Since the 1980s, council tenants in England have enjoyed the right to buy their homes. When they do, councils are required to offer them a discount from what the properties would cost if they were sold on the private market. This reflects the fact that social tenants already have lifetime tenancies of the properties with rents capped at the cost of maintenance, meaning that they enjoy some of the rights that make up ownership already.
The private market price reflects the value of going from having no rights over the property to having full ownership; the discounted Right to Buy price reflects the value of going from having a secure tenancy with subsidised rent to full ownership. Without the discount, the Right to Buy is bad value for money: it is thus not surprising that uptake of the Right to Buy has been very low during periods when the discount was low, as it was under the New Labour Government.
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On Wednesday, The Daily Telegraph reported that the Government is planning to consult on ending the Right to Buy for new social properties while reducing the discount for existing ones. Depending on how deep the cuts to the discount are, this could reduce the uptake of Right to Buy to near-zero. As we shall see, there are currently a range of problems and dysfunctions surrounding the Right to Buy, and the Government’s plans are arguably an understandable reaction to them. But there are better ways to fix these issues than through curtailing the right itself.
The Government’s core concern is that the Right to Buy depletes the stock of council housing. This does indeed happen, but it is not supposed to. Since 2012, the Government’s stated intention has been that the revenues from the sale of council housing be used to build enough replacement housing so that there is no net loss. Because the planning system tightly restricts the supply of buildable land, the value of housing in Britain is several times higher than construction costs. So in theory, even factoring in the discount, Right to Buy receipts should be enough to cover the costs of replacement council housing – though it might require some redistribution to areas where floorspace values are lower. This is especially true given that councils can simply give themselves planning permission to build more council housing whenever they like, for free. The result should be that the Right to Buy is a win-win, providing a welcome pathway to home ownership for current council tenants as well as generating revenues for more council homes.
In practice, this does not really happen: well under half the council housing sold through the Right to Buy ends up being replaced. One reason for this is that there are political pressures on councils not to give planning permission for additional social housing, just as there are political pressures on them not to give permission for housing of other kinds. Another reason is that the Treasury appropriates a large share of Right to Buy receipts for itself, meaning that social landlords often end up with too little to cover the full cost of replacement.
Still, these are both soluble problems. The British state does not have to keep restricting the supply of permissioned land for new housing, including social housing. The Treasury does not have to appropriate most of the revenues of the Right to Buy. If the Government wants to have more social housing as well as more home ownership, it might look at fixing these things, which would turn the Right to Buy into an engine for producing both. Instead, it may end up producing neither. It is puzzling that the Government should refuse to spend Right to Buy receipts on replacement social housing, and should then turn against the Right to Buy because replacement social housing is failing to appear.
Another motive for curtailing the Right to Buy is that many local authorities claim that it worsens their current financial problems. At first sight, this might seem like a strange claim. Social landlords are not normally allowed to profit from their tenants: their rents are basically capped at the cost of maintenance. So it is not immediately obvious why a fall in the quantity of social housing should have any effect on local authority finances: social housing, by law, ought not to be a profitable asset for them.
Unfortunately, however, the local authorities are probably right about this. People in need who don’t get social housing have to rely on housing benefit or universal credit. This is normally paid by the Treasury, not the local authorities, which would mean that it is financially neutral for local authorities if people switch out of social housing onto housing benefit/universal credit. However, housing benefit/universal credit is not always sufficient to secure private rental accommodation, leaving recipients homeless. Bizarrely, however, homeless people become the responsibility of the local authorities, who are legally obliged to accommodate them in temporary accommodation without adequate support from the Treasury. Unsurprisingly, this is indeed ruinously expensive for them. Because of benefits caps, this situation has become increasingly common in recent years, and it certainly is one of the factors driving many local governments into financial difficulties. So again, it is understandable why the local authorities should want to hang on to their stock of financially-neutral social housing, so as to avoid the financially crippling obligation to accommodate homeless people in hotels.
Again, though, it is not clear that curtailing the Right to Buy is the best solution. As noted above, if the Treasury stopped plundering Right to Buy receipts and the Government ensured that planning permission was granted for replacement housing, the Right to Buy would not have to lead to a net loss in social housing in the first place. Ultimately, the Government should ask why it is offloading responsibility for homeless people on to local authorities rather than reforming the system of housing benefit so that they don’t end up homeless in the first place.
The British housing system is a very complicated and very broken system. It is understandable that the Government and many of the local authorities think that the Right to Buy is making things worse. But the problems with Right to Buy are of the Government’s own making, and there are better ways to fix them than getting rid of the right itself.
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