If the devil is in the detail, then the new Tory right to buy policy announced today is positively satanic. It is well known that the 1980s policy reduced the amount of social housing, and others will detail how this will do the same. I give few different initial observations on the policy, which I predict will unravel in the next few days. This RTB policy is likely to produce an avalanche of litigation, appropriates private property, and will probably massively inflate the national debt.
Housing associations are venerable independent organisations which jealously guard their independence. Many are also charitable. This RTB policy is a Venezuela-style theft of private property. Imagine if Tesco were forced to sell its sites at below cost, or the RSPB forced to sell its carefully nurtured wetlands? There would be an understandable outcry. I imagine wealthy philanthropist Mr Peabody who founded his London association is currently turning in his grave. Other charities will look askance at this move. If the state believes it can help itself to charitable housing association assets, then why not asset-rich Guide Dogs for the Blind or others? Trustees across the country will be in despair and the big society seemingly in tatters.
In all but totalitarian states, the government can only lawfully seize the property of others when giving full compensation with legal safeguards. As all familiar with compulsory purchase orders will know these legal battles can last for decades. After all the legal aid cuts, at least the legal profession will be grateful for this lucrative source of new work. The inevitable litigation will freeze any funds for well over the next parliamentary cycle, and will not be available to fund new builds.
The Tories say that (forced?) council house sales will fund the discount. Well, they obviously have not noticed that many councils like Liverpool do not have any council houses. Will there be no RTB in Liverpool? Or will the scheme be funded from sales in Tory district councils in the asset rich south-east and south-west? Labour candidates in Tory areas, please feel free to cut and paste this concern for your local leaflets.
If councils are compelled to sell their priciest one-third of council homes to fund this policy, do they sell them tenanted? If so they will get a tiny fraction of the full value – a massive firesale of public assets to private property speculators. Do they evict the sitting tenants to get full value to fund the scheme? I will be on the picket lines with the old lady tenants as will 99 per cent of the British population. Not such a popular policy now.
Back to the housing associations who will not take this lying down. They have billions in loans with institutions which since the financial crash have wanted to reduce their lending to the sector. The forced sale of these mortgaged properties will result in the formal breach of many of the lender’s loan covenants, meaning the loans will be called in and the housing associations technically made insolvent. At best, this default will be used to massively increase the cost of existing and future borrowing to the housing association sector – and thus fewer social and affordable homes being built. At worst we could see insolvencies ripple across the housing association sector.
The Treasury is rumoured to have argued against this policy for good reason. The United Kingdom needs massively more social and affordable homes – all parties agree on that. For every £1 of state money, the housing associations have levered in much more at very low cost. This RTB policy reduces the leverage and increases the cost – the result is that fewer homes will be built. A lose-lose policy.
And here is the big one. For a while, a quiet behind-the-scenes battle has raged to ensure that the massive housing association borrowings are not classed as part of the national debt. Classification depends on the degree of state control over the borrowings. This RTB policy is likely to tip the balance in favour of the debt being seen as controlled by the state and thus will result in a huge inflation of the national debt. Hey presto, George Osborne massively increases the size of the state. Surely this is political cross-dressing gone mad?
Paul Brant is former deputy mayor of Liverpool, a member of the Progress strategy board, and a former chair of a national housing association. He tweets @pauldbrant
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