Unanticipated Consequences of RTB sales: Estimating the scale and cost through LHA.

24th April 2013

Nigel Sprigings, Urban Studies, Glasgow

Duncan Smith, Renfrewshire Council

The Presentation

Largely based on a paper in PPP Online last year.

A brief bit of background

The methods used to identify RTB stock moving to PRS but also tracking the true scale of the PRS.

Benefits to local authority of identifying PRS at this level.

Evidence of PRS under-estimation

Significance and likely cost of RTB to PRS transfer

Conclusions

Private Rental and Buy to Let

• Simplistic start point:- once housing stock is part of the wider “open” market it will follow the market trend with positive or negative variation depending upon factors relating to the locality or the stock.

• Early research on RTB picked this up – research on social composition of RTB neighbourhoods identified some reversion to low income households through PRS. Williams and Twine, Forrest, Murie, Pawson and Watkins.

• Varying rates of change noted but tendency for long term PRS growth in RTB stock (following national trend).

The long term trends

Proportion of stock – private tenures

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Great Britain

Owner-occupiers 69.4 69.6 68.8 69.2 69.2 68.4 68.0 67.2 66.3 65.4

Privately rented 9.7 9.9 11.3 11.4 12.0 12.9 13.6 14.7 15.7 16.6

Source: Wilcox and Pawson: UK Housing Review 2011/12

Declining numbers of owner-occupied stock v PRS growth, Great Britain• Year 2008 2009 2010• Decline in home ownership -41,000 -120,000 -144,000• Growth of PRS 304,000 293,000 271,000• Source: Calculated from Wilcox and Pawson: UK Housing Review 2011/12

PRS Expansion sustained in constrained market

Source: CLG Live tables and UK Housing Review data

The argument

That the transfer of RTB stock to the PRS is costing government at least £1bn/year more than if the stock had remained with LA rental (Impact of UC unknown).

This process will continue and will accelerate if RTB is extended. The annual costs are likely to exceed capital receipts through sales, even allowing for UC changes.

Method• More accurate assessment of the general scale of the PRS in a

local authority area: dwelling level data including RTB to PRS transfer.

• indicates the potential for under-estimating; Example from Scotland.

• Extrapolate costs of renting through PRS rather than LA

Mapping all the stock: what we usually see

Renfrewshire Private Rented Market 2011

• Council data on stock• Council data on sales• The compulsory landlord register• Housing Benefit data• Common repairs invoicing

May be able to use• Council tax• Sasines (Land Registry equivalent but free to LAs)• RSL stock

Sources of evidence for PRS

Start point: stock estimates

Update of census for Scotland gives a PRS of 273,000 (2011)

Scottish House Condition Survey (SHCS) estimate for the PRS tenure in Renfrewshire of 3573 (2011), 4.3% of total.

Census 2001 showed a PRS of 3100 (so the growth rate to 2011 is 15% according to traditional estimating methods)

However, the compulsory register of PRS stock has 5448 properties registered, so the growth rate to 2012 from the census baseline is at least 52%.

Implications for Scotland as a whole if rate of growth under-estimated?

We also wanted to look at the extent to which the RTB stock had become private rented.

The following maps illustrate local level, house by house, tenure changes for a neighbourhood. This has been done for the whole stock but we will use one neighbourhood to illustrate.

This is not an exceptional neighbourhood, largely flats, a few houses.

Getting more detail

• Statistically area A comprises 140 properties built by Renfrew Council plus other non LA housing.

• A total of 87 of the LA stock (62%) have been sold under RTB from 1982 to 2007.

• Of these sold properties, 20 were (March 1st 2012) in receipt of LHA (14% of the original stock, 23% of those sold under RTB)

• Over the past 3 years 36 have been (or are now) in receipt of LHA (26% of the original stock, 41% of those sold under RTB).

The actual numbers

Combining all sources

In terms of the relevance of this for understanding the scale of the total PRS in Renfrewshire, in an area of 140 original LA stock there are now:-

• 39 properties registered as PRS, 16 of which are not in receipt of LHA

• A further 16 have current LHA claims but are not on the private landlord database.

• 20 additional properties have a different billing address for common repairs and some may be PRS but are not registered.

So for this neighbourhood, almost half of identifiable PRS stock is not registered and as many as 75 dwellings may have transferred to the PRS (out of sale total of 87).

