Housing associations and the Right to Buy Contents

5Council home sales

47.The 2015 Conservative Manifesto provided that the extension of RTB would be funded “by requiring local authorities to manage their housing assets more efficiently, with the most expensive properties sold off and replaced as they fall vacant.”40 Clause 67 of the Housing and Planning Bill enables the Secretary of State to require local authorities to make a payment at the start of each year, based on the market value of high value housing in that area which is expected to become vacant that year. Any debts or borrowing linked to the properties sold would be deducted from the payment to Government, which would then use the proceeds to fund the extended RTB discounts for housing association tenants and the Brownfield Regeneration Fund, with councils then using the remainder to fund the replacement of the local authority properties sold.

Defining ‘high value’

48.What is meant by ‘high value’ has not yet been defined, with the only information being a pre-election press release from the Conservative Party, which is no longer available on their website. Inside Housing reported those indicative definitions of high value as follows:

1 bedroom

2 bedroom

3 bedroom

4 bedroom

5 or more bedrooms

North East






North West






Yorkshire and the Humber






East Midlands






West Midlands


















South East






South West






Source: Inside Housing41

49.Without further information from the Government, it is difficult to assess the full implications of the policy. The mechanics of funding RTB through council house sales currently contain too many unknown and unclear definitions. However we believe in the principle that public policy should usually be funded by central Government, rather than through a levy on local authorities, especially as the impact of this levy will fall only on some local authorities, yet will be applied nationally.

50.Brandon Lewis MP, the Minister of State for Housing and Planning, told us that he was discussing with local authorities the appropriate levels for ‘high value’ but he was not able to yet say on what geographical basis values would be determined.42 We believe that it is essential that definitions of ‘high value’ must not be based only on regional levels but take full account of local circumstances by being agreed in consultation with the local authority rather than through a blanket national approach. The definitions are long overdue: ideally, they should have been published at the time of the voluntary agreement. The indicative regional levels from the April press release seem to us too broad, given that the housing markets within each region and within each local authority area vary significantly, as do the housing pressures and requirements of individual communities. Within many local authority areas, there are likely to be more high value properties in certain areas than in others, and the sale of such properties means that those communities will be disproportionately affected. Similarly, areas which have the fewest council homes are likely to be those in which the highest proportion of homes are sold. When we asked the Minister if he had a preference between a local authority or a sub-regional basis, he said “[o]nly in the sense that I want to make sure we are driving up housing supply.”43 We believe this will only be possible if the Government works with individual local authorities to determine what the local housing needs are and how best to achieve the aim of increased supply. Local authorities are best placed to understand their communities and know where specific pressures exist, and they must have the ability to act in the interests of their residents. Councils also need to be able to retain sufficient funding from the sales if they are to build new homes to replace those sold.

Local authorities’ upfront payment to the Government

51.We note the evidence from Mr Hills from South Cambridgeshire District Council on the upfront payment:

“It will be a problem for South Cambridgeshire. We are at the top of our debt. From the moment we took on the 2012 debt settlement, we had no room. We were at maximum there, so we cannot borrow any money on the [Housing Revenue Account] … We expect that we are going to be asked for a fairly substantial contribution and we will not have that money in the HRA to be able to pay that up front. It is likely to exceed our ability to pay, so we would have to find alternative means of borrowing from the general fund or some such mechanism in order to achieve that.”44

52.Not all local authorities have retained housing stock with many having previously chosen to transfer their holdings to housing associations through a process called a Large Scale Voluntary Transfer (LSVT). Cllr Ferris Cowper, Leader of East Hampshire District Council, explained that “We do not own council houses at all. I do not know where the money would come from.”45 Clause 67(4) of the Housing and Planning Bill specifies that only councils with a Housing Revenue Account would be subject to the payments, and LSVT councils such as East Hampshire would not therefore be affected. The Minister told us that this would be a national scheme and that the income from council home sales would not be ring-fenced locally.46

53.If only councils which have retained some housing stock will be required to make the payment to fund the RTB discounts, then the effect on communities and the financial risk for local authorities will be far greater in some areas than others. This is another ground for our belief that a national policy should be funded nationally.

