If I can talk first about the reduction of the qualifying period for the right to buy, what assessment has been made of the impact on local authority finances of reducing the period? Specifically, what estimate, if any, has been made of the impact on the ability to build fresh housing stock?
Ed Turner: The change will make life more difficult for local authorities in one immediate way. Clearly, it is likely that more stock will be lost, and then there is a difficulty delivering a replacement. We are struggling to fund so-called like-for-like replacements, both in terms of getting immediate delivery—a property is lost under the right to buy and only some years later will that property be replaced—and it is unlikely to be replaced at the same level of rent. Of course, this situation is going to be more acute in areas with the highest housing need, because it is going to be harder and more expensive to find a site. In that respect it is difficult.
In addition, local authorities that retain their housing stock have business plans based on rental income from those properties, but they do not see that rental income again. Their overheads as a local authority do not reduce. They have still got to manage their stock, and there is no appreciable reduction in workload when a property is lost through the right to buy, although that rental income is lost. That is very difficult, particularly when substantial amounts of borrowing are secured against that rental income. I suppose the third impact is in the future. If there are fewer properties available to nominate for people in housing need, that brings with it an increased cost of homelessness—the financial cost to local authorities, but also a social cost.
Following on from what you said, I think the ratio between the number of council homes being sold to those being built is about 7:1. Do you think that will widen over the next few years if this change goes through?
Ed Turner: This change would undoubtedly make the situation more difficult. Whether or not that ratio changes slightly—there may be some new builds which will come through the pipeline—undoubtedly we will lose more than we gain. Those properties that we gain will also be at higher rent levels, because there is no chance of securing a property at a social rent. Most of the properties we lose will be social rented properties.
Ed Turner: Undoubtedly, this measure will make it more difficult for those on your waiting list. There is a daft situation whereby the properties that are lost will after a time be sold on into the private rental market. People who were hoping for that council property will instead find themselves renting a remarkably similar property—perhaps the same property—but at a much higher rental level. Of course, that also brings with it pressure in terms of increased housing benefit costs.
We think you could finesse this, and I think we will be coming forward with a suggested amendment giving local authorities the ability to set right-to-buy discounts. There is an issue about the qualifying period, but that is less important than the overall level of discount. If you were to give local authorities, and through them local people, the ability to set a discount, you would be able to respond to the degree of housing pressure that people face, as well as a judgment about the right thing to do.
Forgive me, I do not know how the LGA works. As a Labour councillor, are you representing a Labour position or the LGA position? I genuinely do not know whether the officer positions are mixed and this is a common position. How does it work?
Ed Turner: We discuss all our policy positions in policy boards, and the view of the LGA is that this is an area that should be localised and left to local authorities. It is not a party political position. It is something around which I think there is complete unanimity: local authorities should be able to set the level of discount, and the same thing should apply for qualifying periods as well. There may well be local authorities that think they can deliver one-for-one replacement very quickly and are keen to have the receipt. Then they could go for a really high discount and a really low qualifying period. Equally, there may be local authorities that have it the other way round, so it is a cross-party thing.
As a supplementary, I was unsure whether three years was right. I was thinking of a lower threshold—perhaps two years; other people might think of four years. In an ideal world, where would you at the LGA set it? Would you have the change but perhaps go beyond five years? I am thinking of tabling an amendment around two. If you were in my position, would you increase that to seven, nine, 10?
Ed Turner: Well, we would have to talk to our council colleagues. In Oxford, we face acute housing pressures. In addition, we have lost a lot of our stock under the right to buy. We face a homelessness crisis. I am pretty sure that we would extend the qualifying period and would do so with support from people across the city. Equally, other authorities take a different view, and that is the beauty of localism.
On the issue of replacements, could I tease out of you what impact, if any, has been assessed on whether or not you would see like-for-like replacements? Or would you see smaller properties being built because perhaps the funding streams are of that effect within your business plan?
