Government proposals for an increase in the discount available for social tenants to buy the homes they live under the right to buy (RTB) scheme fall short of providing a one-for-one replacement for those that are sold says Hometrack.

The government are hoping to make it more attractive for about two million people who live in social housing and qualify for RTB to take the plunge and buy the house in which they currently reside. All of the money raised would then be ploughed back into building more social housing. But to make this sustainable at least one new house would need to be built for every one sold.

Hometrack's analysis however indicates that this will not be possible in many areas.

According to their figures it would take between 1.1 and 1.6 RTB sales, depending on where you live, to generate enough money to build a new home for social housing purposes. The average overall would be some 1.4 RTB sales for every new home built. They put the average capital raised per RTB sale at £64,725, which is lower than the cost of a build.

So, over time the amount of social housing available for new tenants would decrease, with the more people taking up RTB the faster this process takes place.

But with access to mortgage finance being currently tight and the fact that less than 20% of tenants are in full time employment means that only a small proportion will be in a position to take the RTB offer up. "These figures are put into sharp focus by the Financial Service Authority's December 2011 Mortgage Market Review, which highlights RTB borrowers as the most likely to experience arrears or worse, repossession." says Hometrack.

As Hometrack points out this will be a bit of a balancing act to generate revenue where it can from RTB without eroding stock levels. "The hope will be that qualifying households on higher incomes in higher value areas will generate the greatest capital without a major loss of stock. Yet these areas have the highest replacement costs, which raises questions on the reinvestment strategy for capital receipts." Said the report. "A higher discount is likely to see an increase in RTB sales but the real challenge will be ensuring a one-for-one replacement at a time when the pressure is to grow the overall stock of affordable housing."

At the end of the day the government will either have to resign itself to a limited take up with just few new social houses being built, or it will have to raise the discount and either see the social housing stock drop, or pour taxpayers' money into the scheme.

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