Social Housing Speed Read – Housing bodies call for review of Right to Buy

What is Right to Buy?

The Right to Buy scheme (“Right to Buy”) was introduced by Margaret Thatcher’s government in the Housing Act 1980. The key facet of Right to Buy was the granting of the right to secure tenants of council housing to buy the property in which they were living, at a large discount. This was supplemented by the Right to Acquire, introduced in 1996, which allowed tenants of housing associations to acquire their tenanted property, although at a smaller discount than Right to Buy.

The rationale behind Right to Buy was that it would democratise homeownership, allowing a wider tranche of society to own a tangible asset and ensure their families’ financial security, while also helping to improve public finances by restricting the use of the proceeds of sale (of which local authorities received only half) to reducing local authority debt until it was cleared.

Public sector tenants are eligible for the Right to Buy after living in their property for at least three years. Properties sold under Right to Buy are subject to a discount of up to £82,800 (£110,500 in London boroughs) or 35-70% of the property value depending on which is lower, with the percentage discount depending on the length of time in the property. The level of discount increases each year in April in line with the consumer price index.

In an attempt to prevent profiteering, the government included the proviso that should a Right to Buy property be sold within a certain period of time, the tenant would have to pay back a proportion of the discount received.

Criticism of Right to Buy

Despite the government at the time’s reasoning behind Right to Buy, and its championing by Kit Malthouse, current Minister of State for Housing and Planning, as “having helped nearly two million people to realise their dream of home ownership”, the scheme is not without its detractors.

There has been recent criticism from various bodies which has included calls for Right to Buy to be suspended, while the scheme has now been scrapped in Scotland (as of 1 August 2016) and Wales (26 January 2019).

Arms-Length Management Organisations (“ALMOs”), private companies wholly-owned by local authorities, have warned that Right to Buy is a “leaking bucket”, with the housing sector losing more council homes than it can replace. The National Federation of ALMOs (“NFA”) has released figures showing that despite increasing development and acquisitions of council housing stock, the selling of homes under Right to Buy has meant that in 2018 “homes built and acquired made up only 69% of those lost” and “not including acquisitions, only 46% of homes sold were replaced” with the vast majority of those at the more expensive affordable, rather than social, rent.

Terrie Alafat, chief executive of the Chartered Institute of Housing (“CIH”), has gone further, calling for Right to Buy to be suspended as it is “significantly reducing the number of badly needed affordable homes available.” According to CIH’s research, “more than 150,000 of the most affordable rented homes have been lost across England in just five years and [it is predicted] that loss will reach nearly 200,000,” while “Right to Buy discounts [have] climbed to £1bn a year, costing local authorities £300m a year.” Instead, CIH states that the savings from suspending Right to Buy should be invested in more social housing to prevent the existing stock from being further depleted.

The end of Right to Buy in Wales

As part of a strategy to increase levels of social housing, the Welsh Assembly abolished Right to Buy on 26 January 2019, and is focusing on investing in the construction of affordable homes, to be built by housing associations and councils.

Andrea Lewis, deputy housing spokesperson at the Welsh Local Government Association, believes that “the cost of replacing that lost housing is going to be extortionate,” and that she “wouldn’t be surprised if it takes decades to replace it again.” While there are, for example, plans for up to 700 new council homes in Swansea by 2022, there have been 3,500 council houses purchased under Right to Buy since 2001, with 4,000 tenants now on the council’s housing waiting list.

However, Matt Dicks, director of the Chartered Institute of Housing Cymru is of the opinion that abolishing Right to Buy will not by itself address the decline in social housing in Wales, but that the Welsh Assembly took this step as it did not otherwise make sense to invest in further social housing while selling existing stock at a greater rate.

Indeed, according to Inside Housing “the numbers suggest that the Welsh government pulled the plug on a policy that had already done its damage” with “social housing stock in Wales…almost cut in half by the time the Right to Buy was abolished.” As such, “the move to abolish the policy may well be a largely symbolic one,” but despite this “it is a step in the right direction.”

The future of Right to Buy

This conclusion regarding Wales’ scrapping of Right to Buy compares directly with the numbers presented by NFA and CIH regarding the depletion of social housing stock in England. However, the ending of Right to Buy in England would likely have more of an effect than in Wales, with numbers of properties sold through Right to Buy remaining at a much higher rate.

It is likely that further analysis regarding the possible effects of abolishing Right to Buy in England would be needed before any decision could be made as to the future of the scheme, as it is more nuanced than simply believing that abolishing Right to Buy would fix the social housing market.

While the government currently appear to be unwilling to consider suspending or scrapping Right to Buy, any future decisions regarding the scheme will certainly have an effect on social housing providers, who would likely be heavily involved in any policy changes aimed at tackling deficiencies in the market.

If you have any questions on the above and how it will affect social housing providers, or any other questions as a social housing provider, please do not hesitate to contact John Murray or a member of our expert Social Housing Team.