Natalie Elphicke is a non-executive director of a leading building society and a published policy writer on housing and housing finance with Policy Exchange and the Centre for Policy Studies. She is co-founder and Chairman of Million Homes, Million Lives.
On Tuesday, “A modern right to buy” considered some guiding principles for a new approach to Own Your Home. Yesterday David Davis MP called for a revival of the right to buy. Today, we look at how to pay for new homeownership. Here are three suggestions:
1) Buying your property at the Business Value
The Right to Acquire is the poor relation of Right to Buy. The Right to Acquire allows the tenant a discount of up to £16,000 against the market valuation of the home (the ordinary price of the home without a tenant). The Right to Buy discounts can be over £100,000 against the market valuation of the home.
However, as a business the housing associations, and their funders, use a valuation basis called Existing Use Value. The chief valuers for the housing sector have described existing use value as “our only choice as a basis of valuation”. Existing use value is the value of the rents usually over a 30 year period, and taking into account the obligation of the landlord to keep the property in good repair. This valuation approach also reflects the long-term protected rights of the tenant. In other words, the landlord cannot throw out the tenant in order for the landlord to realise the full market value of a property.
So, a better alternative to raising the discounts would be to allow social tenants to buy at business value not market value. It would allow the social tenant to buy the property at as much as a 40 per cent discount to the market value. Buying the property at a more affordable price would allow many more social tenants to become homeowners. It would be at no additional cost to the Treasury. The social landlord would be fully compensated for the value of the property in their business.
Usually, social landlords have to repay housing grant if they sell a home where it was provided by the taxpayer. In order to allow the social landlord to buy or build another property for social rent, the housing association would not need to repay the grant at all. The obligation to repay housing grant would transfer to be paid back by the new homeowner when they sell the property in the future.
This is a proposal which is fair to the taxpayer, affordable for the tenant, is financially manageable to the housing association, and maintains the social housing stock.
2) My Home to Choose: buy your choice of new home
As explained previously, all secured tenancies have an impact on the ability of a landlord to realise the full commercial market value of a home. At the moment, housing associations can offer social tenants another property to buy or to rent, but tenants can’t choose to apply their discounts to buy another property which they might like.
My Home to Choose would allow social tenants to buy out part of the value of their secured tenancies or to convert their rights to buy/acquire into a different home. For example, older people might be quite happy to leave their social family home if they could buy somewhere else which they have chosen, perhaps nearer to their family if that family has moved away.
This scheme would work as follows:
- the social tenant would be helped onto the government’s Help to Buy equity loan scheme,
- the social tenant would have an amount for each year of their tenancy, say £3,000 a year, to the maximum of the economic value of the tenant’s rights (their accrued claim)
- recognising the value of the retained home to the social landlord, the social landlord would pay the social tenant their accrued claim
- the social landlord would not need to repay the grant. It would retain the home for the next tenants.
This is a scheme which would give the tenant choice; practical, financial help with the deposit and moving costs. The housing association keeps the grant attaching to the property and retains the property to let to the next social tenant. If a social landlord did not have immediate sufficient funds to pay out the tenant, it could sell the retained property to another social landlord, and the property would remain in social housing use. Or the government could pay the amount of the accrued claim, as it would now for the exercise of the right to acquire of the housing association if the housing association did not retain the home, and the housing association could pay the government back over time and as it is able to.
This is a proposal which is fair to the taxpayer, affordable for the tenant, brings additional choice to the tenant, is cost effective for the housing association, and maintains the social housing stock.
3) A permanent reinvestment Social Finance Homes Fund.
The Government has invested more than £40 billion in housing associations, who are now running a current and predicted profit in excess of £2 billion each year for the next few years off the back of above-inflation rent rises. At the moment, housing associations don’t pay interest on this financial support, while if councils borrow from the public works loan board they do. Government could transfer these grants into an equity fund which attracts the same rate of interest as the public works loan board and includes a ‘pay or pass’ interest approach – allowing housing associations to roll up interest (owe it rather than pay it) where they can’t afford to pay it if they are themselves in financial trouble.
This would create a new permanent re-investment vehicle into affordable housing of millions of pounds every year – creating a sustainable and permanent stock of low cost housing for the UK. Coupled with social finance, this could create a major boost for new affordable homes.
These are just three ideas, but there are many variants. There are new ways to save for your property and buy it over time, through home purchase plans, which do not require traditional mortgage financing or a deposit. There have been suggestions to turn all rights to buy into a huge shared ownership scheme for all tenants, or a home-stake scheme which converts all tenants rights into equity shares in their homes. There is much which can be done to free up home ownership for everyone, to reverse the decline. Those for whom the current system works will of course moan and say it can’t be done. Yet we are the party of property ownership, property fairness and property opportunity. Encouraging and enabling property and home ownership is a key Conservative belief.