DCLG consultation: Reinvigorating the Right to Buy
Submission from UCATT
- Introduction
- UCATT is the largest specialist union for construction workers in the UK and the Republic of Ireland, with members both in the public and private sectors. UCATT is the lead union among the signatories to the National Working Rule Agreement of the Construction Industry Joint Council and the Joint Negotiating Committee for Local Authority Craft and Associated Employees. UCATT is represented on a number of construction industry related bodies by the General Secretary including the Strategic Forum for Construction, the Construction Industry Training Board and the Construction Skills Certification Scheme.
1.2.Housing is a key issue for UCATT members. UCATT represents workers involved in the construction of new homes and also workers employed in property maintenance by private companies, housing associations and local government. In addition, many members currently live in social housing and these changes will have an impact on their homes, families and wider communities.
1.3.UCATT has long campaigned for a dramatic increase in the building of new social housing at social rents, to tackle the growing housing crisis. Not only would this reduce homelessness, it would reinvigorate the construction industry and help to get skilled workers back into work.
- Executive summary and recommendations
2.1.UCATT completely opposes the proposals to reinvigorate the Right to Buy as outlined in the DCLG consultation document. We believe that the proposals do not tackle the fundamental problem of pre-existing insufficient levels of social housing. This policy offers no long-term investment and does nothing to address the housing needs of the 1.8 millionpeople currently on social housing waiting lists in England. Nor will it generate the income required to refurbish the existing housing stock. UCATT asserts that rather than increasing the supply of social housing, the extension of the Right to Buy will lead to a further reduction in social housing provision with an additional 13,000 properties lost to social housing before any replacement building commences.
2.2.Furthermore, UCATT is concerned that replacement homes will not necessarily be built in the areas where properties were sold and will cost tenants more than existing social housing. Higher costs will invariably lead to increased rent arrears and evictions.
2.3.If the Government is serious about tackling the current housing crisis, it should review the budget cuts for new social housing announced in the Comprehensive Spending Review. Public spending cuts have led to a shrinking economy and rising unemployment. UCATT therefore calls on the Government to scrap the plans to extend the Right to Buy and to invest directly in a programme of council house building to provide hard-hit families with affordable homes, deliver employment to construction workers adversely affected by the economic crisis and to kick-start the stalling economy.
- Key concern: thispolicy will not generate additional social housing provision.
- In order to encourage the take-up rate of the Right to Buy, the Government proposes to increase the discount that tenants would receive. The additional receipts generated will be used for building replacement homes.
3.2.However, the Government has already estimated that between 2011-2015, a total of 12,700 properties would have been sold under the existing Right to Buy scheme.[i] These homes will not be replaced as this forecast was included in the calculation of the Local Authority Assumed Income. It is therefore misleading for the Government to suggest that they are offering a ‘one-for-one replacement’. Almost 13,000 social housing units will be lost before any construction of replacement homes begins.
3.3.The already depleted social housing stock cannot sustain these losses. There is currently a housing crisis in the UK with 1,813 559 people on waiting lists for social housing in England and 1.6 million children living in over-crowded, temporary or run-down accommodation throughout Britain. [ii] There are now 40 families chasing every 1 property. [iii]
3.4.Housing problems areaffecting both urban areas and rural communities. The increase in house prices in some rural areas has risen dramatically, for example in the North West. In Kendal and South Lakeland, Cumbria, an average home costs £240,467 which almost 13 times the average income. As a result here are 2,887 families waiting for social housing but just 57 affordable homes are under construction. This is a ratio of 51 families chasing every property. Local MP, Tim Farron has stated that: “The Right to Buy policy was an unmitigated disaster for rural Britain.” [iv]
3.5.Even City law firm Wedlake Bell, admit this policy could have a detrimental effect on social housing. Jeremy Raj, Head of the Residential Property Team, said, “it seems unlikely that any public sector led affordable homes initiative will meet the shortage of affordable homes. The Government's proposal to extend the 'right-to-buy' scheme might actually mean that more affordable housing will be taken out of the public sector." [v]
- Key concern: there is no guarantee that the sale of homes will result in one-for one replacements.
