House of Commons - Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions

Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Tenth Report

5. Right to Buy (Part 6)

Background

160. The right for council tenants in England and Wales to buy their home was introduced in 1980, and is now enshrined in Part V of the 1985 Housing Act.[224] Since 1980, 2.2 million homes have been sold under the scheme.[225] In buying their homes, tenants have been offered a discount on the market price of the property, ranging from 32% to 60% for houses, and 44% to 70% for flats. Such discounts are subject to maximum levels dependent on region, and the level of discount is dependent on the length of the tenancy in the property.[226]

161. A range of problems and concerns has surfaced, particularly in the context of rapidly rising house prices in recent years. There is considerable evidence that the Right to Buy (RTB) is being abused for profit in some areas. This includes the letting of newly purchased dwellings for profit, often with the involvement of an 'incentive company'. Such companies often lease the property for the first three years, after which point the property passes over from the former council tenant to the company. This is done in order to circumvent the requirement to pay back the rebate granted by the Council if a property is re-sold within three years of the Right to Buy having been exercised. As our predecessor Committee heard during its Empty Homes inquiry, another form of abuse is where tenants in regeneration areas exploit RTB by buying the property, and making a profit when the council then has to buy it back in order to renovate it.[227]

162. With effect from 27 March 2003, the Government introduced regulations limiting available discounts to £16,000 in 41 areas of high housing demand. Six of the local authorities covered applied for exemptions from this regulation, only two of them successfully.[228]

The Bill

163. The Draft Housing Bill proposes further changes to the Right to Buy, effectively making the following four key changes to the current scheme:[229]

a) The minimum period of tenancy required to qualify for the right to buy is to be extended from two to five years;

b) The period during which a re-sale triggers the right for the Council to demand repayment of some or all of the discount is extended from three to five years;

c) The discretion of landlords to waive repayment is clarified; and

d) The method of calculation of the repayment following a re-sale is changed from the current flat rate to a percentage of the resale value of the property.

164. Virtually all our witnesses welcomed the changes to Right to Buy enshrined in the Draft Housing Bill, and many took the view that the bill should go further in a range of areas. Thus, whilst both the Citizens Advice Bureaux[230] and Mr Shiner from the Sandwell MBC Pathfinder,[231] were pleased with the reform, Mr Faizi from Newham Council stated that

"We welcome the extension of the five year period. We do think we could go a bit further"[232]

The same view was put forward by Shelter[233]

"The Bill is a good start. Extending the five year discount repayment period is a decent start and one would hope it will stop people cashing in quite so quickly on the discount. In practice, whether that will stop some of these firms abusing the system in the way that you have described, I somehow doubt.[234]

We welcome reforms to the Right to Buy, limiting the scope for abuse and profiteering. In particular, we commend the extension of the qualification period as well as the discount repayment period to five years each, as well as the change to the method of calculating discount repayment.

Other proposals for reforming Right to Buy

Alignment of Right to Buy and Right to Acquire

165. The Local Government Association has proposed that the Right to Buy should be aligned with the Right to Acquire for Housing Association tenants. The Right to Acquire applies to secure and assured tenants of "registered social landlords," and involves a discount of between £9,000 and £16,000, depending on the area.[235] In other words, the Right to Acquire differs from the Right to Buy not only by the ceiling on discounts being considerably lower, but also by the fact that the discounts depend on the area. The Local Government Association is particularly keen that the Right to Acquire discount ceiling should be applied under Right to Buy across the country as a whole, rather than the recent change in 41 authorities only. This would have the virtue of simplicity, transparency and equality. It is also easily understood."[236]

166. Another benefit of aligning Right to Buy with Right to Acquire, was the fact that with Right to Acquire, the receipts from sales are recycled within the locality.[237] This is not the case with Right to Buy, where receipts are collected centrally and redistributed to local authorities.[238] The LGA stated

"We prefer the Right to Acquire because the discount level is not so high, it is more related to regional prices, and also because it excludes rural communities with under 3,000 properties. We would like that to be done immediately."[239]

167. A final argument in favour of aligning the Right to Buy and the Right to Acquire arises from the general

"Move towards the single social tenure and the move towards increased comparability between housing association and council tenants, at some stage this issue has got to be tackled."[240]

On grounds of consistency and fairness as well as to preserve social housing stock, we recommend that the Government explores the option of bringing Right to Buy regime to bring it into line with the Right to Acquire regime.

