The Right to Buy: History and Prospect
Author: Alan Murie
Date: 2015-10-20T23:00:00+00:00
Keywords: Local government and services
Description: The Conservatives have announced proposals to extend the Right to Buy (RTB) to housing association tenants. Prof. Alan Murie argues that, as with previous Right To Buy schemes, the long term costs of dismantling the public and social rented sector will result in increased public funds being used to finance this extension to housing associations.
Publisher: History and Policy (historyandpolicy.org)
Rights: Copyright History & Policy, 2015

The Right to Buy: History and Prospect by Alan Murie.

Published in Great Britain in 2015 by History and Policy.

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Policy Papers

The Right to Buy: History and Prospect

Alan Murie

CONTENTS

- TITLE PAGE
- COPYRIGHT
- POLICY PAPER
- FUTHER READING

Policy Papers

The Right to Buy: History and Prospect

Alan Murie

Executive Summary

- Following its election in 2015, the Conservative government has announced proposals to extend the Right to Buy (RTB) to housing association tenants.

- The new proposals are to sell high value council housing to finance replacement dwellings.

- As with the Right to Buy in previous years better off tenants living in more desirable properties and places are most likely to gain.

- Proposals were greeted with alarm by housing associations, but under a subsequent agreement housing associations have agreed to a voluntary Right to Buy scheme still financed by high value council properties.

- Proposals to extend the Right to Buy revive questions debated earlier in the history of public housing, over the loss of relets, the long term costs of dismantling the public and social rented sector, the expansion of private renting and the costs associated with this and the effect in increasing housing stress and segregation.

- The extraordinary levels of discount associated with the Right to Buy are brought into increased focus because public funds will be required to finance their extension to housing associations.

Introduction

The origins of public housing in the UK are rooted in the nineteenth century but it is only after 1919 that central government subsidies enabled the development of substantial council housing. One million council houses were built in England between 1914 and 1938.  But not all local authorities were enthusiastic builders and even those that did build were not always accepting of the fact that councils should stay in the business of providing housing.  Some critics regarded municipal participation in housing provision and managing property as undesirable. Unsurprisingly some local authorities explored powers to sell their housing. Legislation had included provision for such sales but, because councils had received subsidy from the exchequer, any sales required consent from the Ministry of Health. This was rarely forthcoming.  Small numbers of sales proceeded, but many foundered because prices were too high to attract buyers and the Board of Health was unwilling to approve low value sales.

The occasional sales between 1919 and 1939 were halted by wartime restrictions and Labour governments after 1945 resisted proposals for sale. The Conservative government elected in 1951 altered the approach. The Housing Act 1952 repealed the requirement in the Housing Act 1936 that the local authority obtain the best price at sale and granted power to restrict resale or reletting. Following this the Minister for Housing and Local Government provided the first of a series of general consents, published between 1952 and 1979. Continuing concern was expressed over potential underpricing of public assets; policymakers sought an appropriate basis on which to determine sale prices. This was resolved in 1967, with the insistence on market-value based pricing that has applied ever since.

The Conservative Party had committed itself to introducing a Right to Buy before Margaret Thatcher became Party leader. It was largely in place in 1974, but did not prove an asset in the two general elections that year because of high interest and mortgage repayment rates, as well as the growth of negative equity as house prices fell. Electoral defeat delayed the policy rather than acted as a catalyst. After the election of May 1979 a new Conservative government drafted legislation to provide a Right to Buy but, because this would not become law until October 1980, also revised the general consent (May 1979) to enable sales with higher discounts matching those proposed in the new legislation. The numbers of sales completed under this general consent exceeded previous levels. Between 1952 and 1980 over 370,000 public sector dwellings were sold in England and Wales. Almost a third of these were in 1979 and 1980 and it is evident that higher discounts generated and would have continued to generate higher sales without the Right to Buy being in place.

