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The claim
Amid the local elections campaign, The Sun newspaper was briefed that the Department for Levelling Up, Housing and Communities believes the policy will lead to “more than 4,000” new council homes being built by the next election.
The government is yet to publicly announce the policy, but Michael Gove wrote to councils confirming the government’s intention and a DLUHC spokesperson provided PF with the following quote earlier this week when we covered the story:
“As part of our mission to level up, we are committed to building more social homes.
“We want councils to be able to keep more of the money generated from right to buy sales to invest in new social homes for local people and will set out further detail in due course.”
The facts
The only public detail so far – see our story from Monday: Councils set for right to buy boost – is that local authorities will be allowed to keep 100% of right to buy receipts for two years.
The concern
While sector bodies such as the Local Government Association welcomed the news (“ensuring that councils have the funding to replace any homes sold through right to buy quickly is crucial, and this announcement should go far in supporting this”, a spokesperson said), and called for the change to be made permanent, it is still unclear what the effect of the policy will be.
A council finance director told PF that without other changes to the way retention currently works, the policy will likely fail.
Councils can currently only fund 40% of the cost of building a new home with right to buy receipts, and this is a particular barrier given current economic conditions.
“When interest rates were extremely low, it wasn’t really an issue because most authorities would have a big list of viable schemes,” the finance director said.
“But in the current climate, with high interest rates and construction costs, it’s very hard to make schemes viable so councils will be sitting on the cash unable to spend it in time.”
And sitting on the cash comes at a price – the Bank of England base rate (currently 4.25%) plus 4%, to be precise, applied each year until the council returns the money to the Treasury a maximum of five years later.
If councils are not confident of finding viable schemes, it might make more sense for them to return the money early, because not doing so could cost them.
“I think some local authorities will not want that liability hanging over them, because we’re talking about millions of pounds of interest,” the finance director said.
“There’s a lot of positivity about the increased flexibility, but some people out there will need to manage messaging within their organisations, because it’s going to put pressure on section 151 officers to commit to unviable schemes.”
Scott Dorling, partner and head of the public sector group at legal firm Trowers & Hamlins, said the issue of viability is a major concern, and could stop councils from using the receipts to increase housing supply.
“Viability has not got any better since Liz Truss’s mini-budget,” he said.
“This year, the government was set to ratchet down the amount of right to buy receipts that could fund acquiring existing properties from 50% to 40%, then 30% from next year, but that isn’t happening now.
“The policy aim is to kickstart new builds, but it might actually be a more straightforward and less risky bet [for councils] to go out and buy existing housing.”
Dorling said increasing the 40% limit on funding new-build properties would help make schemes whose viability was marginal more likely to be built, and also said allowing councils to set their own level of right to buy discounts locally would help them respond to the needs of their areas.
When PF put the concerns about the policy to DLUHC, a spokesperson repeated the earlier statement, and when pressed for details was not able to give a response.
The verdict
Without other changes to the way right to buy receipts can be used, the policy is unlikely to achieve its stated aim of delivering thousands of new social homes.
The government has yet to announce the detail, but in order to ease the sector’s concerns it should do so soon.