• Live cases (1st March 2012) are 3558 addresses of which 1526 (43%) are ex-council stock

• But over the past 3 years there have been an additional 5000 addresses involved in claims.

• This may indicate either households moving in and out of LHA eligibility, or property moving in and out of rental but it may be a further indication of a significant untracked PRS at the low end of the market.

• Of a total stock of 83,569 dwellings the authority are now assuming a PRS approaching 10,000 dwellings or 12% rather than the official estimate of 3,573 or 4.3%

Additional LHA information

Benefits to the authority

• Tracking landlords for common repairs• Strategic planning for meeting need• Anticipating scale and impact of policy changes from

LHA etc.• Generating additional income (up to £200k/year) from

registration.• Identifying possible fraud (there are several live LHA

claims from RSL stock for example, the dwelling level matching of data has also allowed identification of Council Tax fraud).

Attractions of RTB stock for PRS landlords?

• it is easy to let as there is ready local demand from families with relatives/friends on established estates/neighbourhoods,

• it is generally historically of a good build standard and well maintained,• it has high space standards,• it is generally high yield having good rental income compared to often

lower than average acquisition cost (due to location) and is therefore a low risk investment,

• it is located on managed estates where the social landlord often still undertakes broader estate management duties from grounds maintenance and common repairs to community development and dealing with ASB thus helping to sustain neighbourhood quality in a way that does not happen in other areas of PRS concentration (such as older tenements in Scotland or terraced housing in English industrial cities).

• Various ways to estimate additional rents/costs resulting from transfer.

• To begin most simply, the DWP indicates a £40pw average higher rate of LHA per dwelling in the PRS compared to LA average payments.

• Taking this simple figure in Renfrewshire (which looks right compared to actuals) there is an additional cost to the Treasury of £3.2m for ex council stock to be rented to LHA recipients.

• Of course there will also be a cost to individual households too where LHA is not paid.

Costs to the Treasury of a simple tenure switch

• In Renfrewshire around 10% of the RTB stock has reverted back to rental in the PRS.

• If we assume this proportion across the UK we are looking at 250,000 dwellings.

• At an average LHA difference of £40/week this means at least £520m/year

• However 10% of RTB may be the wrong number to take – Jones (2003) showed 20% to 30% RTB stock in 2 London boroughs converting to PRS within 3 years.

• Also the issue in London of rent differentials being much higher.

Extrapolation more widely

• Camden has sold almost 10,000 RTB stock: even at only 10% transfer to LHA with an average cost difference of £200/week (also modest) there is an additional HB cost of £10.4m

• But another feature in Renfrewshire was that 43% of current LHA claims were ex RTB stock. If this is reflected across the UK then this is over 500,000 RTB stock and the total additional cost to HB is over £1bn/year.

• There is no allowance in here for variations in tenure transfer rates and rent levels regionally.

Extrapolation more widely?

Assumed rates of transfer correct?

Daily Mirror (5th March 2013) FOI request found that for leasehold properties the likely transfer of RTB to PRS is

• Westminster – 31%• Kensington and Chelsea – 43%• Kingston – 46%• Wandsworth – 39%• Leeds – 37%• Sheffield – 27%• Nottingham – 42%• [Bristol only 2% but most leasehold stock managed by RSLs; and

see below BTL lending]

Extent of BTL support (and note Bristol)

Postcode AreaBTL Mortgages as % of all outstanding mortgages and BTL Rank (1= highest proportion of BTL mortgages)

Postcode area Proportion BTL mortgages Rank

London E 28% 1

London SW 21% 8

Manchester 16% 13

Leeds 13.5% 17

Bristol 13.45% 19

Liverpool 12.4 26

Source: Financial Times 21st April 2008

IImplications

• The PRS is likely to keep expanding and to keep expanding into the RTB stock. Lenders plan to lend £20bn - £30bn on BTL in 2013 – largest investment in housing policy?

• Extending RTB will, over time, expand PRS and increase annual cost to Treasury.

• The cost of this is likely to completely offset any capital gains from receipts; it is probably 6 years since capital receipts covered the additional LHA costs annually (which now run at somewhere near £1bn and £2bn/year above the cost of councils renting same stock).

• There is no obvious social or general economic benefit to this additional cost and transfer of rental tenures.