A series of proposals to make it easier for councils to replace homes sold under the right-to-buy have been unveiled as the government officially ditches a requirement on councils to sell their vacant higher value homes.
LGC has taken a look at the key changes the Ministry of Housing, Communities & Local Government has put forward in its consultation document.
Extended time to spend right-to-buy receipts
Councils are currently required to spend money they receive from homes sold through the right-to-buy within three years. If they are not spent within that period councils must return the cash to the ministry with interest of 4% above the base rate. Returned receipts are then used through Homes England or the Greater London Authority to provide affordable housing, but there are no guarantees the money will be spent in the areas from which it came.
“The government is aware that local authorities are frustrated when they have to return receipts plus interest despite having developments in the pipeline that [the receipts] could be used on if they were able to keep them for longer,” the consultation document said.
The government “is not, however, minded to extend the three year deadline for all receipts”, it added although it is “considering allowing local authorities to hold receipts they currently retain for five years instead of three, to give them longer to spend the receipts that they already have.”
It is thought this will especially help councils which are successful in bidding for extra borrowing headroom on their housing revenue accounts, as it will give them more time to use their receipts.
“If this flexibility was introduced, it would be made clear which receipts would fall under the five-year rule and which would fall under the three-year rule based on the quarter the receipts were received,” the ministry’s consultation document said.
Temporary suspension of interest payments
The ministry is “considering providing a short window of time [three months] during which local authorities could return receipts without interest.”
Councils would be given advance notice of the timing to let them decide on whether to return receipts or spend them.
Use of receipts for acquisition
Right-to-buy receipts can be used to buy properties, as well as build new ones. Acquisitions currently account for around 40% of replacements.
According to the ministry there have been instances of councils using receipts to buy “high value” properties at the “last minute” instead of handing money back to the government at the end of the three years. It is not proposing to “implement a blanket ban on acquisition but [it] is considering restricting acquisitions”.
The ministry’s preferred option is to restrict the use of right-to-buy receipts for property purchases by introducing a cap on how much can be spent on a property. The ministry has proposed basing the cap on average build costs at Homes England and Greater London Authority operating area levels (see table below).
|Homes England/GLA Operating Areas||Average costs 2018-19 (£)|
|North East, Yorkshire and the Humber||113,000|
Another option is to only allow receipts to be used for acquisitions “in certain areas… where average build costs are more than acquisition costs” but the government is concerned that will “effectively introduce a blanket ban in some areas”.
Cap on expenditure per replacement unit
light blue home
Right-to-buy receipts can currently fund no more than 30% of the cost of a replacement home – councils have to fund the remaining 70%.
However, if a council is in a high-demand area but up against its borrowing cap and unable to borrow, or in a low-demand area and able to borrow but rents are too low to finance the required level of borrowing, this can be tricky. “It can also be problematic for authorities wanting to build homes for social rather than affordable rent, as these require a greater subsidy than 30%,” the consultation said.
As a result, the government is considering increasing the cap to “50% of build costs for homes for social rent in areas where authorities meet the eligibility criteria of the affordable homes programme and can demonstrate a clear need for social rent over affordable rent”.
The government is also considering allowing councils to “top-up insufficient right-to-buy receipts with funding from the affordable homes programme up to 30% of build cost for affordable rent, or 50% of build costs for social rent where authorities can demonstrate a need for social rent”. Bids will need to be submitted to the affordable homes programme though.
Changes to the tenure of replacement homes
Right-to-buy receipts need to be spent on delivering homes at affordable or social rent. However, the consultation said: “There can be viability issues in providing homes under these tenures for some developments and the government is considering allowing local authorities flexibility to use receipts for shared ownership housing as well as for affordable and social rent.”
Councils have to compensate their general fund from the housing revenue account for the value of the land they want to build on, if held on the general fund balance sheet.
“The government is considering relaxing this restriction to allow local authorities to gift land from the general fund to their housing revenue account at zero cost, without increasing the housing revenue account capital finance requirement or increasing borrowing limits by the amount necessary to transfer land into the housing revenue account,” the consultation said. “This will make it easier for local authorities to use land from within their general fund for housing delivery.”
However, the government is “considering limiting this to land which has been held in the general fund for a number of years” and also “considering whether this should only apply to land which has not previously been developed or whether to also include land with derelict buildings”.
Housing companies and almos
Councils are not currently allowed to transfer right-to-buy receipts to a housing company or to an arm’s-length management organisation (almo).
The ministry is, however, keen to seek views on whether they should be allowed to use right-to-buy receipts.
The consultation closes on 9 October.
Right-to-buy reforms: Seven changes you need to know about