Transcript Title here - Sheffield Hallam University

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
Sources of evidence for PRS
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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
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 underestimated?
Getting more detail
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.
The actual numbers
• 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).
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).
Additional LHA information
• 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%
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?
•
•
•
•
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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).
Costs to the Treasury of a simple tenure switch
• 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.
Extrapolation more widely
• 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.
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
London E
28%
London SW
21%
Manchester
16%
Leeds
13.5%
Bristol
13.45%
Liverpool
12.4
Source: Financial Times 21st April 2008
Rank
1
8
13
17
19
26
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.