168. If the differentiation between Right to Buy and Right to Acquire is retained, we recommend that the discount available to tenants exercising their Right to Buy should be universal, and that it should be brought into line with the Right to Acquire discount as well as with the level of discount available in the 41 Local Authorities where exemptions were imposed earlier this year.

Curbing sub-letting

169. Stakeholders were in near universal agreement that the Housing Bill should be amended to include measures to curb the sub-letting of properties acquired under the Right to Buy scheme for the same length of time as the period where re-sale is penalised, i.e. five years under the current draft proposals. Witnesses have tended to use the phrase "sub-letting" in this context, although in fact the owners of Right to Buy properties are simply "letting" them on to third parties.

170. The objectives of curbs on sub-letting are two-fold. Firstly, sub-letting is seen as a loophole for getting round the penalties on a quick re-sale. In some parts of the country, there are reports of companies systematically seeking to exploit this loophole.[241] This is viewed by most witnesses as a form of profiteering on a par with re-sales of Right-to-Buy properties with the aim of making large profits. Newham Council experiences sub-letting as a serious problem

"One of the areas where we think we could go a bit further - specifically a big problem for us - is the activity of subletting and rogue buyers on behalf of tenants where we have had a number of cases of organisations who have offered money to people to purchase the Right to Buy and then given them a couple of years to live there and then they would hand over the properties to them. There are all sorts of different schemes going around and we think there needs to be some legislation to deter those schemes and stop people from taking them up."[242]

"We would say that it is a loophole that anyone could use instead of selling the property. Subletting is quite a well-used form of abuse used by companies […] We would say that that loophole needs to be somehow tightened up in the legislation as well as for purchasing properties during the discount period."[243]

171. In the past, the problem of sub-letting has been confined to the South-East, particularly London, where rents on the private market tend to be very high. However, Cllr Mole from Gateshead told the Committee that his Council now also experiences this type of abuse.[244] This point was backed up by Cllr Kemp from the LGA

"We are extremely concerned because this is even beginning to happen in northern cities (it used to be a London and South East phenomenon) that companies are suggesting that people exercise the Right to Buy and offering immediate tenancies so they can move out and make a profit out of their property."[245]

172. The second objective is to create and preserve sustainable communities, something which is seen to be more problematic when former Council properties become privately let in significant numbers. It is argued that there is less stability in such environments. Indeed, the Local Government Association pointed out that

"The problem is not subletting per se because if someone buys a house then ultimately they have the right to do what they want with it. […] That [sub-letting] increases instability in areas where we are trying to encourage stability so a wider crackdown on the abuse of the system by people who wish to profit from it is what is required there."[246]

173. Mr Shiner from the Sandwell MBC Pathfinder agreed and added an extra dimension by pointing out that problems sometimes arise because ex-council properties are sub-let to "problem tenants."[247] The RICS also referred to issues of anti-social behaviour and problem tenants, in particular the issue of evicted tenants coming back to estates through private rental of Right to Buy properties.[248]

174. As the LGA summed up the argument

"The original aims of Right to Buy […] were to promote sustainable communities and to help people who were long-standing tenants to own their own homes, and a lot of that has been undermined by some of these activities. We do not want to stop Right to Buy but we do want to see changes to it to go back to the original ethos."[249]

175. We are disappointed that the Bill does not go further on Right to Buy. We think it is particularly important that measures restricting the practice of sub-letting Right to Buy properties (except in cases where the purchaser has died) be included in the Bill. We recommend that sub-letting should be outlawed within the discount repayment period, i.e. five years.

Suspensions of Right to Buy in regeneration areas

176. Some witnesses proposed that the Right to Buy should be suspended in areas designated for regeneration or demolition.[250] Mr Faizi of Newham Council explained how some tenants there were taking the opportunity to cash in on regeneration and demolition schemes

"One of the […] areas of concern to us is specifically in regeneration areas where we are in the process of trying to demolish a block because we are regenerating somewhere. We have had a number of instances where once the plans have been made public people have put in the Right to Buy [applications]."[251]

We recommend that Local Authorities be granted the powers to suspend the Right to Buy as soon as an area is designated for regeneration, or when individual dwellings or blocks are condemned for demolition.

