Selling high value homes

The think tank influencing much of the current government’s policies has proposed that high value social housing should be sold and the revenue reinvested to build new homes. 

Policy Exchange state that selling properties worth more than the average home in the area would provide the funds to build three or four new homes for every one sold.

BBC News report

Our opinion

In the current climate of significantly reduced government grant it is vital that we find new ways to increase supply if we are to help meet the huge demand for affordable homes. We value discussion around this and welcome proposals that look to increase flexibility for landlords in determining how best to use our housing stock.

However, we have concerns that this proposed blanket approach oversimplifies what is a complex set of issues. The paper fails properly to take into account a number of key points:

• If the approach is applied to properties above median regional values ordinary flats in Croydon and Lewisham would be sold off – not only, as the paper seems to suggest, mansions in Chelsea and Westminster. Almost 50% of the ‘value’ available for re-investment comes from London, which is precisely where it is most difficult to build replacement homes.
• Poor mortgage availability for first-time and other buyers means that many of the homes could well be sold to buy-to-let landlords who can then charge market rent for the homes to people on benefits – pushing the Housing Benefit bill up substantially.
• Increased pressure on support services, health, education, and transport in lower value areas will cement disadvantage for social tenants – one of the many benefits of mixed communities is that they spread the demand on these services.
• New homes built specifically in cheaper areas will tend to be further away from centres of employment meaning increased transport costs will act as a disincentive for those in low paid work.  The proposal would potentially create ‘poor ghettos’ where employment opportunities are limited.
• The government’s flagship Affordable Rent model relies on landlords charging up to 80% of market rents for existing homes when they are re-let so as to raise additional funds to build new homes. Selling off the most valuable homes that would command the highest rents undermines the ability to raise funds to build more new homes in this way.
• The likelihood is that initially the stock of affordable housing will go down as there is usually a significant time lapse between a sale and a replacement home going through planning and construction.
• The number of replacement homes that Policy Exchange contemplates depends on Housing Associations taking on significantly more debt to develop. However,  the sale of high value assets and a concentration of new homes in lower valuer areas will change the risk profile and therefore is likely to deter lenders or at least  increase the cost of borrowing - this is proposed at a time when developing associations are already being stretched to deliver new homes under more stringent grant conditions.
• On the assumption that local authorities will retain their duties to house the homeless and others in priority need, those in high value areas will ‘export’ such cases to areas where property values are lower. This will create enormous political tensions between authorities.
• There may be Section 106 or other legal & political barriers to selling affordable housing at open market prices - not least from many local authorities who will want control over levels of affordable housing in their area.
• A piecemeal sale of stock would create significant management issues and undermine strategies for improvement and regeneration of estates.
• The value of a home is not only a function of its location, but also of its age, quality and state of repair.  The compulsory sale of higher value homes would erode the quality of affordable housing stock and leave behind the homes with highest management costs.

Affinity Sutton already has a pro-active asset management strategy whereby homes that are difficult to maintain or require expensive major works may, following consultation, be redeveloped or sold if necessary. However we would strongly resist any proposal that would compel us to sell homes simply because of their value, a move which would inhibit sensible management of our portfolio and lead to serious questions concerning our status as an independent, charitable body. The limited amount of public funding invested in our assets does not give the state the right to run our business.

Although the Policy Exchange proposals are impractical in a wide range of ways, they are helpful in highlighting the urgent need to increase housing supply including that available to lower income households. Affinity Sutton believes that the 60% cut in the affordable housing budget at the last spending review is causing severe damage to the market and that government should invest in a major affordable house building programme to stimulate the market and the economy.. This programme should include a substantial element of shared ownership: the National Housing Federation has calculated that a public investment of £1bn, would be matched by £8bn of private investment by housing associations, would create 66,000 new shared ownership homes and 400,000 jobs, saving the tax payer £700,000 in Job Seekers Allowance. Affinity Sutton enjoys strong demand for our shared ownership programme and would be willing to expand it considerably if such an initiative were launched.