The Right to Buy 1980-1997

The Right to Buy (RTB), prominent in the Conservative manifesto of 1979, was introduced by the Housing Act 1980 in England and Wales and the Housing Tenants Rights etc. [Scotland] Act 1980; a separate House Sales scheme in Northern Ireland involved small differences. This legislation established a legal right for almost all secure tenants of three years’ standing and applied to almost all properties where the landlord was a council, new town, non-charitable housing association or other public sector body. The statutory procedure for selling freeholds of houses and leaseholds of flats severely limited local variation over implementation and the Secretary of State had very strong powers to monitor and intervene. Sale price was a discounted market valuation taking account of years of tenancy in any relevant dwelling: starting at 33% (for three years), increased by 1% for each additional year, up to a maximum of 50%. In addition there was a cash maximum (initially £50,000) that could not be exceeded whatever the years of tenancy  In effect the formula referred to a percentage of value or a cash maximum, whichever was lower and as long as this did not bring the price below the historic cost floor. If resale took place within a fixed period (initially 5 years) a pro rata repayment of discount was required. There was a legal Right to a Mortgage, detailed conditions for purpose built dwellings for elderly or disabled households and (largely ineffective) arrangements to restrict the resale of properties in designated rural areas in the interests of local residents .

Although the Right to Buy tends to be presented as a seamless, integrated policy in reality it involved two separate key elements. The first – giving tenants the right to purchase remained unchanged in the years after 1980. The second involved determining the price for each individual property purchase - including potential levels of discount and any ceiling placed on this. High discounts without the Right to Buy had generated substantial sales in 1979 and 1980 and would, no doubt, have continued to do so thereafter. Higher discounts introduced periodically after 1980 boosted sales, while later restrictions on maximum discounts reduced them.

The RTB was highly publicised and made attractive by the expectation that rents would increase.  After some initial nervousness building societies became willing lenders and more than nine out of ten RTB sales were financed with private sector loans.  This reduced the significance of the Right to a Mortgage, and immediately generated more substantial receipts for government than anticipated. Cumulative capital receipts under the policy proved greater than under any other privatisation policy.  However, from the outset there were restrictions on local authorities’ use of receipts which largely reverted to the Treasury. Crucially, there was no commitment to use capital receipts for housing and no policy to replace sold dwellings.

Although the Right to Buy has remained in England since 1980, by July 1983 amendments were planned and the general consent was amended ahead of new legislation. The Housing and Building Control Act, 1984 provided a right to purchase a shared ownership lease, tidied up technical details, closed loopholes in the original legislation and increased its scope. More disabled persons’ dwellings were included and there was a general extension to county councils and to successors. Some 50,000 additional tenants were included by extending the RTB to some properties where public sector landlords did not own the freehold. The RTB was also extended to some 250,000 tenants of only 2 years standing and the maximum discount increased to 60% (32% for 2 years tenancy; 60% for 30 years).

Subsequent changes to the RTB before 1997 were largely designed to make the policy more attractive. Sales of flats had lagged behind houses and this contributed to the decision to introduce differential rates of discount in 1986 under the Housing and Planning Act. New discounts for houses were 32% for 2 years tenancy, increasing by 1% for each additional year to a 60% maximum (after 30 years). Discounts for flats started at 44% (2 years) and progressed by 2% for each additional year to a 70% maximum (after 15 years). The discount repayment period was also reduced from 5 years to 3. Ministers proposing these changes referred to the problems of the inner city and the inadequacies of the old bureaucratic and monopolistic public housing sector. Policy was now about dismantling the legacy of council housing and Housing Action Trusts.  Stock transfer to housing associations (with a Preserved Right to Buy for existing tenants only) were introduced to further this. Higher discounts generated more sales of flats but exposed the lack of understanding of leaseholders’ rights and obligations among purchasers and their advisors and local authorities’ inexperience of managing leaseholds.

Complaints about the management of leasehold properties and service charges and difficulties reselling RTB flats, because lenders were reluctant to provide mortgages, led to government interventions in favour of RTB leaseholders. The Housing Act 1988 introduced compensation for tenants whose landlords were slow in carrying out duties and removed the cost floor for properties more than eight years old. The Leasehold Reform, Housing and Urban Development Act, 1993 dispensed with the Right to a Mortgage, deferred completion of purchase and shared ownership leases.

