Homes and votes

Originally posted on September 5 on Inside Edge 2, my blog for Inside Housing

Could rent to buy be the basis of a housing policy that helps deliver Theresa May’s ‘country that works for everyone’?

That’s the bold claim in a new report from Conservative think tank Renewal that calls for a radical reset of the Tories’ ambitions.

The aim is overtly political. As author David Skelton explains on Conservative Home, it is to broaden the appeal of the Conservatives to working class voters and voters outside of the South East. In a nutshell it is to capture the votes of people on low incomes by offering a housing counterpart to the national living wage.

However, while Homes for All (PDF here) is presented as being in the Tory tradition of Macmillan and Thatcher, it is also an admission that current Conservative plans do not work ‘for everyone’. Starter homes and shared ownership, the big winners from the spending review and Housing and Planning Act, are unaffordable for people on low incomes in most of the country.

The report dismisses the ‘far-fetched wishful thinking’ of a planning free-for-all and the idea that homes will somehow ‘trickle down’ to people on low incomes. Instead:

‘The Conservatives next wave of housing reforms must be aimed more squarely at an emerging, new generation of low-paid workers. Those workers who benefit from the Living Wage should also be able to benefit from improved housing and access to home ownership.’

Rent to buy is a familiar idea that is already being applied in a limited way. Think Gentoo, or RentPlus or the £200m allocated in the spending review. However, Renewal wants to introduce it on a much bigger scale than anything seen so far: 75,000 rent to buy homes per year.

The homes would initially be offered at low rents (a third of the average low income in the area) to make them genuinely affordable. Tenancies would be a minimum of five to ten years to give families security and stability while still encouraging mobility in the stock.

‘The Conservative Living Rent’ would range from £397 a month in Leeds and Manchester to £467 in Bristol and £556 in Camden for a two-bed home. That would appear to pitch it midway between social and affordable rents and be between £50 and £1,500 a month lower than market rents.

After two years tenants would get the option to buy their home. They would get a discount similar to Right to Buy but funded by an extension of Help to Buy equity loans so that any homes sold can be replaced.

Funding options are seen as:

• Direct investment through the Affordable Homes Programme. The 75,000 homes would cost £4.5bn a year at an average grant of £60,000 per home. The report claims this could be funded by more taxes on Buy to Let landlords or by ring-fencing the recent increase in stamp duty on them.
• The planning system, though that would involve changing the Housing and Planning Act’s priority for starter homes
• Partnership with the private sector, with institutional investors leasing the homes to local authorities or housing associations.
• Devolution deals including reconsideration of local authority borrowing caps.

It’s not hard to find questions that are not completely answered in the report. Can new buy to let taxes really raise that much? Are discounts at right to buy levels really sustainable via equity loans?

What happens if someone reaches the end of their fixed-term tenancy and still can’t buy? Ten years of house price inflation might ensure that regardless of discounts to buy. The report says ‘the assumption is that the tenant will stay in their home if they wish to’.

Will ownership really be affordable for people on the National Living Wage in expensive parts of the country like London and the South East? Unlikely, unless we have a government that accepts that that the real problem is high house prices and is prepared to do something about it.

Is it wise for the state to be encouraging ownership for people on such low incomes? Yes, absolutely, would be Renewal’s answer to that, I think, but what happens if interest rates rise suddenly?

And what about other attempts at Rent to Buy? The private RentPlus scheme is attracting institutional investment but it is based on affordable (80% of market rent) rents. The ‘graduated ownership’ scheme from Home offers its tenants an alternative to the right to buy and help with a deposit. And the fate of Gentoo’s Genie scheme might prompt caution: it gave tenants the chance to save towards a deposit out of their monthly rent but was scrapped for new customers in March because of lack of interest from investors and ‘financial pressures’. However, IH reports this week that Genie has secured new investors.

Above all, will the Conservatives really be prepared to change their whole approach to social housing? As we heard from Nick Clegg again over the weekend, the previous regime argued that it just ‘creates Labour voters’. The new one may take some persuading about the new Tory voters who will be able to buy but the logic should give them pause for thought. David Skelton may be no relation to Noel Skelton, the Tory who first came up with the idea of the ‘property owning democracy’ in the 1920s as a way of adapting to the extension of the franchise, but the logic of appealing to working class voters is similar.

However, this is rare support from a Conservative think tank for social housing and public investment. Yes, there would be a right to buy, but homes sold will be replaced and funding would not come from taking over existing mechanisms for delivering affordable homes or from cannibalising the existing stock of social housing.

And if there is some momentum behind rent to buy, interest is also growing in the idea of a Living Rent. The Joseph Rowntree Foundation last year set out in detail how it could work in terms of affordability and funding and it urged Theresa May to look at the idea over the weekend. A ‘London Living Rent’ was part of Sadiq Khan’s pitch to be mayor of London and now seems to be evolving into a rent to buy scheme.

Done properly, it could be an important part of a housing system that works for everyone. Sooner or later Mrs May will have to give some substance to her soundbite. Is she listening?