The use of large up-front fees and disproportionate deposits has already resulted in significant cost consequences for one care provider.
HA boards need to get to grips quickly with the proposals and make a decision which could greatly impact upon the relationship between the Government and the housing sector in the future.
The voluntary proposal
The starting position is that all social and affordable rent tenants would be entitled to the VRTB with a discount at the same rate as under the RTB (£103,900 in London and £77,900 elsewhere).
HAs would have discretion not to sell certain properties (e.g. rural areas, adapted properties – i.e. much wider exceptions than are currently the case) and offer an alternative; what the NHF is calling a ‘portable discount’.
A cost floor calculation would apply recognising that properties should not be sold for less than the costs of acquisition/outstanding debt associated with the property (akin to the net and peak debt exception in the right to acquire).
A strict timescale would be put in place which HAs must comply with. This would be enforced by the Regulator, which would have a key role in reviewing HA decision-making and considering tenant complaints. There is an indication in the guidelines that the Regulator could introduce a new Regulatory Standard to cover this, intended to measure the amount of home ownership facilitated by an HA and whether HAs are demonstrating a genuine presumption to sell in favour of tenants.
The proposal talks about introducing measures to tackle fraud and speculative tenant applications (including an up-front fee payable by the tenant and refundable on completion).
In return, the Government would guarantee full compensation for the discount provided that the HA replaces that property (70% payable on completion and 30% with a start on site). HAs would collectively need to ensure that at least one property is brought into HA ownership to replace each property sold under this voluntary scheme. HAs would have 3 years to replace each home. The mechanisms for replacement would be wide: development, open market purchase, revival of empty homes or working with other HAs.
Any grant associated with the property would be recycled through the Recycled Capital Grant Fund (or similar). For LSVT associations, the NHF envisage that local authorities will not have any clawback on receipts. Given that this could require a contract change to LSVTs’ transfer agreements, and that the Regulator and the Government has previously indicated it had no appetite to intrude into that contractual relationship, it is not surprising that the proposals at this stage give no detail on how this will be achieved.
Alongside the VRTB, HAs would be committing to extend home ownership opportunities for tenants and working with the Government to put other schemes in place to achieve this.
The proposal contains a statement to the effect that the Government would put in place arrangements to manage the financial costs of the VRTB policy. The Government wishes to restrict that cost to the value of receipts received from the sale of high value council assets. Ring-fencing of receipts from the sale of London council housing for reuse in London alone would create a very difficult issue and potentially this could involve an annual cap on the total discount amount. There is no detail on what this would be and how it would work.
When deciding whether to accept the VRTB by the deadline of 5pm on Friday 2 October, HAs should be asking themselves some key questions:
- Would your organisation benefit from the flexibility of offering tenants a ‘portable discount’ in order for you to retain adapted/rural properties (an exemption which is not available with the current RTB)?
- Would open market receipts enable you to replace properties on a one-for-one basis?
- If the receipts are likely to be insufficient for replacement, do you have adequate “top up” funding?
- Is development of new homes an option for you and, if not, do you have good relationships with neighbouring developing associations? Would the alternative options of purchase/bringing empty homes back into use be viable?
- For LSVT organisations, will the voluntary scheme be caught by your clawback arrangements? Check the wording of your transfer agreement, as it may not be sufficient to expect the Regulator or the Government to intervene, if you are caught.
- Are you prepared to support the Government’s wider proposal to develop other schemes to enable home ownership options for tenants?
- Do you have the resources in place to deal with an influx of applications within strict timescales?
- How does this option fit in with your organisational and tenant values?
- Will you have an asset cover issue?
- Given that the policy is voluntary and not statutory, if your organisation is charitable, how will you square the requirement to provide housing only to those unable to house themselves on the open market? Will those people exercising the VRTB fall into that category and, if not, what does this mean for your organisation’s charitable compliance?
What happens next?
HAs must respond in the form provided by the NHF by this Friday 2 October.
If the majority of HAs sign up then the NHF and the Government will set up a working group to work out the finer details: when it comes in, all HAs will be expected to participate (regardless of whether they have signed up).
If the proposal is not supported by the majority, the Government will set out a new statutory RTB in the Housing Bill although, to be clear, this would not be nationalisation by the back door. It does not mean that the Government (as opposed to your tenants) has any greater right to get its hands on your assets as it currently does. However, it is clear that the VRTB proposal that is on the table is potentially more flexible and accommodating than the corresponding statutory one is likely to be. The ultimate question is whether, if the sector rejected VRTB, the Government could implement its proposed statutory Right-to-Buy without significant dilution by the House of Lords?
So what will the future of the Right to Buy be? In the words of Greg Clark, “that is for you collectively to decide”.
What else? “Elephant in room” time
- VRTB and charitablity is very much a live issue to be resolved;
- Surely the Government will have to include provisions providing power to the HCA in the Housing Bill to compel HAs who might otherwise not wish to participate?
- Lenders would not be compelled to discharge properties subject to VRTB unlike the position with RTB and RTA so how would that work in practice;
- How will the Government prevent local authorities from enforcing s106 agreements (though rural schemes might be safe, the fact is that HAs would be unable to comply with typical existing s106 agreements)?
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