Paul Raynes: If I could have a go at that; it is one of the reasons that the basic LGA position is that the whole financial package of discount and qualifying period and so on should be looked at locally. The answer will vary from place to place depending on a range of factors. What in effect happens is that when you get a receipt from a right-to-buy sale there are deductions from that for the transaction costs to pay off debt on the property.
The Treasury takes 75% of what is left, against what would have happened on a kind of counter-factual forecast. What is left after that is what is available for building a replacement. You are allowed to use only a 30% receipt against a replacement and are required to borrow the balance of 70%. It entirely depends on a whole load of local market parameters what your ultimate receipt is going to allow you to do in terms of replacement.
To give you an illustration, if you work through the numbers in the consultation document from the Department for Communities and Local Government, it says that the replacement you would be able to build with the receipts they illustrate would have a build cost about half the open-market value of the property that was sold. Does that help?
Councillor Turner, you suggested that one consequence of this policy would be an increase in the number of people going into private rented accommodation, because there would be fewer council houses available. Has the LGA made an assessment of the cost to the public purse of requiring more people to rent in the private sector rather than being able to access council housing?
Ed Turner: We can write to you, I am sure, with a figure based on some estimates, but clearly, particularly in areas with greater housing need, there is likely to be a significant disparity between a market rent and a social rent. In the long term, the implications for the Treasury are going to be quite substantial. We will be driving up the housing benefit bill if we increase the rate at which we shed social rented stock.
At the moment, according to the House of Commons Library, about £9.5 billion is spent on housing benefit in the private rented sector. It would be helpful if the LGA could let us know what additional cost will be added by this policy going forward. Do you know how many people are currently on the housing register across England, and do you know what the likely increase in that number would be as a consequence of fewer council houses being available because they are being sold more quickly?
Ed Turner: I do not have to hand a figure as to how many people there might be on the housing register in England, and in any case there might be some double counting there. However, it is an acknowledged fact that there is a tremendous shortage of housing across the country, and I think it is acknowledged that we are not building at the rate we need to, so the number of people in housing need is going to increase. Clearly, if the number of nominations for council properties dwindles, the situation can only get worse.
In my constituency, following the ending of the spare room subsidy it is clear that we have too many four-bedroom council properties and not enough with one and two bedrooms. Do you agree that the Bill could be a catalyst for rebalancing that stock, bringing it back by releasing larger properties on to the market, getting the receipt, and being able to replace them with more one and two-bedroom units, which are obviously what people need?
Ed Turner: The question has already been posed about whether you might see smaller units being built and that being primarily driven by costs—that is certainly possible. I must say that I would not necessarily recognise the picture that there is a greater shortage of smaller accommodation than family-sized accommodation.
I would like to bring you back to the business plan because you touched on it earlier. Will you say a little more about what estimate the LGA has made of how the change—going down to three or even two years—would affect the housing revenue account business plans?
Ed Turner: Paul may be able to add to this answer. It is clearly a finger-in-the-air issue because you do not know how many people will come forward. If anything, I think we have found that the revitalised right to buy has not taken off as people would perhaps have expected, because council tenants are on average rather poorer than they were in the 1980s when the policy did take off. They are also probably less able to access mortgage finance.
In terms of councils’ business plans, every council borrows and made a payment to the Treasury in order to buy itself out of the national housing revenue account position. So you will have a business plan predicated on rental income from a certain number of properties. If you are sensible, you will have allowed for some to have been lost through the right to buy. If the number you are losing goes up, that will clearly leave you with a shortfall that you will have to find from somewhere.
The other thing is that it makes investing in new-build property a riskier business. As a council, you are going to find it harder to win the argument for building new properties if you are required to sell them off at a substantial discount only a few years later and you also lose out on the rental income. That is another reason why some councils doing an assessment of the risk might go for a lower discount. Equally, some will be comfortable with that risk and go for a higher one. That is what localism could achieve.