54.We are also concerned that councils will be required to relinquish funding for the RTB discounts before the revenues from the sale of their assets are received. The Housing and Planning Bill allows the Secretary of State to require payments to be made at the start of each financial year based on assumed sales. However it is unclear how the number of assumed sales will be calculated. We fear that councils will be exposed to the risk of properties not becoming vacant at the expected rate and of sales income being lower than anticipated. Housing markets can fluctuate throughout a year due to factors beyond a council’s control, and we are concerned that this policy will make it harder for local authorities to plan prudently.

Selling homes to fund the policy and the income needed

55.The definition of ‘high value’ is also important because it may determine whether the revenue generated by the council home sales will provide the required income. The Chartered Institute of Housing (CIH) published research into the capacity of the sale of council assets to fund the extended Right to Buy discounts, the replacement local authority housing and the Brownfield Regeneration Fund.47 The report used the figures from the Conservative Party’s April press release and estimated that the sale of council assets would generate between £1.2 and £2.2 billion, whereas the assumption on which the Government’s policy was based was £4.5 billion. At the higher end of the CIH’s estimate of £2.2 billion virtually all of the proceeds would be spent on funding the extended RTB, leaving very little for the building of replacements for the sold-off local authority homes and the Brownfield Regeneration Fund. The lower estimate of the CIH would not cover the predicted costs of extending the Right to Buy.

56.When we asked the Minister for an estimate of how much income he anticipated would be needed to cover the RTB discounts, building of replacement council homes and the Brownfield Regeneration Fund, he said:

“I am not at the moment in a position to give you those kinds of figures, partly because we are still working with the sector around exactly how this will work. …It will probably be towards the end of the first quarter of next year before I am able to give you some detail on the kinds of numbers we are talking about but, yes, it is obviously going to need to raise enough money to fund the Right to Buy, as we said we would do.”48

57.When we put to him the concerns of CIH and others regarding the capacity of one policy to fund the other and the variance in anticipated income, he told us:

“We have always said that the Right to Buy and the voluntary Right to Buy will be funded through the sale of high-value assets, and that is what we will do. I have also heard the range of numbers being quoted, which is why I do not want to give you my pitch as to whether it will be one figure or another, but, towards the end of the first quarter of next year, I will be able to give you a firmer position on that.”49

58.We would expect that a policy of this size and importance to have a more robust and fully-modelled funding mechanism in place given that it is to be implemented this year. The Government should know how much the extended RTB, the replacement of sold council homes and the Brownfield Regeneration Fund will all cost and be able to provide far stronger assurances that the sale of high value council assets is capable of meeting these costs. We welcome the Minister’s recognition of the challenges faced by authorities in areas with high property values and the flexibility allowed within the Bill to ensure increased housing supply is delivered, but we have not seen evidence that this delivery is possible. In the Autumn Spending Review the Chancellor announced increased funding for housing but we are concerned that this money may well be spent on meeting a funding shortfall of the extended RTB. The Government’s figures for the anticipated costs of the three policies of the Right to Buy extension, the replacement of sold council homes and the Brownfield Regeneration Fund, and its explanation of how they will be funded should have been published some time ago, preferably when the voluntary agreement with the NHF was reached. The Government should now publish these as soon as possible.

59.The voluntary agreement makes clear that the costs of the extended RTB will not exceed the receipts from council home sales. There is therefore a risk that if the Government’s funding model is not sufficient, implementation of the policy will stall. In accordance with the pattern identified in our commissioned research, it can be expected that when the policy is first implemented there will be a substantial surge in demand. If this demand is to be met, the Government must have the finances in place. David Orr told us:

“That is going to be one of the challenges, and it is particularly going to be a challenge in the early days… There are techniques that you can use to manage demand, and Government will determine eligibility criteria, so they could say you have to have been there a long time or a short time. They could reduce the discounts or increase them. This is not fundamental to us. That is an issue that the Government are going to have to work through.”50

60.We agree with Mr Orr that this is an issue that the Government must address before the policy is implemented. Failure to do so could limit the number of people eligible to purchase their home and therefore restrict the revenue to build new homes that the country needs; this would also have raised expectations that would not be fulfilled. The Government should be clear about how the extended RTB will be phased in and what the eligibility criteria will be.

