Right to Buy figures “will not stack up”

Arrangements outlined in this week’s Housing and Planning Bill for councils to pay for an extension of Right to Buy could leave authorities short of money to invest in new housing, according housing finance experts.

The government’s bill proposes a mechanism which would force authorities to pay an upfront annual levy based on the estimated value of any high value housing likely to become vacant during the year.

But research carried out on behalf of the Chartered Institute of Housing (CIH) found that calculations released by the government seriously overestimate the sums generated through such sales.

CIH chief executive Terrie Alafat said: “We support the government’s ambition to give people the opportunity to achieve their aspiration of home ownership, but if affordable housing is being sold, it is absolutely crucial that it is replaced on the same terms. However, our research appears to confirm our fears that the figures simply will not stack up.”

The Conservative Party’s 2015 general election manifesto said that £4.5bn a year could be raised by forcing councils to sell the most expensive third of their homes as they become vacant.

It said that this would compensate housing associations for discounts of up to £100,000 offered to housing association tenants buying their homes, as well as providing cash for local authorities to replace lost stock.

But the CIH research found that he government’s workings were based on out of date data and over-optimistic assumptions.

It said that while the government assumed turnover would be 7% and lead to 15,000 sales annually, its research indicated the figures would be 3.5% and between 2,100 and 6,800 respectively.

This would generate between £1.2bn and £2.2bn a year – less than half of what the government hopes to raise.

The CIH also says that although it believes demand for Right to Buy will be lower than the government estimates, compensating housing associations fully for the discounts would leave virtually no money for replacing council homes.

The report said that the government’s optimistic assumptions, combined with a requirement in the legislation for councils to pay up front for estimated sales, could leave councils likely to face a big shortfall in their housing revenue accounts.

“In other words, the payments may be unrelated to actual sales, with the risk that either across the board or for individual authorities a value is set which is not achieved by the sales which actually take place,” the report said.

“While of course the details of how this might work are not yet available, if these powers were to be used to require LAs to make payments on levels of sales that are not in practice backed by actual receipts, then those payments would inevitably further constrain authorities’ ability to invest in their stock, both in maintaining the existing stock and in constructing new housing.”

It said that the move also undermines the integrity of the HRA “self-financing” agreement with councils which the government entered into with councils in April 2012.

Sarah Lines, senior associate at law firm Anthony Collins, told Room151: “I think this will cause some serious cash flow issues for councils. The government has thought of every single out and it won’t be possible for councils to get round this.

“Treasurers are already having to consider the effect of the government’s proposed rent reductions on their business plans.  This is now likely to make things worse.”

The bill does not define the “high value” thresholds above which councils would be forced to sell their stock, giving that power to the secretary of state through regulations.

However, it does allow the secretary of state to repay an amount that has been overpaid by an authority through the new arrangements via section 62 (relating to council tax payments) or section 11 (relating to capital expenditure) of the Local Government Act 2003.