Right to buy watch

Originally posted on November 4 on Inside Edge 2, my blog for Inside Housing

Here are eight key themes that emerged in evidence from housing association executives to the parliamentary inquiry into the extension of the right to buy.

I wasn’t planning to but I got sucked in to watching the Communities and Local Government committee hearing on housing associations and the right to buy on Wednesday. Across two sessions with witnesses from eight different associations, here’s what I learned:

1) This is not just about the right to buy

The inquiry is meant to be focussed on the right to buy but questions ranged far and wide as MPs asked about the 1% rent cut, Pay to Stay, starter homes, shared ownership, redundancies, reclassification, mergers, you name it. As an indication of the pace of change, they were even questioned about a policy that has not even been announced yet but everyone assumes will be soon (the end of lifetime tenancies).

2) When it comes to the right to buy, it all depends…on where in the country you are

David Montague said London & Quadrant expects to lose around 10% of its stock and a similar level of sales across London – but it could be 35% of the stock in the Midlands and North. Tony Stacey said South Yorkshire estimates a quarter of its tenants can afford the right to buy – and they are already ringing up asking when they can. Hugh Owen said Riverside estimates 20% of its tenants can afford to buy. However, that may not be the only issue. He added that around 80% of the Riverside tenants who bought under the preserved right to buy last year were cash buyers – and most of them were elderly. Some could have had help from family but figures like that will raise fears about a new rash of unscrupulous companies offering to ‘help’ tenants buy.

3) …and on your understanding of the voluntary deal

We heard of cases where associations definitely won’t sell the existing home and will offer a portable discount instead. All of L&Q’s stock in Richmond was acquired on the basis that it would never be sold and all of Sanctuary’s stock in national parts has covenants meaning that it can’t be sold. Diana Kingdon of Greenoak explained why it voted against the deal: it didn’t see why it should offer portable discounts to tenants in sheltered housing and wants exemptions for rural housing. She also feared a ‘devastating effect on small parishes’ as exceptions sites will not be made available. Tony Stacey argued that there will have to be tapering or phasing in of the Right to Buy – ‘from the government’s point of view as well as ours’ – and Hugh Owen said the voluntary deal means ‘we can turn off the tap’ if needed.

4) When it comes to replacements, watch closely…

If Right to Buy 2 familiarised us with the ambiguities that surround one for one replacement, Right to Buy 3 will introduce still more. Does one for one mean in the same area? Does it mean like for like? The aspiration to achieve both (at least one for one) was clear from all the witnesses but achieving it will be a different matter. Frustratingly, none of them were asked if one for one included replacing the council homes sold to pay their discount grant.

Nicholas Harris of Stonewater cautioned that replacement may not be in the same local authority area. David Montague said the G15 was talking to London boroughs about one for one replacement in the same area – they would do it wherever possible but it might not be in expensive boroughs like Westminster. Stephen Javes of Orwell described a similar issue in Suffolk, where the ambition is like for like but it will be very difficult in some coastal and rural areas. And then there is the old social/affordable chestnut: Ian McDermott of Sanctuary set out a ‘default position’ of ‘like for like replacement with affordable rented housing’.

And there will clearly be a trade-off between like for like and one for one in some areas. In some cases this will also impact on the government’s claim that Right to Buy will lead to more new homes. Tony Stacey described a particular problem with low receipts for South Yorkshire: it will try and replace like for like ‘but if the only way we can do it is to buy secondhand properties that’s what we’ll do’.

5) …and then watch even more closely

Even under Right to Buy 2, it’s clear that the replacement figures include homes that would have been built anyway (by councils using self-financing freedoms before they got clobbered). The same thing will apply with Right to Buy 3: watch out for ministers counting all homes built by associations as ‘replacements’.

Riverside, for example, has kept the same development programme following a revision of its business plan following The Deal. But Hugh Owen said quite a few of them were likely to be Right to Buy replacements.

6) The dust is still settling from the 1% rent cut

By year four the cut is likely to mean an annual loss of £50m for the largest associations, £500m for the G15 and £1.6bn for the sector as a whole. That is already leading to changes in development programme (a shift in mix to more shared ownership at Sanctuary, a 30% reduction at Stonewater). It will also mean more mergers. Further consolidation is inevitable but it’s vital to keep diversity, said David Montague: ‘Large associations have a responsibility to support others.’

Tony Stacey warned that supported housing schemes will close as a result of the rent cut. With 80% or more of their costs represented by staff salaries, they had nothing to cut. Greg Clark knew of the problem but the Treasury cost savings depended on a rent cut across the board.

7) Deregulation is in the eye of the beholder

In the wake of the ONS dropping its bombshell on reclassification, associations have been reassured by the DCLG and HCA that action will be taken quickly and they can continue with business as usual on their borrowing and spending plans in the meantime. Ian McDermott said associations were looking to the Bill to change things, especially with ‘control of our own assets and the ability to make constitutional changes without regulatory approval’.

However, that’s not the only view. If the government wants associations reclassified as private sector it should look again at centralising measures in the Bill, said Tony Stacey. He cited Pay to Stay (something South Yorkshire would never implement itself as it will cost more to administer than it raises) and the rumoured compulsory fixed-term tenancies.

8)   Associations will do their best…but there are limits

Liz Kendall asked the first batch of associations what the social housing sector will look like in five years time and whether housing associations can maintain their social purpose. ‘Unquestionably we will be doing more housing for sale,’ said Ian McDermott, but that was in part to support its charitable objectives. ‘We want to provide [affordable] rented accommodation,’ said Nicholas Harris. ‘That’s our driver.’

‘It won’t be easy but we will,’ said David Montague but he added: ‘My fear is we will see less genuinely affordable housing, particularly in London.’

You can find more information about the inquiry on the CLG committee website here, including written submissions and a transcript of the first hearing with David Orr of the NHF, Jenny Osbourne of TPAS and Paul Smee of the CML.