Housing Associations

The Conservative Manifesto in 1979 had proposed the Right to Buy for council, new town and housing association tenants. Housing associations had received government subsidy and consequently should be subject to the same regime as local authorities. Although the House of Commons approved these proposals the National Federation of Housing Associations mobilised support in the House of Lords (including Conservative peers associated with housing associations) to safeguard the right of charitable organisations to hold their assets in perpetuity. Amendments passed in the House of Lords excluded tenants of charitable housing associations from the Housing Acts of 1980. Although no further proposals to extend the Right to Buy to housing association tenants emerged until 2015, housing association tenants could take advantage of low cost home ownership measures and the Right to Acquire (Housing Act 1996) that conferred a right on eligible housing association tenants to buy their home at a discount. Over 3,000 dwellings were purchased under the Right to Acquire between 1998-99 and 2013-14 in England.

The exclusion of charitable housing associations from the Right to Buy affected some 400,000 out of 5.5 million social rented tenants in England in 1980. But its significance grew as housing associations expanded with private financing and local authority stock transfers. Government enabled housing associations to access private finance by letting their dwellings as assured tenancies without the Right to Buy. The attraction of this formula was that any given level of capital grant to housing associations could achieve more new building for letting than the same funding for local authorities, unable to lever in private loans. Stock transfers from local authorities were stimulated by the same thinking, the desire to dismantle council housing, and by introducing a distinction between the rights of existing tenancies (with a Preserved Right to Buy) and tenancies established after transfer (without the Right to Buy). The stock transfer process initiated in 1986 and expanded under Labour after 1997 progressively reduced eligibility for the Right to Buy: the proportion of social rented tenancies with the Right to Buy declined.

The Right to Buy 1997-2015

The Labour government elected in 1997 devolved housing powers to Scotland and Wales, and these administrations adopted different approaches to the Right to Buy. In England RTB discounts were reduced in February 1999 when the £50,000 maximum was replaced by maximum discounts differing between regions (from £38,000 in London to £22,000 in the North East). In 2003, maximum discounts were further reduced to £16,000 in nine local authorities in the South East and in all except two London Boroughs (DETR, 2003). Restrictions were also introduced on resale of Right to Buy homes in designated rural areas. Increasing concerns about abuses of the RTB (see Jones, 2003) and the impact of the RTB on regeneration of council estates were addressed in the Housing Act 2004 which also extended the initial qualification period from 2 to 5 years and extended the discount repayment period from 3 to 5 years. These changes reduced the rate of sales.

In 2010 the newly elected Conservative-Liberal Democrat coalition embarked on an austerity agenda, including cuts that reduced investment in new social housing and benefits available to tenants. By contrast, they also introduced measures to ‘incentivise’ the Right to Buy through more generous discounts. The relaunched Right to Buy, in 2012 provided discounts for flats at 50% after 5 years, rising by 2% a year to a 70% maximum after 15 years; for houses discounts were 35% after 5 years rising by 1% a year to a 60% maximum after 30 years. The maximum discount was raised to £75,000 across England without regional differentials. An important addition was the commitment to reinvesting capital receipts back in housing, replacing dwellings lost to the social rented sector on a one for one basis. In March 2013, increasing property prices and sluggish sales in London, led Government to reintroduce a regional differential with a £100,000 maximum discount in London boroughs. New maximum discounts of 70% for houses were introduced in January 2014 and from July 2014 maximum discounts would increase annually, in line with the Consumer Price Index. By 2015 the discount stood at £103,900 in London and up to £77,900 elsewhere in England. Finally, the Deregulation Act 2015 reduced the qualifying tenancy period for the RTB from five to three years. At this stage the discount for houses was 33% after 3 years rising by 1% a year to a maximum 70% after 40 years; and, for flats, 50% after 3-5 years rising thereafter by 2% a year to a maximum 70% after 15 years).

The volume of sales doubled in 2012-13 from below 3,000 each year (between 2008-9 and 2011-12) and almost doubled again in 2013-14: but they remained lower than in any year between 1981 and 2007. How much of the relatively small increase in sales after 2011 is attributable to the relaunch of the RTB rather than a relaxation of wider market constraints is difficult to assess. The government’s commitment to replace properties sold was also called into question with only 2,712 new dwelling starts by local authorities and housing associations between 2012-13 and the third quarter of 2014-15.

