Right-to-buy receipts and a catch that’s holding up new homes

4 Dec 23

To build more homes, councils don’t need false limits and a Kafkaesque sting set by central government, writes Cllr Diarmaid Ward, Islington Council’s deputy leader.

Diarmaid Ward

Islington Council deputy leader Diarmaid Ward

Like much of Britain, Islington faces a housing crisis. Each week we meet people, young and old, who are suffering because of overcrowding and waiting lists. We’ve built hundreds of genuinely affordable council homes since 2010, helping to transform lives, and we want to build hundreds more. 

In recent years, though, it’s become a lot harder. Increasing building costs, runaway inflation, and high interest rates are all eating away at our ability to build the new council homes our residents badly need.  

So when the government announced in March that it would let councils keep 100% of income from homes sold through right-to-buy, so councils could use the money to build more council homes, it seemed like just the sort of help we needed to get more spades in the ground. But in a cruel irony the government’s own rules are stopping us from spending it. 

Under the government’s formula for how councils are allowed to spend right-to-buy income to create new social housing, councils can only pay for 40% of a newbuild scheme with right-to-buy receipts. All of our planned viable newbuild schemes are already funded up to the 40% limit, so there aren’t any schemes we can spend the money on. Money that should be helping build new council homes is sitting in a bank account because of this piece of red tape.

If this artificial 40% limit were lifted or suspended – so we could spend the money in the best way to deliver as many new council homes as possible – we could immediately put the money to use in new schemes. If the rule were changed today, we could start moving ahead with new projects as early as next week.

We know we’re not alone. Lots of other councils find themselves in a similar predicament – sitting on this much-needed money for council homes, which they can’t spend because of the government’s rules. London Councils and the Local Government Association have both asked the government about this point, but the red tape remains stubbornly tied in place.  

There’s also a sting in the tail. Councils who don’t spend the additional right-to-buy income the government announced in March face punitive charges. Any receipts unspent after five years must be repaid to the government with compounded interest at the Bank of England base rate plus 4%.  Over five years, unspent receipts will have to be returned with cumulative interest close to 50%. 

This is money we cannot currently spend, because of the 40% limit. Councils who desperately need to build new council homes – but also aren’t allowed to spend this money – may make the difficult decision that it’s better to give it the money back early instead of racking up high interest charges. But once money is handed back to the government, councils can’t change their minds, so they face a choice between holding onto the money and hoping economic conditions change to make council house-building easier, or giving it back and losing it forever.

We’re sure this isn’t what the government intended when it made this money available. Neither we nor they want red tape to stop new council house-building, and we’d like to sit down with them and explain the Catch 22 we face: that we have the money, but we’re not allowed to spend it.

We have a really strong record of delivering council homes in Islington, with hundreds of council homes built in our busy central London borough since 2010, despite ongoing cuts and economic challenges. Our track record speaks for itself: if we have the money, we can build. Currently we have the money, but can’t spend it.

We’d also ask the government to let councils combine right-to-buy receipts with other sources of public funding to build new council homes – something also currently against the rules and holding back council house construction.

At a time of great challenge to local government finance, right-to-buy flexibility – letting councils spend right-to-buy receipts in the best way available to them to deliver council homes locally – might not seem like the most pressing point, but it really does matter.

Freeing up this money for councils to spend in the best way to create new council homes will change lives for families desperate for genuinely affordable housing. It would mean new homes and new beginnings. It would mean new futures for people who badly need that help.

If your local authority is in a similar position on right-to-buy receipt flexibility and might like to work with Islington – please contact [email protected].

  • Diarmaid Ward
    Diarmaid Ward

    Deputy leader and executive member for finance, planning and performance at Islington Council

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