The right-to-buy extension will run at a loss in most of the country

http://www.theguardian.com/housing-network/2015/jul/09/right-to-buy-extension-run-at-loss

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The extension of right to buy to include housing association tenants is proving to be deceptively complicated. Housing association tenants will have the right to buy their rented properties from housing associations with a significant government discount, however, unlike the original right-to-buy policy, the housing associations who own the homes will have to be compensated for those that are sold. Where exactly this money will come from is turning into a head scratcher.

The right to buy will supposedly be financed by councils selling their most expensive council homes when they become vacant. The money raised will be used to replace the homes sold and to compensate housing associations for the properties they lose.

However, research by Savills finds the sums don’t quite add up for this policy. The research shows that ministers have seriously overestimated the amount that would be raised through sales of council houses.

Specifically, the sums do not add up for areas outside the south. Rebuilding council homes will cost more than the money raised for many areas of the country, but not in the south-east and London.

The areas of the country that lose out are the north-east, Yorkshire, the north-west and the Midlands, all of whom will lose money from the process. For Yorkshire and the Humber, for example, the average value of a council home is £110,677, but the average replacement cost, including land, is £135,000. For London, the £220,000 cost of building is generously covered by the average right-to-buy sale of £436,738.

The same low prices that mean the north cannot fund the rebuilding of council housing through sales alone also mean more housing association tenants can afford to take advantage of the policy. Research by the National Housing Federation found that in London just 15% of tenants could afford to take up the right to buy, but from the Midlands north it is 35%.

Related: Why I would never buy my housing association home

Although the number of housing association homes affected by this varies, the higher percentage still matters. London has slightly fewer housing association homes than Yorkshire, but the imbalance in house prices means Yorkshire will have a much higher compensation bill than London as more tenants can afford to buy.

The presumed solution to these pressures is for the money raised by council home sales to be pooled, so that the profits raised from the borough of Westminster would be redistributed to Oldham or Sunderland.

The new housing bill that will include the right-to-buy extension has not yet been tabled. But it is pretty clear that this redistribution of council money will be unpopular with southern councils when money raised from selling London property is spent subsidising the right to buy for tenants in other areas of the country.

Dan Holden is a freelance journalist and researcher at the Smith Institute

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