The Next Phase: 2015

In the lead up to the general election of 2015 there were a series of press stories concerning Conservative Party proposals to revive the Right to Buy and the Conservative Manifesto stated:

‘We will extend the Right to Buy to tenants in Housing Associations to enable more people to buy a home of their own. It is unfair that they should miss out on a right enjoyed by tenants in local authority homes. We will fund the replacement of properties sold under the extended Right to Buy by requiring local authorities to manage their housing assets more efficiently, with the most expensive properties sold off and replaced as they fall vacant’. [emphasis added]

The proposal to extend the Right to Buy recalled debates in 1980 although since then, housing associations had become part of the private sector, funded by private finance, with business plans and asset management strategies that did not envisage a Right to Buy or similar government interference. The risk that plans and strategies would be destabilised and private financial institutions would lose confidence was real. Governments had supported the expansion of housing associations as part of the private sector in the knowledge that the RTB did not apply. Lack of sensitivity to these issues as well as the different financial arrangements they required suggested that the new agenda was as much about requiring local authorities to sell their highest value properties and destabilising social rented housing as about expanding home ownership. The attitude prevalent in parts of the Conservative Party was that all social housing was bad and associated with creating dependency. Consistent with this, in  its first budget the Government confirmed its intentions for the Right to Buy and announced that social tenants with a household income of £40,000 in London and £30,000 elsewhere would be charged a market or near market rent. More surprisingly the practice - adopted since the 1980s – of narrowing the gap between social and market rents was terminated. Instead of increasing by 1% above inflation, both social and affordable rents would reduce by 1% a year for four years from April 2016. This would mean a 12% reduction in average rents by 2020/21, would reduce the social security bill and the impact of other changes in benefits and transfer the risk to social landlords.

The immediate reaction of housing associations to reduced rents and RTB proposals was that, as independent social businesses, housing association boards should not be mandated to sell or to charge specific rents. Lower rents and the RTB would negatively impact on the development capacity of most housing associations. Almost £3.85bn would be lost in rental income over four years and, consequently, at least 27,000 new affordable homes would not be built. Concern was also expressed about the potential cost and administrative burden of implementing higher rents for higher earners. Government’s response to these concerns was bullish and critical of housing associations’ record. It restated its legislative intentions and the implications for the regulation and financing of housing associations were highlighted. Against this background housing associations accepted a Ministerial invitation to enter into a voluntary arrangement to adopt the Right to Buy. Although the details were not clear (and are critical) the expectation was that discounts would be the same as under the existing RTB, attempts to exclude properties from the RTB would be unwelcome and housing associations would face similar pent up demand as local authorities had in 1979-81. Applications to buy would particularly be for better properties and from more affluent tenants. The greater the surge in sales the more difficult it would be to build replacement properties quickly. The generally accepted view was that the financial impact of extending the RTB would be neutral for housing associations – because government would reimburse the discount (and finance this through receipts from the disposal of high value council dwellings).

Comments on government proposals may have focussed on housing associations, but the impact on council housing (under the initial proposals and the voluntary scheme) was potentially more serious. Disposals of higher value council properties to fund the sale of housing association dwellings involved an immediate loss of relets and appeared to have no regard to spatial and social segregation and concentrations of deprivation. By 2015 almost half of all local authorities in England no longer had any significant council housing. This suggests that disposals would operate at a regional or sub-regional level and, would be concentrated on the ‘higher value’ properties within these areas. It would only be possible to finance housing association sales by transferring resources between local authority areas – in some cases sales of council dwellings in areas with high levels of housing stress would fund generous discounts to expand home ownership elsewhere rather than being reinvested locally.

The Conservative manifesto commitment involved reinvesting the receipts from housing association sales and replacing dwellings – so that the supply of affordable rented housing was not eroded. Capital receipts from the sale of higher value council properties would generate sufficient funds to cover the value of the discount received by the RTB purchaser and fund two affordable rented dwellings to replace both the council dwelling sold to finance the policy and the sold housing association property. While this might be possible in parts of London and with some atypical properties it seems unlikely to be achievable in many cases; or only by replacing larger properties in more expensive locations with smaller properties in less expensive locations. This is likely to increase social and spatial segregation and limit the capacity of the social rented sector to respond to diverse needs.

