How right to buy sales push up the benefits bill

By Monimbo

How much of the recent growth in private renting is being fuelled unintentionally by right to buy sales?  And what impact is this having on the housing benefit budget? This question was posed here last month by Paul Dimoldenberg, based on the evidence he turned up of almost 40% of properties sold under the right to buy in Westminster having ended up in the hands of private landlords.  As he pointed out, this means that money is being spent not only on funding big discounts for the original purchasers but then year-in-year-out on the local housing allowance payments to the many low-income tenants now housed in them, who otherwise could have been in council lettings.

While converting a property to a private let is particularly attractive in Westminster, new work by Nigel Springings and Duncan Smith shows that such sales are now taking place all over Britain.  Unfortunately there is little systematic data on private rented properties, and no national figures which would show how big the role of RTB actually is.  But Springings and Smith have reviewed a range of studies which show that while Westminster may be at one end of the spectrum, there are plenty of other places where RTB properties have moved sectors (again).  For example, in one Birmingham estate 43% of RTB properties had ended up as private lettings, although 20% was the Birmingham average.  Overall they say that there is evidence to suggest that up to 30% of properties eventually convert into private lettings.

Of course, not all of these are then let to benefit recipients, and again the evidence is only partial.  But they point to a couple of local Scottish studies which found that around half of private sector benefit recipients were in ex-RTB properties.  Their own study looks in detail at Renfrewshire, where just over 16,000 council houses have been sold under RTB.  What they unearthed is that, of the local housing allowance (LHA) claims being made in the area, 43% come from ex-RTB properties, involving just over 9% of the ex-RTB stock.  These houses and flats are, on average, let at rents about £40 per week higher than the council charges for adjoining properties it still owns.  In a low-rent area like Renfrewshire, this means that the hidden cost of RTB in higher benefit payments is still some £3.2 millions annually.

Having looked in detail at one Scottish authority, the authors apply the methods (making suitably realistic assumptions) to Camden – obviously, an area with much higher demand and far higher rents.  Their fairly conservative estimate is that right to buy in Camden – where sales as a proportion of stock are much lower than in Renfrewshire – has resulted in a hidden annual subsidy of £18 millions in LHA payments.

The authors quite understandably aren’t able to resist making an assessment of the cost of this hidden subsidy across the UK.  Obviously they have to make some heroic (but still realistic) assumptions, and they conclude that the extra cost of LHA for tenants in RTB properties compared to the same tenants in council houses is a staggering £2 billions per year.  Apart from anything else, as Pete Challis pointed out here in June, this is roughly the amount by which the total housing benefit bill has gone up in the last twelve months, and as he also said this increase is being driven by the growth of the private rented sector.  What studies like those by Springings and Smith are starting to show is that much of this is also driven by old right to buy sales.

A logical response might be to slow down the promotion of right to buy while someone assesses its long-term costs in more detail.  This is of course exactly what the government is not doing, having recently increased discounts. Hardly a week now goes by without fresh government efforts to persuade people to buy their council houses.

There’s a further irony here.  Grant Shapps is fond of talking about ‘subsidised’ council housing in the context of his anxieties about Bob Crowe and other better-off council tenants.  As he must know but doesn’t say, he can only be referring to the historic subsidy for council housing, since currently it doesn’t get any actual subsidy.  This is based on the purely theoretical idea that councils should ‘really’ charge full market rents, and that lower social rents are therefore a subsidy.  Now we see how people’s ignorance of housing finance can be further exploited: not only does he fail to talk about the similar subsidy involved in selling right to buy properties at hefty discounts (of up to £75,000 each), but he’ll no doubt keep equally silent about the annual £2 billions subsidy for the right to buy in extra housing benefit payments.

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2 Responses to How right to buy sales push up the benefits bill

  1. Jon says:

    Very informative post, thank you

  2. Peter Scott says:

    Very true but mant tenants believe that RTB is a good thing because they see rent as money down the drain and mortgage payment as a form of saving. They need to be able to build up a stake in Council Housing stock (not necessarily money) that they can pass on to their children. Perhaps in greater rights to pass on the tenancy to the family home much as tenant farmers. Also if a person Is a long term “good” tenant she should be abe to give a reference to her children that would carry weight with the Council Housing Department. Community connection should carry points in the allocation system. Councils should aim to provide secure homes for citizens not sink estates for the the destitute.

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