So the Conservatives are pressing ahead with their plans to
extend the right to buy to tenants of Housing Associations. There is almost unanimous agreement among everyone
who knows anything about Housing policy or even just basic economics, that this
is a monumentally bad idea. The right to
buy your council house was part of what led local councils to stop building
council houses.
With the resultant drop off in the overall UK housing supply
that has led to the dramatic increase in prices with all the consequences I
have written about elsewhere.
Essentially, the Right to Buy is a tax on Housing
Associations, raiding their assets and transferring them, at a hefty discount,
to the most privileged social housing tenants.
Others have already written eloquently about how Housing Associations
fund their home building activities by borrowing against their existing asset
base (see Martin Wolf in the FT in particular).
If that asset base is now subject to state confiscation, it will not
provide banks with sufficient surety against the loans they need to fund house
building.
State confiscation of this sort is essentially little different
from a tax. Let’s not dwell too long on
the absurdity of a Conservative government, which purportedly believes in the “Big
Society”, having found a way to tax charities, and simply ask a different
question. Who has been particularly good
at avoiding tax, and is there anything that Housing Associations might be able
to learn from them?
The essential point here is that the “Right to Buy” will
never to extended to the tenants of private landlords. So Housing Associations should find some way
to make sure that their tenants are not actually, on paper, the tenants of the Housing
Association, but the tenants of some private landlord. The same tenants should still be paying the
same rent to live in the same properties, but the assets themselves would not
be liable to seizure.
One way to do this would be to transfer all the houses owned
by the Housing Associations to some private company. The Housing Association would then lease the
properties from this company and sub-let them to their tenants. All of these rental agreements would, of course be happening at sub-market rents. Right to Buy would not then apply as the
Housing Association cannot sell to the tenant what they do not own. The downside of this solution would of course
be that the Housing Association would not own the properties and so would not
be able to borrow against them in order to build more homes - though this could
be done by the entity into which ownership of the homes was transferred.
Of course, elaborate legal arrangements would be needed
between the Housing Association and the firm that owns the houses. Ideally the Housing Association would own all
of the shares in the house owning firm, but this might make things a bit
legally tricky in claiming that the Housing Association does not own the house.
One solution might be to turn the Housing Association itself into a private
company, which owns houses and rents them out, nominally for a profit, they just
agree not to make a profit. The loss of
charitable status might lead to an increase in costs because of taxes they
would now be liable for, but this would be a small price to pay for securing
the assets. This solution might present
legal problems because of the nominal duty of a management board of a private
company to make profits for their shareholders.
Some structure would have to be constructed where the firm was
effectively owner-managed.
My purpose here is not to suggest the precise legal
structure through which Housing Associations might protect their assets from “Right
to Buy”, I’m an economist, not a lawyer dammit!
I merely wish to suggest that such an arrangement should be
possible. Afterall, since the “Right to
Buy” is effectively an asset tax, it should be as liable to tax avoidance as
any other tax. Maybe that army of lawyers
and accountants employed by large multinationals to avoid taxes could be
directed towards some socially useful activity in helping Housing Associations
to re-jig their legal structure to avoid the “Right to Buy”.
