I would like to ask the government to seriously consider an idea which could achieve both – a fundamental root-and-branch reform of the Right to Buy that builds in investment in new council housing stock. Not only would those who desperately need secure, decent housing get off the waiting list and out of temporary accommodation, more building would give more households the chance to buy their own home in the future.
The lifting of the debt cap by the last Conservative government and the confirmation of the new Affordable Homes Programme by the current one suggests local authorities should, in theory, be able to fund a significant increase in building council housing. But current RTB rules mean that homebuilding will still pose a significant financial risk for councils.
Take the following example of RTB maths. Under current calculation rules, a council that builds a house today would be obliged to sell it off in 15 years’ time with a discount of up to £112,300 in London and £84,200 elsewhere. This is likely to take the sale price below the build cost.
That’s not all. As we’ve seen, 60% of the build cost will have been borrowed, since RTB income can only fund 40% of the build, and the council will be paying that loan off for 15 to 25 years beyond the sale with no rental income to service the debt.
So a key change missing from this latest version of the RTB policy is an extension of the cost floor mechanism to 30 years, so that it at least covers the loan period most councils will have agreed to.
“As every economist knows, inflated demand leads to inflated prices and the result will be to raise that first rung on the homeownership ladder even higher and even further out of reach for many”
Changing the way discount is calculated would also significantly ease the financial risk councils are expected to shoulder. Research and analysis from Savills showed that if RTB discounts better reflected local housing market prices, it would be possible to find the sweet spot where tenants could still afford to buy but a larger sale price would both cover the council’s debt and fund new homes. And, in turn, new tenants of new homes would ultimately get access to the RTB.
Only six months ago, independent research commissioned by the National Federation of ALMOs, the Local Government Association and the Association of Retained Council Housing concluded that every 100,000 new social homes built would bring £14.5bn into the UK economy, creating 263,000 jobs.
The government said it wants to increase build rates and get value for money for public funds. Yet this tentative and partial reform does nothing to stop public money being channeled into demand-led subsidies for owner-occupation. As every economist knows, inflated demand leads to inflated prices and the result will be to raise that first rung on the homeownership ladder even higher and even further out of reach for many.
A few more well-judged adjustments to the Right to Buy policy really could provide the financial security that councils need to build more homes without taking the right to buy away from anyone – in fact, more would benefit. Surely this would be a win-win for everyone, both now and in the future, as we battle our way out of the coronavirus pandemic.
Chloe Fletcher, policy director, National Federation of ALMOs