The RTB had previously resulted in only a slow cumulative loss of relets and had generated capital receipts, but the sale of housing associations’ stock would have profoundly different implications for relets and the public purse. It also required government spending in order to fill the gap in housing associations’ accounts occasioned by the enforced sale of properties. In effect the Treasury would fund the discount - paying housing associations the difference between market value and RTB sale price and recouping this by selling higher value council properties and dismantling of council housing. The rationale for this can be questioned in terms of priorities in spending and its impact on the supply of affordable housing and issues related to asset management, choice and mix in social rented housing. Extraordinary discounts would also inflate demand and experience suggested that a significant proportion of properties sold to home owners under RTB would become privately rented on resale – with higher costs to the public purse because private tenants entitled to housing benefit would pay higher, market rents than social renters.

Conclusions

2014 marked 34 years of the Right to Buy scheme in England. During this time, some 1,805,282 sales had been completed under it. The remaining council housing sector (1,669,000 dwellings) was smaller than the housing association sector (2,343,000) and the combined social rented sector provided fewer dwellings than private renting (4,588,000). Social renting, comprising 17% of dwellings, was still a target for privatisation. The proposed extension of RTB could not easily be reconciled with the independence and charitable status of housing associations and represented a shift in the approach to housing policy that had operated for more than 25 years. Granted, the Right to Buy had benefitted a large number of individual households but it has also had an uneven impact spatially and socially, has added to residualisation in social renting and has had an adverse strategic impact on housing. The discounts provided under the Right to Buy had inflated the demand for home ownership.  In the longer term transfers to private renting further diverted resources to meet higher rents in the private sector rather than providing additional or affordable housing.

Looking back over the history of RTB it is apparent that, rather than the symbolism associated with a legal Right, it was the manipulation of levels of discount that were key to the operation of the policy. The Right to Buy with lower discounts would have had much less impact.  By 2015 potential maximum discounts were at their highest ever level and, along with low interest rates and rising house prices, provided an attractive environment for housing association tenants to buy. The policy had the potential to generate rapid and significant purchases and in turn to trigger disposal of council housing to further speed the decline of social renting. The pace and volume of sales is likely to affect the feasibility of replacing sold properties: at best there will be replacement elsewhere with smaller and less attractive dwellings and at worst replacement will fail to materialise. In the long term the extension of the policy is likely to have some impacts similar to its predecessor: but, in contrast, it requires direct public spending to finance discounts. As with the RTB previously, tenants who have already benefitted longest from subsidised housing, who are better off and who live in the best dwellings benefit disproportionately while the strategic impacts are adverse.

Extending the Right to Buy to housing association tenants revived a previous Parliamentary debate and raised questions about the legal position of charities and the risks faced by housing associations and their funders. There are serious implications for council housing and the social rented sector as a whole in a period of housing stress.  Critically, the proposals involve an immediate loss of relets and require public funds (generated by the sale of assets) to be spent to provide extraordinary benefits to individual households who happen to be in the right dwelling at the right time. Issues of fairness and priority and whether the scale of discount was necessary or justifiable were sidestepped under the Right to Buy and the outcome generated substantial capital receipts. It is unlikely that they can be overlooked when the policy involves direct calls on public funds, threatens a longer term pressure on housing benefit costs and raises issues about the independence of bodies outside of the public sector.

About the author

Professor Alan Murie is an Emeritus Professor of Urban and Regional Studies at the Centre for Urban and Regional Studies, University of Birmingham. Prof. Murie's work has ranged across urban and regional studies with research and publications on housing, urban and regional change and public policy. His specialisms are the changing housing situation and housing policy in the UK and other countries with particular reference to privatisation of public housing, the residualisation of social rented housing, differences within the home ownership sector and changing demand for housing in the UK.

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Further Reading

- Blow E (2015) Comparing the Right to Buy in England, Scotland, Wales and Northern Ireland Briefing Paper Number 07174, 12 June 2015, House of Commons Library.

- Forrest R and Murie A (1990) Selling the Welfare State second edition London, Routledge.

- Jones C and Murie A, (2006) The Right to Buy: Analysis and Evaluation of a Housing Policy  Blackwell, Oxford

- Sprigings N and Smith D H (2012) Unintended Consequences: Local Housing Allowance meets the Right to Buy, People Place & Policy, 6/2 pp.58-75

- Wilson W and Bate A (2015) Extending the Right to Buy (England), Briefing Paper No 07224, 9 June 2015 House of Commons Library