A cunning ploy that will shift the argument

Greg Clark didn’t so much make an offer on right to buy that housing associations couldn’t refuse, as persuade them to make one he wouldn’t refuse. In doing so he’s probably saved Osborne and Cameron from dealing with the formidable institutional blockages to what had begun to look like a reckless manifesto promise made back in April. Now the argument will almost certainly have to shift to how it will be paid for and whether this sounds another death knell for council housing.

Ministers and friends of ministers have been lining up to pave the way for this deal by putting the frighteners on associations. First we had Osborne telling a Lords committee that their record on housebuilding is not particularly impressive. Then Cameron weighed in by referring to them during PMQs as ‘part of the public sector’ which needs to become ‘more efficient’. Chris Walker, from favoured think tank Policy Exchange, went further by suggesting that they might be sold off, apparently forgetting that the government doesn’t actually own them. In a transparent good cop/bad cop scenario, at the NHF conference Greg Clark then praised associations and called for a new ‘partnership’ that respects their independence, provided of course that they sign what he referred to four times as ‘David’s proposal’. Given the not even barely veiled threats, the fact that they face five more years of dealing with what would be an increasingly hostile government, and that the agreement gives them a bit more flexibility than they might otherwise get via legislation, it’s a racing certainty that sufficient associations will sign to allow the government to claim that the sector has seen the sense of letting tenants buy their homes.

While this probably does enough to get the government off two hooks – possible defeat in the Lords and a potential reclassification of housing association debt by the ONS – it shifts the argument onto aspects of the policy on which Labour can make damning criticisms. The first is how it will be paid for. Under the old right to buy, after giving the required discounts, councils typically get half the value of the property from the sale. Under the new right to buy, this means that every home sold will need roughly a 50% government subsidy, paid very soon after the sale. Once the scheme has been set up and even if take-up is limited, sales will start to happen quickly and government will have to reimburse associations for them. Currently, no money has been set aside for this. It’s expected to be financed from the proceeds of selling off ‘high value’ council houses but the time lag before this happens, and uncertainty about how many popular properties will fall vacant, mean that the arithmetic will be very tight.

Here’s why. Let’s take a very conservative forecast of what might happen – say only 50,000 sales in the first two years at an average market price of £150,000 (the average right to buy sale price for a council house is £126,000). That’s £7.5bn worth of sales for which associations receive 50% from the buyers with the rest (£3.75bn) needing to come from government funds. Let’s also suppose the high value sales scheme can be set up just as quickly, despite it not being in councils’ interests to co-operate in flogging off their stock. Although we don’t yet know what the high-value threshold will be, Policy Exchange thinks it will apply to 210,000 council homes worth an average £300,000 each. Allowing a conservative £20,000 for debt and admin costs reduces this to £280,000. Four London boroughs have looked at their turnover of higher value stock and say it is around 3.5% annually. If applied nationally, this would mean just over 7,000 sales each year producing some £2bn in receipts or £4bn over two years. So, with a fair wind behind it, flogging off council houses might just about generate enough to compensate associations. But any delays, which look inevitable, would mean the Treasury having to stump up cash to fill the gap.

What the sales do not provide is any money for the council houses to be replaced. The Tories might respond by widening the net for high-value sales – but this inevitably means bringing in lower value properties which will generate less receipts but cost just as much to replace with a new home. Or they might insist on councils selling every vacancy that occurs in high-value stock, including ones that allow for tenant transfers which give tenants the mobility to move jobs, escape the bedroom tax or provide care for their kids so they can go out to work. Whatever the government’s answer, it would be hard to find a clearer case of robbing Peter to pay Paul.

There needs to be concerted opposition here from Labour’s front bench, local authorities and tenants. Shadow housing minister John Healey has a clear argument – if the Tories want to provide a small number of tenants with an average lump sum of £75,000 each this should be paid for by taxpayers, not council tenants and potential council tenants. And why should these households get a huge lump sum when those assisted through its Help to Buy scheme only get an interest-free loan or a mortgage guarantee? Councils have to shout loud and clear (as Camden, Haringey, Enfield and Islington have begun to) about the effects on their estates and on their waiting list and transfers, and they have to get the LGA to take a tougher stance than it did last week. Tenants could start local campaigns to relet vacant properties on estates under threat, which are by definition going to be in each authority’s best stock. What price the Tories’ advocacy of allocating houses to people with strong local connections if all the vacant lettings in their estate have to be sold?

And finally, it’s not just the existing stock of social rented homes that is doubly threatened by the new right to buy, but the future stock too. This month sees a new round of warnings about the failure to replace homes sold under the ‘reinvigorated’ right to buy for council tenants. Worse still would be if the Tories fail to get their sums right on the new scheme and the Treasury forces DCLG to raid the Affordable Homes Programme to compensate housing associations for their sales. Not only would existing homes be lost, but future ones too. This is not only like robbing Peter to pay Paul, but returning to clean Peter out a second time, once he’s saved enough to replace all the stolen goods.

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5 Responses to A cunning ploy that will shift the argument

  1. squidlet says:

    The other linked factor is that of course a reducing HA rented stock through RtB and the end of rented housing through S106 (and of course the 1% pa rent reduction) will reduce the revenue stream and therefore ability to borrow, to deeevelop further. A vicious downwards spira ….

  2. Pingback: Abandoning the poor (1) | Red Brick

  3. Great blog Monimbo. I think the AHP funds will absolutely be raided as I can’t foresee Treasury stumping up any shortfall. The alternative is that they have mooted introducing a cap on sales. Perhaps this will act like a broadband ‘throttle’ to slow down sales if sufficient LA sales aren’t in the pipeline?

    I’ve written a Devils Advocate blog on this you may be interested in? https://kevinwilliamshousing.wordpress.com/2015/09/26/the-devils-advocate/

  4. jrkelly2013 says:

    Yes, great analysis, but how has it come about that the Housing Association movement has capitulated so cravenly when Housing SAssociations and their Federation should be defending the provision of existing and future social housing? They were backed by the promise of support in the House of Lords and I think the ones registered as charities must have strong arguments for not being forced to take action against their charitable precepts, so why, why, why?

  5. hpawson says:

    Thanks Monimbo – an absolutely brilliant analysis as ever.

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