Advice on home ownership and its consequences

177. Several witnesses emphasised the vital importance of comprehensive and high-quality advice for council tenants considering exercising their Right to Buy. The need for advice falls into two categories, firstly advice on financial matters

"Tenants considering buying need more specialised advice, particularly financial advice, so that they are not taken advantage of by lenders who perhaps have their eye on obtaining access to the property after a fairly short period or getting a good deal. That is the main thing that we have highlighted in our evidence, that tenants moving from being tenants to being owners for a long time have needed better advice to get a good financial deal."[252]

178. Secondly, witnesses stressed that advice to tenants on home ownership, and all that it entails in practical and financial terms, needs to be improved. It was emphasised by some that Local Councils should be taking this upon themselves. For example, Mr Shiner from the Sandwell MBC Pathfinder agreed with the Local Government Association in arguing that

"Local authorities should have a duty to provide advice to people who might be considering exercising the right to buy on home maintenance and some of the financial implications and house condition issues which go with being an owner-occupier. That is a problem area at the moment."[253]

Mrs Perchard from the Citizens' Advice Bureaux spoke with some scepticism about the possibility of such advice being provided without a statutory requirement to do so

"Without a statutory duty often these things do not get done, do they, and it is not being done at the moment?"[254]

179. In response to the suggestion that Councils are sometimes perceived as trying to put tenants off pursuing their Right to Buy because it is not really in their interest, Cllr Kemp emphasised the need to provide balanced information in order to avoid later regrets

"In some cases we should give the down side of the deal because one of the problems we are picking up on our council estates and in areas like former HHAs and GIAs is that people bought at the very top of their ability to buy and now have no money left to provide the damp proof course or the roof or the windows because no-one ever explained the down side. I do not think any council should be up-beat and rah-rah for the sale of council housing, it should make sure people understand the obligations as well as the benefits of council housing and if that delays things a little then I think that is worth having because we are meeting a lot of misery from owner-occupiers who wished they had never exercised their right."[255]

180. There is a very delicate balance to be struck between providing full, appropriate, and balanced information to tenants contemplating taking up their Right to Buy on the one hand, whilst not being seen to simply talk down the scheme in order to preserve Council stock on the other. Given the perceived conflict of interests of Councils, we do not believe that it is appropriate for Councils to provide the information themselves, but it is nonetheless a vital task for which Councils must take responsibility. We recommend placing a legal duty on local authorities to provide tenants with access to third party advice on the implications of home ownership including repairing obligations. If introduced, the Home Information Pack should also be applied to Right to Buy purchases.

Limitations on named party on deeds

181. The LGA has brought our attention to a form of abuse which, whilst only affecting a relatively small number of people, tends to have deeply traumatic consequences for those involved. The abuse entails elderly tenants being 'convinced' to exercise their Right to Buy, allowing the names of family members to go on to the deeds of the property. Ms Taylor explained what happens

"On the question of elderly tenants who have bought perhaps with money from their family, we have uncovered some really quite distressing cases, not huge numbers, quite small numbers, but in terms of the effect on the ex-tenants really quite horrific in one or two cases, and it also has an impact for the local authority because the local authority has had to, on occasions, rehouse those tenants because they are homeless, although legally the authority would not have a duty under the homelessness legislation but simply because the circumstances have been so distressing that their health has been in jeopardy as a result. So we would really like to have some mechanism to stop that happening."[256]

182. The Chartered Institute of Housing, (CIH), supports the LGA in asking for this loophole to be closed, and Ms Elkington from the Institute emphasised that

"In my own authority in the last three years I can think of more than a handful of cases where it is evident that the Right to Buy was exercised purely and simply for financial gain by unscrupulous relatives."[257]

We recommend that statutory restrictions should be introduced as to who can be a named party on the deeds or mortgage under Right to Buy. We acknowledge that the number of cases of this type of abuse is small, but when it occurs it affects primarily the elderly, and it leads to great distress. We believe this legal loophole can be closed with relative ease.

Investment in social housing stock

183. Witnesses emphasised the importance of investment in Social Housing in areas where the loss of stock has been unsustainable. According to Shelter: "Plainly, bearing down on the Right to Buy would not by itself solve the under-provision of affordable housing, particularly in the south of the country."[258] Shelter has calculated, for example, that at the current rate of loss of stock in London and the South East, by 2005/06, there will be 4000 fewer lettings in the area than at present.[259] Our Affordable Housing Report recommended reforms to Right To Buy but these need to be seen alongside wider issues about investment in the social housing stock and routes into shared ownership.

