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By Dave
22/12/2011

Laying the foundations (2): RTB

Push the bad news out just before Christmas seems to be a pretty good rule of thumb.  Our previous post on the housing strategy, Laying the Foundations, led to a number of comments about the right to buy proposals in that document, which were all pretty vague.  Today, DCLG has published Reinvigorating the Right to Buy and One for One Replacement, which provides some further flesh on the bones, although they are no further forward in working out how best to distribute the funds which are assumed to increase.  They are assumed to increase because the government intends to increase the cap on the discount to £50,000.  The assumption is that there will be pent-up demand in areas which were most hard-hit by those nasty New Labour caps but I wonder if that assumption will necessarily be correct in the tight lending market (and there is a wonderful section in this document, at paras 110-3, entitled “The Government’s proposals for lenders” which make no such proposals!).

Each model of distribution of capital (and there are now four such models: local; local with direction; local with agreement; national) has pros and cons, and only the local model with agreement and  national ones appear guaranteed to provide one-for-one replacement at the national level.  So, the problem for government is how to deal with two apparently conflicting policy aims: on the one hand, localism implies, well, just that; on the other hand, the one-for-one implies, ahem, well, just that.  You can’t have both, though, it seems.  The comments made by Joeh and Cait on our “Laying the Foundations” post remain significant, although it may well be that London will be siphoned off as a special case, particularly as Boris has housing powers of his own now.

And then – and here is the real problem, I suspect – what do we mean by “capital”.  Once again, we have competing policy objectives – the change in HRA subsidy towards 30 year planning based on assumed RTB receipts, on the one hand, and assumed increases in RTB receipts as a result of the increase in the discount cap, on the other.  This leads to some rather complicated economic modelling (I’m sure it’s basic, but it’s gone 6 o’clock) but basically what will be left for the local authority to use for the replacement dwelling is: the RTB receipt less housing debt supportable from the income on additional sales; transaction and administration costs on all sales (which it is proposed to set at 40% of the median level of average regional costs, rather than actual costs); the income assumed by the local authority.  The council pays to the government what they assumed would be paid as part of the plan.  What is left is what can be used for replacement homes.  If, like me, you have economic modelitis, there is a simple example (at p 43) which goes something like this: the local authority projected sales of 10 properties; it sells 16 properties; after making the payments referred to above it ends up with £92,000.  It is that £92,000 which is used to replace the 16 homes (and I can calculate that is £5,750 per property).  If it doesn’t meet that target, the balance for replacement homes is, again ahem, nil.

So, where’s the council to get the extra money to replace the lost stock?  Well, the first step is that the replacement property is to be let at the wonderfully ill-named “affordable rent”; that will enable private finance to be obtained and other factors offered are “provider contributions in land or other funding” (at para 72).  So, basically, that’s ok then (cf our previous comments on affordable rent and those of my mate Alex at Alex’s Archives), provided borrowing is available.

There are other bits and bobs of significance.  Councils will not be able to deduct the cost of improvements in the three years prior to a sale any more;; and there will be limits on their ability to use the receipt to buyback former council homes.

Finally, of course, there are those pesky PRP tenants who have the preserved right to buy (PRTB).  Actually, we don’t know how many of them there are but we think that there are around 620,000 such eligible tenants.  Ooh, we’ve just remembered that we don’t really have any power over PRPs and can’t direct them to replace any property sold under the PRTB(yet another policy contradiction) – but PRPs are good eggs so we think they will replace the properties sold and, just to nudge them along, we will consider giving them incentives (eg cash/priority status for funding) if they do replace them.

Verdict: a bit of a mess and/or a policy failure in waiting.

 

2 Comments

  1. Chris

    “entitled “The Government’s proposals for lenders” which make no such proposals”

    Are you not aware of the principle of putting the most difficult part in the title.

    Thats where it will get the most attnetion and do the least damage.

    Reply
  2. joeh

    Is the discount set at a maximum £50k?

    If we look at the draft (yes DRAFT!!) impact assessment that accompanys the consultation (sic – see below) we see the 5 options are as follows: –

    RIGHT TO BUY OPTIONS
    Option 1: Maintain existing discount ranges with £50,000 cash cap
    Option 2: Maintain existing discount ranges with £75,000 cash cap
    Option 3: 40% Headline Right to Buy discount and no cash cap
    Option 4: 50% Headline Right to Buy discount and £75,000 cap
    Option 5: 50% Headline Right to Buy discount and no cash cap

    So options 2,4 and 5 can all exceed £50k

    Consultation is 6 weeks and over xmas period when cabinet code say it should be 13 weeks and not over the festive period.

    Shapps has said that maximum discount is £50k – so has he already ruled out 3 of the putported consultative options?

    RTB2 was a if not the flagship policy to emerge from Tory conference with the PM (a) announcing it and (b) enthusing that it may well be 200,000 RTB2 sales not just the 100,000. Contrast this with the announcement day and Shapps did not appear on social or other media sites all day.

    A disaster waiting to happen – you’re being king – this policy has the full Dunkirk strategy being applied – No wonder Shapps likes boats!!

    Reply

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