Report finds tax rules create bias in favour of demolishing social housing estates instead of refurbishment

Heygate Estate - Lend Lease

Heygate Estate

Value added tax on refurbishments should be cut to discourage inappropriate council estate demolitions, the London Assembly has said.

Its report on estate regeneration schemes, Knock It Down or Do It Up?, said estates were being demolished and redeveloped by London boroughs for tax reasons rather than because this was either technically essential or in line with residents’ wishes.

The assembly, which acts as a watchdog on the work of London mayor Boris Johnson, said the government should reduce the VAT disparity between new build social housing - which is zero-rated - and refurbishment, which is charged at the standard 20% rate, “to make a more level playing field between refurbishment and demolition as regeneration alternatives”.

It cited evidence from Stephen Ross, asset management director at Southern Housing Group, who said: “You have to take tax-planning advice on how you are going to do the design…That does not make much sense really, does it?”

Rising land values in London meant councils would often demolish estates and use money raised from selling estate sites to pay for new homes, even where residents objected and would prefer refurbishment.

The report urged social housing providers, and contractors and consultants employed by them, to put “energy into early and comprehensive engagement with residents, as well as the physical build and finances”, and to hold an independent ballot of residents before any final decision to demolish an estate.

Residents had become suspicious of housing providers’ motives in supporting demolition, such as at the London Borough of Southwark’s Heygate estate (pictured), where the report noted:

“Some residents say that releasing the very significant value of the land was the key factor which clinched the decision [to demolish], while the council considers the combination of housing management challenges and regeneration opportunities justify its decision to demolish and redevelop.

The report also called on the Treasury to scrap the limits on borrowing by local authorities against existing homes to finance construction of new ones.

Assembly housing committee chair Darren Johnson said: “Market homes play an important role in unlocking investment to plough into creating decent social homes, but the extent of the housing crisis means we need homes for all income groups, not just the well-heeled.

“What’s also clear is that the most popular regeneration schemes are those where councils and housing associations genuinely engage existing residents in decisions, rather than taking important decisions about people’s family homes from behind closed doors.”