4.1.Whilst, the Government has not yet decided how to administer and manage the receipts created by the sale of homes, DCLG admit that “receipts generated locally will not necessarily secure one-for-one replacements in each area”. [vi]
4.2.A property sold in an area where house prices are low may not generate sufficient funding for a replacement home to be constructed. Figures show that councils need to generate between £40,000-50,000 in receipts per sale to build a replacement. However in some areas of the country, the average sale price is less than £70,000 which could leave just £25,000 for a new build once debt repayments have been made. [vii]
4.3.It is therefore likely that the Government will introduce a scheme that will be administered nationally to allow for redistribution between local authorities. This means that replacement homes will not necessarily be built in the area where properties have been sold. This could further exacerbate housing problems in areas of high housing demand.
4.4.Introducing a system where local authorities have to bid for money for replacement homes is not a solution for tackling a national crisis. Pitting councils against each other in a competitive bidding process is divisive and open to manipulation, with the Government able to reward favoured local authorities.
4.5.To fund the replacement homes, social housing providers will be expected to use not just the receipts but also borrow against the future rental income stream and cross-subsidise with their own resources, such as land. If successful bids are dependent on this, some local authorities may face problems. Inner London boroughs with very little space for new development will not be able to cross-subsidise by offering land. In addition, some councils may not be able to borrow if they are close to their borrowing limits already.
4.6.Furthermore, councils will have the option to use their Right to Buy receipts to cover part of the cost of buying back former council homes. The Government is therefore proposing that the use of buyback will count as a replacement home. This reduces the funding available for new build at a time when the construction industry is desperate for investment.
4.7.The Government’s intention to extend the Right to Buy to housing associations will also contribute to an overall loss of social housing stock. The Government has said housing associations will be “incentivised” to use surplus receipts for replacement homes but only a strict mandate is likely to generate replacement homes. Additionally, the Government has failed to take into account the complexity of housing association finance and as a result, the proposal has been met with a mixed response.
4.8.Peter McCormack, Chief Executive at Derby based Derwent Living, said: "The plans do not stack up as a proposition for providing funds to build new affordable homes. Many Derwent Living properties are typically part financed by long-term loans from banks and building societies. This means that much of the cash available from such sales after the discount would be used to repay debt, leaving virtually nothing to build new properties. Therefore, the reported generation of billions of pounds would be used mainly to repay bank loans." [viii]
- Key concern: there is insufficient investment in the construction industry
5.1.Figures released from the Office for National Statistics on 13th January 2012 show a drop of 1.2% in overall construction output for 2011 Q4 when compared to the same period in 2010. New public housing output shows an even sharper decline of 9.1%. [ix]
5.2.The most recent State of the Trade Survey by the Federation of Master Builders confirms that the construction industry has been in recession for 4 years. Company workloads have fallen every quarter for the last 16 quarters. [x] Reductions in workload levels result in falling employment and ONS figures show that 54,000 workers were made redundant in the first 3 quarters of 2011.
5.3.Yet at a time, when the industry is crying out for investment, just 207 affordable housing units were started on site in England in the six months to September 2011, compared with 13,626 units in the six months to September 2010.
- Key concern: replacement homes will result in higher costs for tenants.
6.1.Replacement properties will be leased at far higher rents than current social housing as they will be designated as “affordable” rented properties where rent can be set at up to 80% of market levels.
6.2.This will lead to lower paid and even middle income workers being priced out of some areas, with some workers being forced on to benefits. According to Hometrack a leading property analytics company, the required income for households to rent in London will be £44,500 a year [xi]. This is £7,000 above the average London annual salary, £30,000 per annum above workers paid the London Living Wage and an enormous £33,000 more than workers earning the national minimum wage. This means that “affordable” rents can only be met by the top third of earners in London. In addition, the increase from social rents to “affordable rents” will add £51m per annumto the annual housing benefit bill. [xii]
6.3.Housing charity Shelter, has calculated that market rents in over 55% of local authorities are unaffordable as the median rent for a two bedroom home costs more than 35% of local median take home pay. [xiii] 21% of local authorities are considered “very unaffordable” (median rent 40-49% of median full-time take home pay), with 8% of local authorities deemed “extremely unaffordable” (median rent 50% or more of median full-time take home pay).
6.4.Whilst extremely high rents are found in London and areas close to London with good commuter links, where average rents can be 2½ times the national average, high rents are also found in the North in Manchester, York and Harrogate and in rural areas such as Cornwall and Herefordshire.
