Vacant lots

As all the attention focuses on housing associations, what about the impact of the right to buy extension on local authorities?

Councils in England have sold 1.8 million homes to tenants since 1980. Sales accelerated again following the introduction of increased discounts by the coalition with little sign of the promised one for one replacement. Now they face being forced to sell their remaining high value stock as it becomes vacant to pay for the discounts for housing association tenants. The receipts will allegedly finance the discounts, plus the construction of replacement homes plus a £1 billion brownfield regeneration fund.

A report published jointly by Islington and three other north London councils last week looks at the likely consequences. Among the conclusions:

• Around 3,500 homes would be sold across Islington, Camden and Haringey in the first five years of the policy
• Sales receipts are unlikely to be enough to cover right to buy discounts, compensation to housing associations, replacement homes and the brownfield fund
• Even if the policy did work, time lags between sales and completion of replacements would mean 579 families with children and 385 homeless households being unable to get a council tenancy in the first two years
• The results would be increased overcrowding, under-occupying households having to wait longer to downsize and homeless families spending longer in temporary accommodation, with knock-on effects on the private rented sector.

Few details of the policy are available so far, though last week’s briefing on the Queen’s Speech says that the Housing Bill will ‘require local authorities to dispose of high-value vacant council houses, which would help fund the Right to Buy extension discounts and the building of more affordable homes in the area’.

The report by the four boroughs assumes that ‘high value’ will be defined as it was during the election campaign: the most expensive third of homes above value thresholds by number of bedrooms for the region (in this case London as a whole). That applies to 38% of homes in Camden, 34 per cent in Islington, 5% in Haringey and 0% in Enfield.

When he launched the Conservative manifesto, David Cameron said that replacements would be built ‘in the same area’ but the report says it is ‘probable’ that some local authorities will have to build replacements outside their area. Even then they will need to be funded by additional borrowing. The results of the analysis and the details of the policy available so far beg all sorts of questions for the future.

First, if the plan does end up relying on additional borrowing, it will founder on the borrowing caps imposed by central government.

Second, replacement homes will still rely on cheap public land. That would be the same land whose release Greg Clark is determined to accelerate because (my emphasis) ‘the chance to own your own home should be available to everyone who works hard and aspires to.’

Third, the impacts will be most severe in the most affluent parts of each region. In London that could mean Conservative-controlled councils like Westminster and Kensington and Chelsea having to sell virtually all of their stock as it becomes vacant. Westminster has only recently spent £20 million buying back 45 homes previously sold under the right to buy. After spending £450,000 per home, could they be forced to sell them again, effectively at a huge loss? Outside cities, the policy could trigger the sale of all vacant council homes in the most desirable (and therefore expensive) rural areas.

Fourth, all of this could be a major incentive to councils that still own housing to go for a stock transfer. They will still face the right to buy but could they escape being forced to sell? If many do go for transfer, that will reduce the homes available to be sold and make the financing of the whole scheme even shakier than it appears now.

Fifth, the implication is that councils with retained stock will have to sell it to finance housing association right to buy discounts outside their area and that some of them will only be able to build replacements outside their borders. Boris Johnson, no less, thinks it would be ‘the height of insanity’ to sell homes in London to pay for new ones outside London. What already happens in temporary accommodation, with inner London boroughs sending their homeless families to outer London and beyond, could become the norm in all housing decisions, with the same legal arguments about the suitability of the placements in relation to family, schools and employment.

Sixth, what will the impact be on councils’ plans to build more homes – or on the housing delivery organisations recommended by the Elphicke House review? It’s hard to see it will make financial sense if they have to sell them and give part of the proceeds to housing association tenants as they become vacant. Building them through council-owned companies doesn’t seem like a way out either, since Brandon Lewis signalled before the election that he will clamp down on schemes used as a way to avoid the right to buy.

Seventh, as I blogged before the election, the manifesto plan relies on what looks like a hopelessly over-optimistic assumption that 7.1 per cent of high value homes will fall vacant each year and be sold. That’s double the rate assumed in Policy Exchange’s original report, a point made later on by the Institute for Fiscal Studies.

That’s just off the top of my head and other bloggers are raising plenty of other issues. Over at Nearly Legal, J has raised the question of what ‘falling vacant’ actually means? Does it include the end of a fixed-term tenancy? If so, the ironic result could be a return to lifetime tenancies.

At Red Brick, Monimbo99 points out that the duty to get the best price could mean homes lying vacant for some time and that buyers are very likely to be buy-to-let investors with no connection to the local area and raises the disproportionate impact in places like Westminster and in rural villages. However, most fundamentally, he poses the question of what happens when selling vacant stock conflicts with other legal duties:

‘If a council defies the rules and lets a high-value property to someone from the waiting list, using the argument that they had hundreds of people who needed the letting and they did so in pursuit of their housing act duties, what court would say they were wrong and should have sold the property on the open market instead?’

The more you think about this policy the more holes appear in it.

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