Right for Councils to buy back 'Right to Buy' properties.

184. Some witnesses also emphasised that it would be helpful for Councils to be able to buy back properties sold through Right to Buy in the event that they come up for re-sale. The National Housing Federation proposed that former landlords should have a first-refusal right for up to ten years.[260] According to the LGA

"This would allow authorities in high demand areas to have the option to buy back a property, at full market value, for use of affordable housing or keyworker provision."[261]

We recommend that Councils should have first refusal to buy back, at market prices, properties acquired through Right to Buy if they come on the market within ten years following the Right to Buy being exercised.

Strategic Flexibility for Local Authorities

185. A number of witnesses called for a greater degree of strategic flexibility for local authorities in relation to Right to Buy. Shelter, for example, argued that

"I think this is part of a general desire on our part to see the local authority involving itself in a much more strategic way with the private market within its local market. We would very much like to see a duty on the local authority to take a strategic view of the provision of private housing as well as public housing..."[262]

186. Whilst Cllr Kemp from the Local Government Association explained one of the key reasons for the need for such flexibility

"Quite clearly, people from London and the South East are starting from very different places from people in the north but we want to get to the same place. We want to get communities and neighbourhoods demographically balanced and therefore sustainable but the mechanisms must be different to reach there because of the points we are starting from. I […] recognise the need to come out with a common outcome but that does not mean to say the mechanisms we must use from council to council are identical."[263]

187. One particular form of flexibility was emphasised by many witnesses, namely the need for Local Authorities to be able to suspend the Right to Buy for specific areas, or for specific types of properties in particularly short supply. The RICS held the view that

"We feel there is a strong argument that local authorities should have the ability, perhaps through their local housing strategy, to suspend the Right to Buy for a period to be reviewed in certain parts of their locality, whether it is an inner city area where there is not enough affordable housing, or whether it is in a rural community."[264]

188. The Chartered Institute of Housing made a similar proposal, but also acknowledged the potential Human Rights implications of such exemptions, and that arrangements would have to be put in place to compensate those tenants who found themselves renting properties exempted from the Right to Buy

"We would like local authorities to have permission to exempt certain properties from the Right to Buy, perhaps certain types of properties or properties in some areas, and we believe that in the interests of human rights (and we understand there could be a problem with taking away the Right to Buy) we could use a cash sum instead. That would be given to the tenant if they wished to purchase another property on the market in effect. […] we do not want to take away from tenants rights that are due to them."[265]

We recommend that Local Authorities should be granted greater flexibility in adjusting the Right to Buy to local circumstances. This would allow local authorities to exempt certain properties from Right to Buy in areas of overwhelming housing demand.

Other extensions

189. The Local Government Association made two further proposals for changes to the Right to Buy, which we found interesting. The Committee did not have sufficient time to pursue these in our oral evidence sessions, but we believe they merit serious consideration by the ODPM. These proposals are:

a) Exclusion in rural areas with populations under 3000. "This is in line with Right to Acquire."[266]

b) Equity sharing arrangements to be offered in addition to RTB. "Tenants could build up credits that could be used to either buy their own home or as a portable discount."[267]

We recommend that the Government seriously consider extending the Bill with regard to exclusions in rural areas as well as equity sharing arrangements.

224 ODPM: Draft Housing Bill: Consultation on Legislation: Factsheet 8: Right to Buy Back

225 HoC Library SN/SP/1983 Back

226 HoC Library SN/SP/1983, p 2 Back

227 The Sixth Report of the Transport, Local Government and the Regions Select Committee: Empty Homes, para 34; HC 240 of session 2001-2002 Back

228 HoC Library SN/SP/1983, p 14-16 Back

229 Housing Bill-Consultation on draft legislation, CM5793, 2003, Clauses 153-156 Back

230 Q66, Ms Perchard, Citizens Advice Bureaux. Back

231 Q192, Mr Shiner, Sandwell MBC Back

232 Q33, Mr Faizi, Newham Council Back

233 Q491, Mr Sampson, Shelter. Back

234 Q492, Mr Sampson, Shelter Back

235 The Housing Corporation web-site: http://www.housingcorp.gov.uk/yourhome/rta.htm ; The Right to Acquire, however, only applies to properties that "have been built or purchased by a registered social landlord, funded on or after 1 April 1997 through social housing grant provided by the Housing Corporation or a local authority." Back