Time to play catch up on Right to Buy

7 Apr 15

The Treasury needs to let go of the Right to Buy reins. Councils must be given the freedom to focus on replacing those homes that have been sold.

Right to Buy was the Thatcher government’s biggest privatisation. But with nearly two million homes already sold, can the next government at least start to replace the houses lost through future sales?

The latest UK Housing Review shows that capital receipts from sales in England now total £42bn since Right to Buy began. It sounds like a lot of money, but at an average of little more than £20,000 per house it’s obvious why replacement has never happened. Indeed, except for a short period under the last government when discounts were reduced and sales slumped, they’ve always exceeded new social house building – and usually by a considerable margin.

But under the ‘reinvigorated’ Right to Buy introduced by the coalition, the gap between sales and replacements was supposed to be much smaller. The scheme was made more attractive to potential buyers with a raft of changes including bigger discounts, and indeed the discounts have this month been raised yet again. You can now get nearly £78,000 knocked off the price if your home is outside London, and almost £104,000 if it’s in the capital. The results have been dramatic, at least compared with faltering sales over the last few years. From 2,638 sold in 2011/12, sales rose to 5,944 in 2012/13 and 11,261 in 2013/14. Already in the current year nearly 9,000 houses have been sold.

But the government’s pledge about one-for-one replacement is far from being kept: 473 replacements were provided in 2012/13, 961 in 2013/14 and 1,278 during the first three quarters of 2014/15. It’s obvious that, unless sales suddenly decline, councils have got to build a lot more.

A new report, Keeping Pace, issued on April 4 by the Chartered Institute of Housing, the Local Government Association and the National Federation of ALMOs, explores why councils are falling behind and makes recommendations about changing the scheme to ensure that the one-for-one promise is met. The obstacles councils have met are diverse. In high-cost areas, where receipts are also high, replacement is frustrated by rules like using no more than 30% of a receipt towards building the new home, or not combining the receipt with government grant, or having to spend the receipt within three years. At the other extreme, in low value areas the small amount received from a sale, once the discount has been applied and payments have been made to the Treasury, may simply rule out replacement anyway. The result is that only one in five councils expect to replace all the houses they sell. If sales rise still further, this ratio seems likely to get even worse.

Overall, the report found that less than half of the money councils receive is available to them to reinvest. This is clearly insufficient. The three organisations call on the Treasury to forego its share of the receipts, and for the government to make a number of other reforms, so that one-for-one replacement becomes a realistic aim.The main obstacle to these changes is very likely to be the Treasury’s attitude towards the sales receipts. In 2013/14, these totalled £775m, of which (the report shows) more than half gets paid back to the Exchequer. Councils’ capital expenditure on housing has started to grow rapidly since self-financing began three years ago – in 2013/14 it was more than 75% higher than the year before. So although the Treasury’s share of capital receipts only offsets a small part of that, they won’t be keen for councils’ net capital spending to get any bigger. The problem, of course, is that net spending has to increase if the houses are to be replaced.

What are the chances of changes taking place after the election? As we have seen, the Conservatives’ priority is extending, not restricting, right to buy, although it remains committed to replacement. So far they have insisted that replacement is working, but it remains to be seen what would happen to the promise in a new parliament. For Labour, the Lyons Review of housing policy called for a review of Right to Buy, and Michael Lyons last month said Right to Buy had been a failure. However, at the same event Labour’s shadow housing minister said it would not be scrapped.

Whichever party forms the next government there is a strong argument that the Treasury should let go of the reins. After all, the public finances have for many years benefited from Right to Buy receipts: when there is such a shortage of affordable rented homes, the priority should now be to replace all those sold, not to continue to put the coppers towards reducing the public sector deficit.
 

  • John Perry
    John Perry

    John Perry was director of policy at the Chartered Institute of Housing (CIH) for 12 years until early 2003. He led on a range of issues including housing investment, housing strategies and welfare reform. He remains a part-time policy adviser to the CIH

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