The Right to Buy – a contributor to the housing crisis

A short blog from a partner organisation - Fairer Housing

One of the issues that comes up repeatedly as we talk to people about the housing crisis is the Right to Buy, which gives most Council tenants the right to buy their rented home at a discount of up to £108,000, or 70% of the open market value.

Background

Local Councils have been able to sell council homes to tenants since 1936 but there were very few sales in those days. In 1959 the Labour Party proposed that council tenants should have a right to buy their home, and there was a local general sales scheme in London in the 1960s. However, it was when the Conservative Government under Prime Minister Margaret Thatcher introduced the Right to Buy with very large discounts (through the Housing Act 1980) that sales started to boom. Some 6 million households became eligible to buy.

By 1982, 200,000 council houses were sold to their tenants and by 1987 over a million homes had been sold.

We believe that the assumption of politicians who promoted the Right to Buy was that those who had been Council tenants would remain in their homes as owners, so the impact on the total stock of Council homes relative to the need for them would not change dramatically, (although Councils lost the rental income from these homes). In practice, many of the tenants who had bought with a huge discount simply sold those homes on at the full market price, thereby making a very large profit. Indeed, it didn’t take long for speculating investors to work out how to buy up council properties through deferred transaction agreements, hastening the rise in property prices.

In 2014, then London Assembly Member Tom Copley (now Deputy Mayor for Housing) produced a report “From Right to Buy to Buy to Let”, which found that at least 36% of all the homes bought were in the hands of private landlords. By then, the acute and growing scarcity of rented homes enabled private landlords to let these home at rents at least double Council rents.

Replacing the Council homes lost through Right to Buy

Why haven’t Councils simply used the money from the sales to build replacement homes? In the first place, an average of 20% of Right to Buy receipts have to be returned to central Government to tackle the national debt. There have been legal constraints which have prevented Councils from building new homes at scale and until recently there was a cap on the amount Councils could borrow to invest in more Council homes.

It’s not surprising that local Councils and others see Right to Buy as the main reason for the decline in the number of Council homes. As Councillor Margaret McLennan, Deputy Leader of Brent Council told us at our public meeting in June this year, the number of Brent Council homes has reduced from over 33,000 thirty years’ ago, to around 8,000 homes today.

Tom Copley’s updated report, “Right-to-Buy, Wrong for London” (2019) states that since 1994, the number of local authority owned homes in London has fallen by 251,650 but the total number of new homes for social rent built (by local authorities and other social landlords) in the period totals only 151,932 - a shortfall of nearly 100,000.

The cost of Right to Buy to taxpayers

We have not seen any recent calculations, but a Shelter report in 2015 concluded that the Right to Buy costs the taxpayer five times more than the cost of building new homes.

They take as an example, a 2-bedroom home in Stevenage, where the number of Right-to-Buy properties that were then owned by private landlords was a staggering 70%.

“For each two bed home in Stevenage that goes from social rent to private rent, this is what taxpayers can now easily end up paying:

1. £60,000 to subsidise building the low rent home in the first place (NAO, 2008-2011).

2. Plus £77,900 for the discount to the tenant to subsidise the sale under the revitalised Right to Buy.

3. Plus £2,920 per year in housing benefit if it’s let to a family who qualify for support.*

Fifteen years after the home becomes privately rented, that represents a cost to taxpayers to build, transfer the tenure and then subsidise private rental income for that home of £181,700.”

In addition, there is, of course, the cost of homelessness caused by the shortage of social rented homes. In 2019, London Councils (the body that represents all the London boroughs), confirmed that London local authorities spent over £919 million on homelessness in 2017/18, and predicted that the total cost of London’s homelessness services would increase to over £1 billion a year by 2021/22.

While we do not yet know the impact of the pandemic on homelessness costs, we do know that hundreds of thousands of people have lost income as a direct result of Covid, and recent research by the Joseph Rowntree Foundation reveals that around 400,000 renters have been served with an eviction notice or have been told that they may be evicted, and a further million renters are worried about being evicted in the next few months.

It will only take a small percentage of these renters to be forced to present to their local Council as homeless, for the bill to the taxpayer to escalate by billions of pounds.

What’s the solution?

There can be no doubt that the major loss of Council homes through Right to Buy is a significant contributor to the housing crisis and one that Fairer Housing must address.

Many people have told us that they would like to see the Right to Buy abolished completely and this does appear to be the simplest solution. But the aspiration of home ownership is deeply rooted in our society, in part because, for centuries, ownership (in England particularly) is associated with social status. We are therefore proposing the following.

The Right to Buy remains, but local councils should be allowed to use their discretion to vary the terms, depending on the extent of the shortage of Council homes relative to the amount of housing need in their area, as evidenced by the number of residents registered as in high need of re-housing, including the number of homeless families in temporary accommodation.

Depending on the evidence provided, Councils should be able to vary the open market discount available and in areas of very high need this could be reduced to nil.

Where the gap between social housing need and social housing supply is exceptionally high, Councils should be able to suspend the Right to Buy for up to five years; with a right to apply to the Secretary of State for a further suspension where Councils believe this to be necessary.

With the exception of areas where there is a surplus of Council housing relative to need, all local authorities should be required to offer financial help to any Council tenants who apply to give up their Council home in order to buy a home on the private housing market. The level of that financial help (up to a capped amount) should depend on a combination of each applicant’s household circumstances, for example, the amount they would need to obtain a mortgage, and the size of the Council home being vacated.

About Fairer Housing

Fairer Housing brings together families who are hardest hit by the housing crisis and the community groups who support them. We believe that the housing crisis is not inevitable and can be ended.

We are exploring the fundamental reasons for the crisis and developing solutions. Through Fairer Housing, the voices of those living in unsatisfactory accommodation are at the forefront in calling for the changes needed to end the housing crisis so that those on modest incomes have decent homes where they can live and thrive.