6.5.Even in areas where rents are relatively cheap, the low level of wages can make housing unaffordable. For example, Blackpool is the most unaffordable local authority in the North of England, with median average rents for a two bedroom home taking up 42% of average full-time pay.
6.6.The Chief Executive of the Peabody Trust, Steve Howlett, recently gave evidence to the London Assembly's Planning and Housing Committee in which he cited the example of a four bedroom house in Haringey for which the “affordable rent” would be £390 per week compared with a current rent of £126. [xiv]
6.7.Pegging rents to market levels is over-inflating the cost of accommodation. Private sector rents are currently high and the rise in rent levels in the private sector is being fuelled by investment by financial institutions. Investment in residential property by financial institutions increased by 189% to reach £2.2 billion in 2010-11, according to Wedlake Bell’s Jeremy Raj. He says: "There has been a startling jump in purchases of UK residential property by institutional investors. Institutions are being attracted to residential property because of improving market fundamentals, including high tenant demand, high rents and a supply shortage that shows no immediate signs of abating."[xv]
- Key concern: the sale of social housing can contribute to the decline of the local environment.
7.1.Currently under the Right to Buy, the council retains administrative costs and the costs of improvements made to the property in the previous 3 years. The Government’s proposal that the new scheme will allow for a flat rate administrative cost and that improvement allowances will be withdrawn, could deter local authorities from carrying out repairs and improvements when there are currently 7.4 million homes that fail to meet the Government’s Decent Homes Standard. This has consequences for both tenants and workers employed in property maintenance.
7.2.In addition, Right to Buy purchasers often underestimate the costs of service charges, especially charges for those living in blocks of flats. As well as being a source of unexpected financial pressure for the owner, it can also create wider difficulties with improving communal areas. Leaseholders have to be consulted about major works, have the right to challenge service charges and may not be able to afford to pay. This can lead to delays in work and ultimately a deterioration in the overall housing environment.
7.3.The Right to Buy has led to a significant number of properties ending up in the private rented market. This has resulted in absent landlords on council estates with properties changing hands frequently. People living on short-term tenancies usually have very little commitment to their localarea and this can make it difficult to engender community cohesion.
- Tenants and leaseholders face increased homelessness and evictions.
8.1.The higher rents that can be charged in “affordable homes” could price many families out of the areas where rents are high or wages are low and will certainly led to higher levels of rent arrears and eventually evictions.
8.2.Encouraging tenants to buy their homes could also lead to them facing financial difficulties and ultimately repossessions. Analysis by Hometrack shows that 65% of local authority tenants could afford to buy their home with a £50,000 discount. However, only a small proportion of these are likely to be eligible for a mortgage as just 16% of tenants are in full-time employment[xvi] and the Government estimates that 15% of Right to Buy purchasers receive full housing benefit. [xvii]
8.3.It is often difficult for people on low-incomes to get adequate access to independent legal and financial advice. One of the factors in the current economic crisis was the expansion of sub-prime lending in the housing market.
8.4.The Government’s plans do not attempt to tackle the pressure that elderly and vulnerable tenants can face from members of their familyto exercise their Right to Buy. Currently, any family member who has lived in the property for 12 months can exercise the Right to Buy. This can result in the sale of the property as soon as period ends when the discount is repayable, resulting in the original tenant requiring re-housing.
8.5.There are also insufficient safeguards to prevent the exploitation by companies who offer a lump sum to tenants to take up their Right to Buy. The tenant then leases the home to the company who sublet it at market rates and sell it at the end of the period when the discount is repayable (5 years). This can be tempting to those in need of short-time finance but can result in acute housing need in the long-term.
8.6.A report from the Association of London Government found that former tenants using these companies were contacting their local authorities relatively soon after exercising the Right to Buy as they did not have secure alternative accommodation. Furthermore, the companies were also targeting households who were intending to leave their council accommodation anyway.[xviii] It is imperative that that Government introduces measures to outlaw companies profiteering from the sale of social housing.
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[i] p.30.
[ii]
[iii]Daily Mirror, January 31st 2011.
[iv] Ibid.
[v]
Institutions+Soars+By+189
[vi] p.19.
[vii]
[viii]Derby Evening Telegraph, January 7th 2012.
[ix]
[x]
[xi]
[xii]
[xiii]
[xiv]
[xv]
[xvi]
[xvii] p.27.
[xviii]