of the private sector. MP Jake Berry said: “This low-cost affordable route into home ownership kept the market price of private housing down, enabling more families to realise the dream of owning their own home while at the same time keeping waiting lists falling.”
Prioritising people in the housing ‘crisis’
While it ticks the boxes of ‘aspiration’, ‘responsibility’ and gives tenants a stake in property, one can’t help but look at those outside social housing struggling to get on the property ladder – paying high rents in the private sector because they can’t afford home ownership. Is it fair that people already paying subsidised rents, then get the chance to buy a house at half the price, while others are trapped paying inflated rents?
There also appears to be a rebellion from some councils who don’t want to use the receipts to build new homes, but instead want to use it to help first-time buyers on to the property ladder. Is this fairer?
Council plans ‘up in the air’
The sudden recall of Right to Buy has thrown council plans ‘up in the air’. From April 2012, stock-holding councils like Birmingham, Southwark, Wandsworth, etc are due to pay off their housing debt in return for keeping rent receipts. Just five months before going live with the new regime, the bombshell of Right to Buy was announced. It will also affect the finance of housing associations who will have tenants with the ‘preserved right to buy’ carried over from stock transfers. Stock retainers are also angered at the Government’s stance to insist on 75% of each Right to Buy sale. “We have spent months consulting our communities, putting business plans in place and balancing the books based on debt and RTB levels. With just five months to go, that is now thrown up in the air,” said John Bibby, director of housing and community services at Lincoln City Council.
Another step towards privatisiation?
The Tories' favourite think tank the Policy Exchange thinks the social housing sector is large, expensive and failing its tenants. In said that in 2008 the sector housed some 17% of UK households - twice the size of the average social housing sector in the EU. Looking at the Affordable Rent programme - and those homes that will be built from the Right to Buy procedds - how long will it be before associations are given the powers to charge full market rents opening up their waiting lists to low-earning families as well as those in additional needs, effectively privatising the stock.