30 March, 2021
The proposed changes to the Right to Buy (RTB) policy put forward by the housing sector a couple of years ago has been published by the government in recent weeks. While the changes are welcomed, experts in the housing sector are of the view that an opportunity has been missed to go even further.
Under the changes, councils will no longer have to use their receipts from council home sales before they are obliged to turn the cash over to central government. Additionally, the three-year deadline that was at times unachievable due to the complexities with planning and finance has been extended to five years. This will be a huge relief to councils who have experienced delays on building projects in the last 12 pandemic-stricken months.
Further, councils will now be able to fund 40% of each new home that is built from RTB receipts compared to the previous 30%. Despite the 10% increase, the housing sector believe that this should have been around 50%. This would have enabled councils to build larger family homes at social rents and building wheelchair accessible homes with specific adaptations that would meet special and social care needs. The additional percentage in funding would have also meant that councils would be able to build net zero carbon standards to avoid the need to go back and retrofit in a few years' time.
The lifting of the debt cap and the Affordable Housing Programme endorsed by the current government suggest that local authorities should, in theory, be able to fund a significant increase in building council housing. However, the current RTB rules implies otherwise with councils still having to face a significant financial risk.
Under current calculation rules, a council that builds a house today would be obliged to sell it off in 15 years times with a discount of up to £112,300 in London and £84,200 in other parts of the country. This would result in the sale price being lower than the build cost. Additionally, 60% of the build cost will have to be borrowed since only 40% can be funded through the RTB income. This would result in councils having to pay off that loan for 15 to 25 years beyond the sale with no rental income to service the debt.
The housing sector believes that the key change missing from the latest version of the RTB policy is an extension of the cost floor mechanism to 30 years - this would have covered the loan period that most councils will have agreed to.
Another improvement to the policy would be to change the way the discount is calculated to better reflect the local housing market prices. Research and analysis from the industry indicate that this would significantly ease the financial risk faced by councils and strike a balance where tenants could still afford to buy but at a larger sale price which would both cover the council's debt as well as fund hew homes. This in turn would mean that new tenants of new homes would ultimately gain access to the RTB.
The consensus in the housing sector is that a few more well-judged adjustments to the Right to Buy policy would be a win-win for everyone by providing better financial security that councils need to build more new homes without taking away the Right to Buy from anyone. Of course, clarity on the treatment of local authorities will in-turn inform the position on preserved right to buy which those LSVT registered providers have to consider. We await further detail as the discussions unfold and will keep you informed of the changes on the horizon.