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Buying back better

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Publications Buying back better How social housing acquisitions in London can tackle homelessness and help councils avert bankruptcy By Alex Diner, Sam Tims, Abi O'Connor 12 March 2024 Download the report The UK is in the midst of a longstanding but sharply deepening housing crisis. And in no part of the country is that crisis more visceral than in London. With already sky-high rents rising steeply as part of the cost-of-living squeeze,

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Publications

Buying back better

How social housing acquisitions in London can tackle homelessness and help councils avert bankruptcy


The UK is in the midst of a longstanding but sharply deepening housing crisis. And in no part of the country is that crisis more visceral than in London. With already sky-high rents rising steeply as part of the cost-of-living squeeze, London’s councils face record numbers of homeless families for whom they must provide homes. This is helping to push many local authorities to the brink of bankruptcy, as – owing to the chronic undersupply of social homes – they are forced to absorb the exorbitant costs of often woefully poor-quality temporary accommodation (TA).

Compounding this, macroeconomic headwinds – high construction costs, high interest rates, limited grant funding, poor and unaffordable land supply, planning backlogs, and a lack of local authority development capacity – mean that building the genuinely affordable homes Londoners need is increasingly challenging. Building a new generation of new social homes offers the principal long-term solution to the housing crisis. But these adverse circumstances present a vital opportunity for councils to take action now, particularly with stagnating house prices in the capital and with some landlords wishing to sell their rental homes. Councils buying homes to let as general needs social housing (for those on council waiting lists) or TA helps them to deal with the immediate homelessness crisis.

When councils buy homes from the private market they can make a real difference in tackling homelessness in their communities. Homes can be bought relatively quickly, and can more closely match the type and size of homes that residents need. By improving the quality and energy efficiency of acquired homes, the approach can also improve the environmental efficiency of our housing stock. Acquisitions achieve this while circumventing many of the challenges associated with building new affordable homes, including the difficulties councils often have with land acquisition and developer negotiations. To offer value for money and not overheat local property markets, acquisitions must be done carefully, particularly in high-demand, high-cost areas. But they do play a vital, albeit supplementary, role in increasing the supply of new social homes and are an important part of the package of solutions to the housing crisis.

The Greater London Authority (GLA) Right to Buy-back (RTBB) scheme, which launched in 2021 and ended last year, saw around 1,300 homes bought by councils. Since then, the GLA has announced the new Council Homes Acquisition Programme (CHAP), which sets out its ambition to enable councils to buy 10,000 homes over the coming decade. Drawing on the GLA’s allocation under the Affordable Homes Programme (AHP), these schemes have provided grant funding to London’s councils to buy homes and mitigate rising homelessness.

This homelessness crisis is also a financial crisis for London’s councils and comes at a high cost to taxpayers. Our research shows that acquisitions can deliver vital savings for local authorities and central government. If London’s councils acquire 10,000 homes over the next 10 years, this will reduce their TA costs by £1.5bn, trim government housing benefit subsidies by £340m, and generate additional indirect savings of £440m over the next two decades. Annual government-wide savings from CHAP will outweigh annual costs after 16 years, meaning that from this point it begins to generate annual savings. And by year 25 the programme will have paid for itself, having delivered sufficient savings to cover its cumulative costs. All these savings will produce a dividend to be re-invested more productively in London’s economy, while taking immediate steps to help tackle London’s homelessness crisis.

Drawing on this analysis, this report makes a series of recommendations. To enable councils across the country, including London, to benefit from social housing acquisitions, the government should do the following:

  1. Commit to a new AHP beyond 2026 at the earliest opportunity, which includes a longer-term funding settlement for both the GLA and housing providers.
  2. Introduce a national housing conversion fund, backed by significant grant funding, to enable councils across the country to deliver more acquisitions.
  3. Relax the 10% cap that limits the number of homes delivered by acquisitions under AHP grants administered by Homes England to match the higher 30% cap administered by the GLA, as well as the acquisitions cap on right-to-buy receipts, so that councils in London and across the country can maximise the advantages of acquisitions while continuing to prioritise grant for new build homes.
  4. Allow councils to combine right-to-buy receipts with other forms of grant funding, such as CHAP funding, to give councils the flexibility they need to replace sold homes.
  5. Uprate the TA housing benefit subsidy to current local housing allowance (LHA) rates and thereafter to create a sustainable funding settlement for TA for councils going forward.
  6. Provide the GLA with additional grant funding to enable environmental improvements as part of future acquisitions programmes, so that the GLA can consider raising the standard of homes acquired to EPC C’.
  7. Introduce a Community Right to Buy – pre-emptive rights of first refusal for councils – to provide them with a competitive advantage when acquiring new homes.
  8. Make capital funding available to a wider range of community-led housing groups to acquire homes.

To maximise the benefits of future iterations of CHAP, the GLA should:

  1. Require all acquisitions to be made in-borough. If a purchase is made out-of-borough: (a) it must be in a neighbouring borough; and (b) the local authority must demonstrate that the purchase would not have been financially viable in-borough, or should be made out-of-borough for specific, permitted reasons.
  2. Consider asking local authorities to collect and provide data regarding the accessibility of acquired homes.
  3. Obtain the views of councils who have not hitherto participated in either of their acquisitions programmes to understand the reasons for this and encourage their future participation.

Work with Community Led Housing Hub London and the wider housing co-operative sector to consider how housing co-operative acquisitions can be scaled up, including examining ways to improve their financial viability.

Image: iStock

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