Replacing sold homes and land availability

61.The asset base of local authorities is a finite resource and we are unclear how the RTB will be funded if and when the funding source—local authority homes—dries up. The Government expects local authorities to build new homes to replace those sold, but if they are then forced to sell them to continue to fund RTB nationally, there is little incentive for them to do as the Government wishes. The London Assembly’s Housing Committee gave an example from Islington:

“in London a two-bedroom property worth over £400,000 would exceed the threshold and would be sold when it falls vacant. The borough is currently developing a block of 20 new council flats on the edge of the Bemerton estate, a 1950s/60s estate of around 700 flats near Kings Cross. The new flats are due to be ring-fenced for older residents of the Bemerton estate, to encourage them to downsize and free-up larger properties for families on the council’s waiting list. The new homes are likely to exceed the £400,000 threshold when completed, and unless they are excluded from the Government’s policy, would have to be sold immediately. The larger homes that would be vacated on the Bemerton estate would also be above the threshold, so the council would have to sell those too. In this example, the Government’s policy will therefore hinder the local authority’s ability to manage housing need in the borough, and act as a disincentive to those boroughs that would otherwise have sought to build new housing.”51

62.Anna Clarke, Senior Research Associate, Cambridge Centre for Housing and Planning Research, also told us:

“It is very hard to build below the thresholds if you are in a very central London borough. You would have to build housing that is, in some way, very poor quality and very cheap in order to come below the high-value thresholds because almost all your housing is high value in that borough. There is a real issue for central London boroughs, and the same would go for the commuter-belt areas.”52

63.We support the objective of encouraging local authorities to manage their assets more efficiently, but are sceptical that forcing councils to sell financially and socially valuable properties is a sustainable funding source for the RTB.

64.Local authorities in areas of high housing demand and high property values face the particular challenge of meeting the needs of their residents, while being asked to dispose of a significant proportion of their housing stock. As the example from Islington illustrates, the problems are especially great in Inner London. We note the amendment53 to the Housing and Planning Bill which will allow London councils to reduce the payment they make for assumed vacant sales in exchange for a commitment to replace every sold home with two new homes. The amendment will reduce the flow of funding out of the capital to fund the nationwide RTB and ensure more of the income from council disposals is spent addressing London’s acute housing need. Although it should be noted that London authorities would not be required to build their replacement homes in London so this may not be the case. However the reduced levies paid will reduce the overall funding for the RTB extension and add to our concerns regarding the robustness of the policy’s financial modelling.

65.We support the building of more houses in London, but the availability of land is a significant issue. Cllr Lib Peck, Leader of the London Borough of Lambeth, told us:

“We are a very densely populated borough, so we do not have huge tracts of land yet to be built on, really. That is an issue, and we are working increasingly closely with some of the other public agencies where we think there is some potential—for example, the health service, the fire service and the police service—and looking at the public sector London estate.”54

66.The evidence we received from local authorities, both in London and in other parts of the country, is that councils do not always have large reserves of available land with which to deliver housing. However across the public sector there is land available and we support giving councils the powers to enter into partnerships and other appropriate arrangements to use land held by public bodies to build affordable housing to increase supply. More work should be done to encourage all public bodies, not just councils, to make surplus land available for housing and bring it into productive use. Ministers may need to overhaul the Treasury’s value-for-money rules to create the right incentives.

40 The Conservative Party, The Conservative Party Manifesto 2015, page 52

42 Q305

43 Q306

44 Q149 [Stephen Hills]

45 Q149 [Cllr Ferris Cowper]

46 Q316

48 Q302

49 Q303

50 Q31

51 London Assembly Housing Committee [RTB169], para 2

52 Q269 [Anna Clarke]

53 Housing and Planning Bill, Clause 72(4)

54 Q188

© Parliamentary copyright 2015

Prepared 8 February 2016