Is it blindingly obvious that social landlords should sell off expensive properties to fund new house building? Not if you consider the unintended consequences and the better options offered by alternative strategies.
A recurring story in the tabloids is about Britain’s ‘most expensive council house’, usually because it is about to be let to a large unemployed family. In truth, it is difficult to see photos of some of these cases without wondering why councils are hanging onto (for example) a historic gatekeeper’s lodge in a London park. But is the message from these stories ‘blindingly obvious’, as the housing minister Grant Shapps says?
He was responding to a report from the Policy Exchange, Ending Expensive Social Tenancies, which claims not only that the odd park lodge should be sold, but every property owned by social landlords that falls vacant and is valued at above a regional median, adjusted for house size. Why not sell off expensive homes to get a two-for-the-price-of-one deal?
Readers of Public Finance will spot immediately that, whatever its other merits or demerits, the proposal is based on the simplistic assumption that the best way to make use of a valuable asset is to sell it. The other option, especially at a time of low interest rates, is to keep it to strengthen your portfolio and allow you to borrow, and of course this is exactly what housing associations do.
Councils aren’t allowed to borrow against their assets in the same way, and it’s true they could use the receipts from sales to build new homes. But they may have other compelling reasons for hanging on to expensive houses (except perhaps park lodges).
One reason is that ‘expensive’ often means large, and there is a severe shortage of large-family houses in many places. But also ‘expensive’ frequently means located in an area with high house prices such as most of London and high-pressure regions like the South West.
In these places right to buy has already removed a lot of social housing – in Westminster alone 9,135 properties have been sold, which is just under half of the council’s stock (and over one third of those sold are now in the hands of private landlords and being let at far higher rents).
On Policy Exchange’s figures, at least another 2,000 of Westminster’s most desirable properties might be sold off. Unlike earlier right-to-buy sales, there is a high chance that most of the buyers will be foreign investors, who then keep the property empty, as the Smith Institute recently pointed out.
And it is far from being solely a London issue. I can remember talking about housing in the Devon coastal village of Beer, where council houses are like gold dust. The young housewife I spoke to, desperately wanting to move out of a damp flat above a shop, knew every council house and their occupants, and where a vacancy might arise. The remaining houses, if sold, would of course become second homes or holiday lets.
Policy Exchange would respond that the cash released by the sales would enable replacement housing to be built. But in many places land simply isn’t available or planning policy doesn’t allow more building. Even if it can be done, the chances are it would be in a different part of Westminster or in a market town not a coastal village. Policy Exchange views the prospect of tenants having to commute up to 30 miles as perfectly reasonable.
There is a tone to Policy Exchange’s housing reports that doesn’t endear them to housing practitioners even if it catches the attention of the Daily Telegraph. Grant Shapps has often spoken of a ‘lazy consensus’ in social housing and Policy Exchange presumably wants to shake things up.
The fact that many social landlords are active asset managers, seeking to get best use of their stock in both social and business terms, appears to have passed them by. Islington, for example, has recently built new homes that were funded from the sale of assets in its housing revenue account, and they are far from being the first social landlords to do so.
Policy Exchange clearly believes that social landlords wilfully block reform, so they call for sales of higher-value stock to be mandatory and for penalties to apply to landlords who fail to comply. Government currently doesn’t have the powers to direct councils or associations to sell stock, except (for councils) under the right to buy. Policy Exchange wants urgent legislation to change this. Not surprisingly, the word ‘localism’ doesn’t feature in their report.
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