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Chiefs question viability of right-to-buy advance payments

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Local authorities will struggle to find the cash to make advance payments to the government to fund the extension of the right-to-buy, leading council chief executives have told LGC

They also warned local authorities would be left struggling to house the homeless and continue with existing housebuilding plans as a result of the policy, which forms part of the Housing and Planning Bill.  

Their concerns came as analysis from the Chartered Institute of Housing (CIH) predicted the money generated from the sales of high value properties was likely to fall well short of the government’s estimate of £4.5bn a year (see box below).

That would mean the cost of funding the right-to-buy discounts and one-for-one replacements, as promised by the government, will not be fully covered.

The bill, published on 13 October, said each local housing authority will have to estimate the market value of any high value properties that are “likely to become vacant” and then pay in advance the total sum of those projected sales to the communities secretary. What constitutes a high value property has yet to be defined.

Manjeet Gill, housing lead for the Society of Local Authority Chief Executives and Senior Managers, told LGC it would be “difficult” for councils to afford the advanced payments and added the policy would have a “major impact” on councils’ house-building and asset management plans.

“The impact will work against more housebuilding by local authorities at a time when we need every single sector building houses,” she said.

Oxford City Council’s chief executive Peter Sloman told LGC: “We are sceptical about the ability of the housing revenue account to provide significant funding in advance of any property sales, and the pattern of high value voids is highly unpredictable.”

Using a Conservative Party statement from April which set out “indicative regional thresholds” for high priced homes, LGC analysis conducted in June showed just over 5% of Oxford’s housing stock was likely to be sold off within five years.

Mr Sloman said: “Proposals to force the housing revenue account to fund the right-to-buy for housing associations will mean that we will struggle to meet our obligations to the people that apply to us as homeless, who depend on us for the very housing that arises out of voids to meet their needs.

“Whilst we will seek to replace and maximise housing in the city, the lack of land for development and the high costs associated with development in the city means that will be a significant challenge.”

The bill says councils with their own housing stock must “consider selling” their high value stock but it does not go further than that.

Ken Lee, chair of the Chartered Institute of Public Finance & Accountancy’s housing board, told LGC this provided local authorities with more flexibility about which homes they actually sell off.

He said: “That’s better for local authorities because they can then look at their assets and manage them to try and meet their current and projected housing needs.”

Wandsworth LBC’s chief executive Paul Martin agreed. He said he had been “anxious” about automatically losing the local authority’s larger, and therefore higher value, properties.

“[The flexibility] doesn’t completely let us off the hook because we still have to find the resources,” Mr Martin told LGC. “It means inevitably very difficult decisions will have to be made, but it also means we can look at our higher value stock alongside our smaller stock…and take a balanced view.”

A spokesman for the Department for Communities & Local Government said: “It is right that as high value council assets become vacant that councils should sell them to fund the building of new homes that better meet local need and support people who want to buy their own home through the extended Right to Buy.”

CIH analysis cast doubt on government figures

The Chartered Institute of Housing has estimated between 2,100 and 6,800 ‘high-value’ council homes are likely to become empty and be sold each year – less than half the government’s estimate of 15,000 homes.

As a result, those sales would only generate between £1.2bn and £2.2bn each year, which is less than half the government’s aim of £4.5bn. With about 145,000 housing association tenants predicted to take up the right-to-buy in the first five years, the CIH said housing associations would need almost all of the £2.2bn to compensate them for the homes they have sold.

As a result, that leaves virtually nothing for councils to replace the homes they have sold or for a proposed £1bn brownfield regeneration fund, the CIH said. The CIH urged the government to consider offering reduced right-to-buy discounts or increasing the qualifying period from three to five years in order to close the funding gap. The CIH’s analysis was based on work produced by think-tank Policy Exchange and estate agents Savills.

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