Right to Buy - at what cost?

30 Apr 15

Offering housing association tenants homes at a knockdown price while forcing councils to sell their most valuable stock makes no business sense

Council houses - rectangle

Council House (istock)

Don’t you just love political parties? They promise, promise, promise but when they win power find that delivery is so much harder.  Whether on student fees or eradicating the deficit, actions do not seem to match the words.

One of the most eyecatching pledges floated by the Conservatives during the election campaign concerned the right of housing association tenants to buy their properties. Alongside this measure, local authorities would be required to sell their most valuable housing stock.

We are often told that if only local government managed its assets better, there would be less of a housing problem. Ministers chastise councils for not getting rid of the more valuable assets on their Housing Revenue Accounts so that the released money can be reinvested.

Closer examination of the proposals suggests that central government could give the shedload of cash made available to registered providers of social housing as compensation for them, in turn, selling their assets at a knockdown price to tenants. It would also enable setting up of a fund to bring abandoned brownfield sites back into use for housebuilding.

I do not know which business school the creators of this idea went to, but experience tells me that usually these very valuable properties are the ones that are located in the more desirable areas, tend to cost the least to maintain – and bring in the highest rents.

So, in business terms, getting shot of these properties is totally wrong. Keeping them enables councils to meet housing need in their areas. 

Local authorities paid central government billions of pounds to take full control of their Housing Revenue Accounts. Subsequently, a host of negative actions taken by government have impacted on the HRA – welfare reform, Right to Buy changes, rent guidelines and so forth. Each time, local government has tried to find a way to keep on delivering. If anyone knows how to run their HRAs it is councils.

All the lessons from the past indicate that the latest plans to sell off council housing stock are fraught with danger. In fact, many would put today's housing crisis at the door of Right to Buy.

Experience suggests it is a popular policy in the short term – especially with those who gain a financial fillip from the discounts – and initially, because the sold properties were better maintained, some areas did benefit. In the longer term it has led to less social housing being available; more private rented stock, as original buyers sell on; poorer maintained properties (you can now drive down the street and spot the non-HRA ones because of their poor state); and, in many cases, poorer management standards that have increased problems on estates.

This also resulted in higher overall public expenditure, due to benefits funding ever-increasing rents in the unregulated private rental market. 

Extending Right to Buy to registered providers is also poor asset management for a sector that has been urged to ‘sweat its assets’ and borrow on the strength of the asset base. What problems are they going to face if they reduce it? Will their funders be happy? And what will the impact be on the opportunity to borrow in the future to provide more housing?

None of these proposals promote good business practice.

Any good business reinvests income to ensure a future revenue stream. The HRA can provide much needed social housing if only the absurd borrowing cap is removed. Giving these decisions back to local authorities makes far more sense than imposing a sales regime that does not reflect local circumstances.

Councils are cautious about the way they invest, in keeping with the prudential code, and respond to local needs if they are left to get on with the job. Rather than coming up with tired policy suggestions that will only cause longer term problems, why not let local authorities build the much-needed housing? That is one promise that everyone could usefully keep.


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