Analysis of Responses to the Future of Right to Buy in Scotland Consultation

3: THE FINANCIAL EFFECT ON LANDLORDS

Background

3.1 The Scottish Government believes that either moving those with preserved right to modernised rights, or ending right to buy, will provide improved ability for landlords to manage their assets and provide a financial incentive to build new homes. This would be due to greater certainty over which properties can or cannot be sold under right to buy. There would be a more predictable revenue stream, giving landlords greater confidence to borrow over the long term. Using the information available the Scottish Government considers that neither of the proposed changes will have a negative effect on the ability of social landlords to invest. The Government has no plans to change the existing arrangements for voluntary sales.

Q8: What financial effect would our proposed changes have on social landlords, particularly over the longer term?

3.2 One hundred and thirty six (80%) respondents answered this question. Responses did not generally distinguish between the different options for change, but addressed the broad impact of either restrictions in, or the abolition of, the right to buy. In the few instances when the option to move from preserved to modernised right to buy entitlement was specifically mentioned, respondents considered that whilst this option was likely to reduce the risk of losses for some landlords, it could also generate an increase in administration costs due to the complexities involved.

3.3 Several respondents indicated that the financial impact of the changes would have been much more significant a decade ago when there were more sales and the receipt from these contributed more to a landlord's capital programme. Many medium to smaller landlords remarked that in the current climate of dwindling right to buy sales they no longer relied on sales proceeds to maintain or improve their stock.

3.4 Seventy eight respondents provided a view on the broad financial effect of the proposed changes on social landlords over the longer term. Their responses are summarised in Table 9 below.

Table 9: Summary of views on the broad financial effect of the proposed changes on social landlords

3.5 Of those respondents who expressed a view, over three-quarters (76%) considered that over the longer term the financial effect of the proposed changes on social landlords would be marginal or beneficial. Almost two-thirds (63%) of those predicting a negative impact on finances were individuals or tenant/resident groups.

3.6 From the responses it appeared that larger RSLs and local authorities were those most likely to rely on sales as a key source of income to fund capital investment and repair work, and were therefore most likely to encounter a negative impact at least in the shorter term. For example, City of Edinburgh Council estimated that the abolition of right to buy will result in a capital loss of approximately £2.8 million in the first year with the rent charge for homes that otherwise would have been sold resulting in an estimated income to the Housing Revenue Account of £0.27 million in the first year. This contrasted with information from some of the smaller landlords who reported small net losses due to sales over recent years.

3.7 Those predicting a marginal or increase in financial benefits as a result of the proposed changes envisaged increased revenue from rent over longer term being set against losses in income from sales receipts. In addition, some respondents identified potential reductions in costs:

• staff/administration
• legal
• management of homelessness
• management of common repairs which involve owner occupiers
• reduction in possible factoring costs.

3.8 Four respondents (three RSLs and one tenant/resident group) commented that the beneficial social impact of retaining stock in this sector and the increased confidence amongst tenants generated by the viability of their RSL should be viewed alongside any consideration of finances.

3.9 Forty seven respondents across all respondent categories agreed that the proposed changes, particularly ending right to buy, would result in more predictable and sustainable revenue streams which would benefit business planning.

3.10 Fifteen respondents (seven of them RSLs) welcomed what they predicted would be the positive impact which greater certainty over income would have on securing and servicing loans. However, one respondent (Fife Federation of Tenants & Residents Associations) expressed concern that the introduction of welfare reforms presented another element of unpredictability on rental income levels, which coupled with reduced funding for new build, could impact on housing associations' ability to borrow and build. Three local authorities predicted an increase in their need to borrow over the coming years.

3.11 Five tenant/resident groups envisaged increased maintenance costs to landlords in the longer term if the proposed changes are made, due to the ageing of properties which previously would have been the responsibility of their new owners.

Q9: What steps could landlords take to reduce any negative effects?

3.12 Ninety six (57%) respondents answered this question. Many of these respondents, however, stated simply that they felt the negative effects were likely to be minimal. Amongst the others, two recommendations dominated:

• Twenty three respondents (largely RSLs and local authorities) advocated early review of business plans by landlords to adjust budgets and strategies to accommodate and prepare for the changes in policy. One respondent summed up the views of many:
  
  'Prudent landlords should have sustainable business plans that are not heavily predicated on right to buy capital receipts' (Clyde Valley Housing Association).

3.13 One local authority recommended preparing a 'Plan B' as a contingency, whilst others advocated prudent asset management.

• Twenty respondents from a range of sectors identified timely and good quality communication between landlords and tenants as an effective route to reducing negative effects. The Scottish Government and landlords were seen as having a key role in explaining the rationale behind policy changes, promoting the benefits of change and advising tenants on options including home ownership outwith right to buy. A typical comment was:
  
  'Clear communication by both the Scottish Government and social landlords, being open and transparent with tenants, informing them clearly their RTB is being phased out/coming to an end might help reduce any negative effects' (Glasgow Housing Association).

3.14 One respondent specified several possible avenues for communicating changes:

'...District Management Committees, Tenants and Residents Associations, Open Door Newsletter, Web page, advertisements in local newspapers...' (Dumfries & Galloway Housing Partnership Boards Members, District Management and Tenants).

3.15 Six respondents considered that retaining the option of voluntary sales by landlords (e.g. of vacant property or where the maintenance costs were higher than the rental income) could help to offset the loss of receipts from the removal of the right to buy.

3.16 Other recommendations made by three or fewer respondents were:

• Advise tenants on the dangers of unscrupulous money lenders during the period prior to the right to buy ending.
• Phase out the right to buy gradually, giving time for landlords to adjust their business planning.
• Factor the properties sold before the end of right to buy so as to help with maintenance in the future.
• Continue to consider ways to boost the supply of affordable housing in Scotland.
• Use the income from the 'spike' in sales before the ending of right to buy to reduce debt on housing stock.
• Identify new sources of income such as increasing rent, increasing borrowing or disposal of land and other assets.
• Landlords should ensure they have all the information they need and administrative arrangements in place to handle the increased workload prior to changes being implemented.
• Landlords should ensure they have all the advice they need (e.g. from the Scottish Government and Housing Regulator) to help them understand the ramifications of the changes, to prepare for giving accurate advice to their tenants.
• Build in security of tenancies; emphasise that under the Scottish Social Housing Charter tenants have a secure home.
• Emphasise the positives of renting. One RSL remarked:
  
  'Assuming the negatives to be related to disappointment with tenants who would be denied the opportunity to exercise RTB, we would hope to adequately explain to them the advantages of our continuing to own, manage and maintain the houses for the wider benefit of the community' (Whiteinch & Scotstoun Housing Association Ltd).

• The Scottish Government should provide clear information on the legislative changes and advise landlords on addressing possible negative effects