What is the real cost of the Tories’ housing policies?

On Tuesday the Conservatives announced what they see one as their most important new policies: extending Right to Buy to all tenants of Housing Associations.

When this idea was floated two months ago I wrote a Since You Asked column, which tried to explain how it was emblematic of a 30-year approach to housing: less and less state support for housebuilding and more subsidies for renting and buying. I argued that, to put it kindly, it doesn’t address the problem of housing shortages.

It is hard not to conclude that the fog of nostalgia hangs over Tory policy discussions. Right to Buy is seen as the “aspirational” policy, so, like a faded Hollywood director, the Conservative party has tried again and again to tell the story in sequel form.

The problem is that this is not your mother and father’s Right to Buy. Housing Associations are charities; expanding Right to Buy could mean a transfer of private collective assets by the state to individuals at a big discount. As well as seeming unfair to the millions of private renters (such as your correspondent) who “aspire” to own a home, it could increase the debt held on the government balance sheet. Housing Associations have £60bn of debt held against future rents. It is still not clear what will happen to these liabilities under the Tories’ plan. What is more, promises to replace sold-off houses on a 1:1 basis have so far proved hollow.

Perhaps the real explanation for the policy is in the map below (HT Neal Hudson):

As it happens, there seems to be a slight overlap between marginal constituencies in the midlands and south-east, and above-average concentrations of HA renters.

In fairness, Right to Buy II (or III, or IV) is not the only housing policy announced by the Conservatives. The more interesting – and, in the long term, consequential – is the proposal to sell off the most expensive third of council-owned properties in a given local authority area when those homes are vacated. The Tories estimate that this would involve 15,000 houses a year (0.4 per cent of the total stock) and would raise £4.5bn; therefore they assume the average sale would raise £300,000. This is a policy first proposed in this form (as far as I know) by Policy Exchange in 2012.

The Conservatives say they will spend that £4.5bn on four things:

1. The Right to Buy II policy.
2. Paying off any local authority debt held against the sold properties.
3. Replacing the sold council houses on a “one to one basis”.
4. Setting up a “Brownfield Regeneration Fund” (3&4 are linked).

I think there are three important points to make about these proposals.

First, it is wrong to say that the Tories are not trying to do anything about building. What is right to say is that, having found a way of raising £4.5bn a year by selling off current houses, they are then using some of that money to give to some lucky people rather than, well, to build more houses for the benefit of a greater number.

Second, however, these policies are neither clearly nor fully costed. The Conservatives say that £1bn will be given to the brownfield fund but they haven’t given any estimates for the cost of the Right to Buy policy or for the council debt. Nor have they given any figures for what each replacement council house would cost.

Third, then, what does this replacing on a “one for one” basis really mean? In his speech this morning launching the Conservative manifesto, the prime minister said that the replacement homes would be “in the same area”. Call me sceptical …

In their press release, the Tories provide the following estimates of what will constitute an expensive property in different regions of the country:

This means, for example, that the Tories expect two-bedroom council houses vacated in London worth more than £400,000 would be sold off under their plan.

Let’s assume, by way of highly speculative example, that Hackney council is forced to sell off a £400,000 two* bedroom council home when it becomes vacant, probably to some hipster working for a big media organisation. That £400,000 property may have some debts attached to it (let’s imagine 10 per cent, or £40,000) which need to be paid off. Then, 22 per cent** (£88,000) of the proceeds will be earmarked to the Brownfield Regeneration Fund. Another unknown amount will be siphoned*** off to pay for the Right to Buy policy. If we say that that policy costs another £1bn**** then Hackney council has less than half of the sale price left to replace the house.

Thinking about this for all of five minutes raise the question: is it possible for councils to use what is left of the sale proceeds to replace houses in “the same area”?

The burden of proof remains with Conservatives to show that they can meet their promise. Otherwise, it looks probable that the pledge won’t be met, or it’ll cost more than expected, or that “in the same area” actually means something different. In the original Policy Exchange proposal the “same area” meant within 30 miles of the sold stock. If such a definition were used then the could would further encourage the trend of inner London becoming more affluent relative to the capital’s periphery.

The Tories want their housing policies to be symbolic of their commitment to “hard-working families”. Unfortunately for them they are also symbolic of announcements whose real cost and consequences are not fully explained to the British people.

Update (16:39): The National Housing Federation, which represents Housing Associations, estimate that 221,000 people could benefit from the Right to Buy II policy – much fewer than estimated by the Conservatives. This is a sign of how the demographics of social housing tenants has changed since the 1980s. It is also a sign that the policy may have less impact than the Tories hope.

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* Which may be a hard find in Hackney these days.
** £1bn/£4.5bn = 22.22 per cent
*** It’s unclear how the hypothecation in the Tory plan would actually work.
**** A total guess. I’m trying to find out more.