Dozens of council houses auctioned then quickly resold by private buyers
Thanks to Alex Turner and Alon Aviram
In the run up to the mayoral elections a fuss kicked off when the Bristol City Council, then lead by mayor George Ferguson, proceeded to auction fifteen council owned properties to private buyers. Despite blockades, a ruck with the police outside the auction house, an occupation of one of the properties, and an article in the Guardian, the auctioneer’s hammer fell.
Accusations were flying that mayor Ferguson was selling off public housing and further exacerbating the housing crisis. In response, the council claimed that the vacant properties were not economical to repair or maintain, and the money would be reinvested back into new or existing social housing (something which may not have been possible at a later date because of legal changes introduced by the government).
And besides, the mayor argued, the fifteen houses sold last April represent only a tiny proportion of the council’s 27,500 housing portfolio. But these fifteen sales are on top of the 268 council house auctions since 2005, with the biggest auctions happening under the Liberal Democrat controlled council in 2009.
As if the sale of public property wasn’t contentious enough, the Cable can now reveal that of the total 268 auctioned, at least 75 have been resold by the initial buyer, often within a very short amount of time and with a huge markups on the sale price achieved for the public purse.
The council’s policy for auctioning properties is to do so only where the cost to repair would be over £20,000. It makes sense — the council doesn’t want to be tied into maintaining an irreparable building. But if the purchaser can resell the building a year later for a £50,000 profit, it suggests that even if the council is committed to the sale the necessary works could be done by the council and still net £30,000 for the taxpayer, if not even more.
If the council isn’t making this profit, someone is. The Cable’s research shows of the 23 properties auctioned since 2009 and then resold within a year, 10 were sold with a profit of double the council’s repairs limit. When you think about it, the question here isn’t whether or not to sell public housing in the first place, but whether the council sold the homes off quickly and cheaply without realising the full potential of these public assets.
Most of the properties were sold in lower income areas, exacerbating the relentless decline in public and affordable housing. After making Bristol’s housing crisis central to his election campaign, the new mayor Marvin Rees has announced a freeze on the auction of council houses.
However, he may run up against the recent Housing and Planning Act 2016. The Act gives ministers as yet unspecified powers to not only force the sale of expensive council homes but redirect all the proceeds to central government, much as the previous administration feared.
Whether the most recent fifteen auctions will also be quickly resold is yet to be seen. But in the meantime take a look below to see the story so far.
The best deal for the tax payer?
After days of data generation and analysis we have serious questions about whether the council achieved the best deal for the taxpayer on these auctions. It’s a complicated picture, so these are the questions we asked of our data (and mostly answered).
The time frame
The following information is based only on auctions from 2009 onwards that were also resold within 1 year. A total of 23 properties. Using this limited data set we keep it contemporary and control the factors that might affect it.
What happened between auction and resale?
The huge differences in auction and resale price over a short period of time suggest one of two things: Either the the auction price was very low, or the purchaser has poured thousands of pounds of repairs and upgrades into the building since the sale. However, none of the properties have had planning applications, suggesting there has been no major structural change to the property and all changes were repairs and refurbishment. There is also a possibility that no extensive repairs were made. Either way there has been a large mark-up on the properties at resale.
How much can the general property market explain the differences at resale?
Within the time between auction and resale the property market can change, especially in booming Bristol. In order to account for this we have included market adjustments in the relevant figures to discount the property market changes in the local area for a similar type of property.
Why auction in the first place?
After the financial crash local councils were hit with major cuts. Valuable properties that are expensive to maintain and repair could have been flogged to raise much needed cash. However, the data shows even if there was a commitment to sell the properties, the prices achieved were below value and the council could have benefited from repairing first then selling. Whilst the new mayor has ordered a freeze on auctions he may be forced to sell up by Government ministers, or by other financial pressures as the council faces a further £100m of cuts up to 2020.
Where were they sold?
The majority of auctioned council houses were in lower income areas. The council say that the money is put back into social housing, however just 4 new council homes have been completed since 2011. Importantly, the auctioned homes may not be replaced like for like in terms of location, size, rent.
|Lawrence Hill||59||Stoke Bishop||3|
|Easton||25||Westbury-on-Trym & Henleaze||2|
|Southville||19||St George Central||2|
|Clifton||11||Henbury & Brentry||2|
|St George West||7||Frome Vale||1|
|Hotwells & Harbourside||6||Eastville||1|
|Bishopston & Ashley Down||6||Brislington East||1|
|Avonmouth & Lawrence Weston||6||Bishopsworth||1|
A poor deal at auction?
These charts compare auctions prices and market prices for similar properties as well as the resale prices achieved for the private buyer. Almost all of these properties were first auctioned well below the local market rate, but quickly resold in-line with or above the market rate. This suggests that either the initial auction price was too low, or that the council could have refurbished the properties themselves and resold the properties at a tidy profit for the public purse.
Each bar represents the same house at auction and at resale with the line representing expected market prices.
When were they sold?
2009 saw the most auctioned. This was just after the financial crisis hit where them Lib Dem run council may have decided to raise some quick cash. (AMENDMENT: Whilst the sales occurred under a Lib Dem controlled council, the policy originates from a Labour led council. The Lib Dems proceeded to amend the policy which contributed to the significant decrease in 2010. The Cable apologies for the lack of clarity on this issue.) However it was near the bottom of the property market, meaning the auction price achieved was very low.
Booming… but well beyond the market.
This graph shows the increase from auction price to sale price corrected for rising property prices. Within just one year properties were sold for a lot more than they were bought from the council. This means that 3 properties were sold for a huge increase of 60% less than 230 days after the council auction, and a further 8 sold for over 40% their auction price within a matter of months. The vast majority of properties were sold for significantly more than the council’s anticipated repair costs of more than £20,000. Some properties saw huge daily increases such as £544 for 172 days and £413 for 226 days.
Increase in percent from auction to resale.
Auctions data: Freedom of Information Request to Bristol City Council
Resale data: Land Registry
Market adjustment: Office for National Statistics (House Price Statistics for Small Areas)
Change to property: Bristol City Council Planning Portal
Context and policy research: Shelter, Bristol City Council and various others.
Download the data.
Let us know if you use the dataset – we’re keen to see what others find!
Please also credit the Bristol Cable.