Right to sell?

Can two former housing ministers, a flagship Conservative local authority and David Cameron’s favourite think tank all be wrong?

Conservatives may dismiss as self-interested scaremongering the hostile reaction to their manifesto plan to extend the right to buy to all housing association tenants. What happens when you deconstruct the plan using the statements and actions of people on their own side?

1) Because two former Conservative housing ministers say so…

We already knew that Grant Shapps told the 2012 CIH conference that it was not viable in the current financial climate. ‘If I wanted to extend right to buy, which I do, we would have to find billions of pounds,’ he said.

Over the weekend, the Observer reported that Kris Hopkins told Lib Dem MP Tessa Munt in a letter in late 2013 that:

‘Unlike local authorities, housing associations are independent, not-for-profit voluntary bodies and if they are obliged to consistently sell off their stock at less than market value they might find it difficult to borrow which could impact adversely on their repair and maintenance programmes and affect the future provision of affordable housing.

‘The government does not consider that it would be reasonable to require housing associations to sell these properties at a discount. Any increase to the discount available under the Right to Acquire would only be possible through upfront central government subsidy, potentially incurring a high liability for the public purse.’

The policy that was not viable as part of the ‘long-term economic plan’ now seems to make perfect sense in the financial climate of an election campaign. Little wonder that opposition to it is not confined to the usual suspects.

Shapps and Hopkins will argue that the Tory manifesto plan meets objections about the costs and the implications for housing associations because they will be repaid in full from the proceeds of selling off ‘expensive’ council housing. Regardless of whether that solves all the problems (and there is good reason to think that it won’t) the whole plan fails to stack up if that defence crumbles…

2) Because Westminster City Council says so…

The flagship Conservative local authority that became infamous for its unlawful plan to sell off its homes has recently been doing the exact opposite.

In March it agreed plans to buy 45 homes through City West Homes, its ALMO. The homes are all ex-right to buy and are primarily on Westminster estates. The average purchase price was £419,000 and the council is spending an extra £36,000 on top of that. The money will come from a combination of HRA funding and right to buy receipts.

So why has the council that brought us the ‘homes for votes’ scandal decided to buy rather than sell council homes that are by any definition ‘expensive’? A report to the Cabinet member for housing stated:

‘The purchase of additional affordable homes on the open market will add to the Council’s affordable housing stock and will create re-housing opportunities for households impacted by regeneration and consequently assist with the delivery of the Council’s Housing Renewal programme. The purchase of additional family sized homes will help the re-housing of overcrowded households.’

None of this includes the huge costs of not having enough stock to cope with rising homelessness. Westminster has also spent another £10 million buying houses in East London and Essex as temporary accommodation for its homeless families but it recently lost a court case over its attempt to force a single mother and her children to accept a new home in Milton Keynes. The cost pressures of failure to meet demand for social housing are the same all over the capital.

Last week, a High Court judge branded as ‘shameful’ the actions of Tower Hamlets and Havering in avoiding their legal responsibility for a homeless family. On Saturday, The Guardian reported that Westminster and Tower Hamlets were among councils making cash payments of up to £4,000 to private landlords willing to house their homeless families. The ‘golden hellos’ are on top of the billions of pounds in housing benefit paid out to landlords covered in last night’s Panorama.

Given that Westminster sold 56 homes under the right to buy in 2014 at an average price of £220,000, you could see this as a neat illustration of why the original right to buy made no sense and why right to buy 2 cannot possibly deliver the promised one for one replacements. However, if Westminster of all councils is buying rather than selling ‘expensive’ homes, it’s enough to give even the most ardent Tory pause for thought about right to buy 3.

But maybe things will be different this time? The Conservative manifesto argument is that selling the most expensive third of council properties as they become vacant will raise enough money to pay not just for the discount and the debt on the housing association homes sold under the right to buy and the debt on the council homes but also for replacements for all of them and a £250 million a year brownfield regeneration fund. If that all sounds very unlikely, what did the original plan by a certain think tank have to say?

3) Because Policy Exchange says so…

The Tory manifesto idea comes from a report published by Policy Exchange in 2012 called Ending Expensive Social Tenancies. The author Alex Morton is now David Cameron’s special adviser on housing and planning.

The report went much further than the manifesto plan by making the case for selling all ‘expensive’ council and housing association homes and by defining ‘expensive’ as above the median price by type and region rather than in the top third. On this basis (and with some caveats about different methods of valuation) it estimated that there were 818,600 ‘expensive’ tenancies in England worth a total of £159.3 billion. Of these, local authorities owned 339,000. Whatever you think about this plan (and I was dubious at the time) the big argument in favour was that all of the money would be invested back into affordable housing.

The Tory manifesto plan reverses that logic by siphoning off receipts to pay for right to buy discounts for housing association tenants. This conflicts directly with Westminster’s buy back policy and it also raises questions about the deadweight cost of giving discounts to tenants who might already be able to afford to buy elsewhere (10,000 a year were moving into home ownership before the recession, though there is no way of telling how many of these were tenants using their preserved right to buy).

However, most crucially, it relies on very different assumptions about how many ‘expensive’ council homes will become vacant per year. The Policy Exchange report notes that the vacancy rate for social housing in England has run at 6-7% since 2005/06 but adds:

‘However, expensive social housing is likely to have a lower turnover rate. Tenants are less likely to leave desirable properties or properties in desirable areas, because the private sector in these areas will be relatively expensive. For example, London, where private housing is very expensive, had a turnover of 3.5% a year from 2005/6 onward.’

Given that, it assumes it assumes a turnover rate of 3.5%, which would mean 28,500 sales raising £5.5 billion a year.

Contrast that with the manifesto estimate that there are 210,000 homes in the top third of valuations in their area and that sales of 15,000 a year would raise £4.5 billion (an average price of £300,000). You might think that the turnover rate for a much smaller number of even more expensive homes would be even lower but you’d be wrong. That sales figure of 15,000 represents a turnover rate of 7.1 per cent, right at the top end of the rate for all social housing. Using the assumptions made by Policy Exchange in its original report, the manifesto plan will raise at best half of the £4.5 billion a year that the manifesto makes out.

Even this assumes that the valuations are correct. Savills has raised questions about the sums at both ends of the deal: different valuation methods mean that it is far from simple to estimate the impact on housing association business plans; and the valuations of council homes may not be as high as the manifesto makes out. Director of residential research Susan Emmett says:

‘There is no certainty that receipts from sales of local authority homes would be as high as projected. It is also not clear at this stage what would happen if receipts are not as high as expected.’

What happens then? The scheme to compensate housing associations in full is presumably essential to overcoming legal objections that would prevent the sale of charitable assets at below market value. However, even leaving aside all the arguments I blogged about last week, what does that mean in practice? The National Housing Federation estimates that there are 221,000 households who would both be eligible for the extended right to buy and able to afford it and that discounts for them will cost almost £12 billion. The higher the number of right to buy sales in any one year, and the lower the receipts from ‘expensive sales’, the less money will be left for the scheme’s other objectives. Local authorities would be deprived of their best stock, starved of cash and unable to borrow to make up any funding gap for replacement homes.

Put all that together and you begin to see why the figures in the manifesto plan cannot possibly stack up and why there is no way that the scheme will pay for everything it makes out. But don’t take my word for it: Grant Shapps, Kris Hopkins, Westminster City Council and Policy Exchange all say so.

Originally posted on Inside Edge 2, my blog for Inside Housing