Ed Turner: That is an interesting question. Perhaps the right to buy sales would have been higher had that desire been overwhelming, but equally there may well be people who would really welcome it. I think that the local authority is best placed to make that trade-off. Are we concerned about the lengthening of our waiting lists? Are we concerned about homelessness? Are we concerned about the ability to invest? Or are we concerned about helping people to realise that aspiration? That is an entirely legitimate and sensible debate for councils to have, which is why we would suggest setting them free to do so by making this a matter for local authorities to decide.
But the aim of the policy is to allow all these people this opportunity sooner. That would be an additional 2,750 people, it is estimated, in 2014-15, who would get the chance to own their own home—and on the basis that the receipts would make possible a one-for-one replacement of every additional right-to-buy unit sold. If that is the policy, do you disagree with it?
Ed Turner: We would certainly disagree with the one-to-one replacement, which I think Paul has covered in his comments of a few moments ago. One-to-one replacement is not possible in that way. We think we are able to fund, give or take, about half a house. That is not one to one. On top of that, the rental income would be higher; so it does not look like one-to-one replacement.
Paul Raynes: If, for the record, I could add to that: I think Councillor Turner was saying that it is not that we disagree with the ambition of one-to-one replacement; it is more the likelihood of that actually happening. I think that the Minister will acknowledge that the Government’s policy is that the one to one should be in aggregate, at the national level, so even within the policy it is acknowledged that there will be places where one to one is too difficult to deliver.
Ed Turner: If the aim of the policy is to deliver one-to-one replacement, that is great. I think most local authorities would want replacement in their areas under comparable rent levels, rather than in other areas that probably have lower housing need, at higher rent levels. What we are questioning is whether the policy is deliverable within the current framework. We are certainly happy to offer some suggestions to make it more deliverable. That would mean more receipts going to local authorities and fewer to the Treasury.
Between April and September 2013 there were discussions between local authorities, housing associations, the LGA, London councils, the Council of Mortgage Lenders, the Financial Conduct Authority, the Building Societies Association and the National Housing Federation about the proposals. Is that correct?
Ed Turner: In practice, I do not think we would see an enormous impact, because local authorities will prepare whatever strategies they need, and this is possibly an element that has had its day. The arrangements for local partnerships have changed in recent years. For example, there are the local enterprise partnerships and health and wellbeing boards, and there may well be a slightly different set-up in terms of strategies. It probably makes more sense, then, just to decide at local level what sort of strategies are needed, rather than having it prescribed in legislation.
Ed Turner: Whether they call the strategy a sustainable community strategy, or they have other strategies, I think they will produce what they need. Within the changing landscape of local partnerships they may well have slightly different names. Some will, of course, stick with this. That is up to them.
Ed Turner: Local authorities are passionate about involving people and, to be honest, whether that happens meaningfully will not be determined by clauses in legislation. It will be determined by whether people ask questions with an open mind or a closed mind, and whether people make the best effort to involve all sections of the community. We have great examples of councils across the country running really good consultations using new media and different forums, sometimes going out to people through the internet, and doing telephone surveys. There is a whole range of ways in which we can involve people. In truth, whether or not there is a statutory duty is neither here nor there, because this is something that councils really should be absolutely passionate about anyway. Of course, if they are not and they do not consult and they get it wrong, they can be held to account at the ballot box.
Ed Turner: I am sure that councils would always want to do more, but it is also about the quality of consultation and the open-mindedness when listening to the results. You can do umpteen consultations on issues where your mind is already settled and very little will be achieved. The appropriate decision there should rest with the local authority and, if it messes it up, the electorate can fight back at election time.
What would your advice be to local residents who, once this measure goes through, felt that they were not being consulted and did not have a statutory requirement to turn to when saying to their poorly performing local authority that they did not think that its consultation was sensible? What could they do and where could they turn?
I am following on from that point on consultation. One of the frustrations that local communities often have is not that consultations in themselves necessarily take a long time, but that any information and results fed back can come a long time after that. I take it from Mr Raynes’s comment that we could see this measure as something of a positive if it was able to streamline and bring forward responsive decision making a lot more quickly.