Building more social housing Contents

6 Right to Buy

Background

111.As described in Chapter 1, the statutory Right to Buy was created by the Housing Act 1980. From the outset of the scheme, there was no commitment that the sold homes would be replaced, nor that local authorities would retain all of the capital receipts. Previous governments argued that if councils were allowed to spend all their receipts, they would be forced to borrow again, defeating the objective of reducing public expenditure.252

112.For the first decade, the government intended that councils could use only 20 per cent of the receipts; limited restrictions however meant councils were able to spend more than the government intended, leading to stringent controls introduced in April 1990.253 Section 59 of the Local Government and Housing Act 1989 required authorities to set aside 75 per cent of Right to Buy receipts, which could only be used to reduce debt. From 2004, when the Local Government Finance (Supplementary Credit Approvals) Act 1997 came into force, 75 per cent of Right to Buy receipts went to the Treasury, with 25 per cent available for councils to replace stock or maintain remaining housing. Overall, since 1980, almost 2 million social homes have been sold through the Right to Buy scheme.254 Over the same period, the total social housing stock has shrunk from 5.52 million to 4.07 million.

Figure 7: Right to Buy sales and replacements (thousands of dwellings), England, 1991–2019

Source: MHCLG Live tables 678, 693 and 1000

Recent developments

113.In 2012, the coalition government aimed to “reinvigorate” Right to Buy.255 It increased the maximum discounts for tenants, and established for the first time a rule that sold properties must be replaced at a one-to-one rate. This replacement is not required to be like-for-like in regard to tenure or type of housing—a house with a garden could be replaced with a maisonette, for example, at a different rent level. Councils are required to spend their receipts within three years, otherwise they are returned with interest to the Department, and receipts can fund no more than 30 per cent of a replacement home, whether acquisition or new build—authorities must find the other 70 per cent through borrowing or other finance. The Government’s rationale for the cap was that the cost of a replacement home is a “fraction of the cost of a new home”, because most funding comes from borrowing against a future rental income stream.256 While it established the principle of replacing sold properties, this did not mean the same rent level: the Government asked local authorities to replace Right to Buy sales with homes let at affordable rent.257

114.In August 2018, the Government consulted on changing the rules around Right to Buy receipts because it recognised “more needs to be done to help councils deliver replacement homes” and was “aware from engagement with the sector that the current restrictions around the use of Right to Buy one-for-one receipts are a barrier to delivery.”258 Proposed changes included extending the timeframe for spending receipts from three years to five years; increasing the cap from 30 per cent to 50 per cent; restricting acquisitions to prevent last-minute high-value purchases; and allowing councils to replace social homes with shared ownership homes. Finally, the Government also proposed dropping the one-for-one replacement target, as the current model did not take into account Government delivery through the Affordable Homes Programme. The Government has not responded to the consultation, despite it finishing almost two years ago.

115.Housing association tenants do not automatically have the Right to Buy (they do have a Right to Acquire, a similar-sounding scheme which offers much lower discounts). Some may have a preserved right if the property was transferred from a council. The Government extended the Right to Buy to housing associations on a voluntary basis, currently through regional pilots, although it promised in its manifesto to extend it fully.259 In October 2019, the Secretary of State revealed plans for a shared ownership Right to Buy (SO-RTB) for housing association tenants.260 New rented homes funded under the 2021–2026 Affordable Homes Programme will have a mandatory SO-RTB attached. In comparison to plans to extend Right to Buy in England, Wales abolished Right to Buy in January 2018 and Scotland ended it in July 2016, with both countries’ governments explaining that it would safeguard social housing stock and encourage social landlords to invest more without risk.261

Reforming Right to Buy

116.We received a wealth of evidence on Right to Buy. There was diversity of opinion on its future, with many defending its unique offer of an affordable route to homeownership, while others criticised its impact on social housing supply. Before exploring the evidence, it is important to note that the Government was elected on a manifesto which included a commitment to maintaining Right to Buy. While we understand why providers find it easier if Right to Buy were abolished, we consider it more practical to recommend how the scheme could be amended to mitigate its impact on social housing supply.

Receipts and replacements

117.Many organisations—generally providers of social housing—called for Right to Buy to be suspended or stopped because of its impact on social housing delivery. The Royal Borough of Greenwich called for the scheme to be abolished because of a “net loss of social and affordable rented housing” that meant maintaining it was “counter-productive” to the Government’s aims to increase supply.262 Victor de Cunha, chief executive of the housing association Curo, and chair of Homes for the South West, said regarding Right to Buy:

Right to Buy has had a very significant impact on our ability to provide housing for those in housing need and has exacerbated the current housing crisis.

The fundamental problem has been consistently that the money received from those receipts has never been prioritised and ring-fenced for the re-provision of social housing. One’s aspiration should not deny a future generation’s housing. The starting point should be about at least ring-fencing and guaranteeing ongoing investment in social housing through the recycling of that sales proceed.

I would not want to deny local authorities the opportunity to consider suspension. Going back to the point earlier on, it is really important that the local authority takes the lead in these bigger strategic issues. If the local authority thought it wise, I think it is worth considering in localities.263

118.Others said that the scheme should be retained, but only if receipt rules were changed so providers could deliver a suitable replacement. Councils must apportion some of their receipts to HM Treasury. Before 2012, this was 75 per cent of receipts; following the “reinvigoration” changes in 2012, this changed to a Government compensation scheme entitled ‘Government Assumed Income’ to replace the 75 per cent. Answering a written question in January 2020, the former Minister for Housing, Rt Hon Esther McVey MP, explained that £1.27 billion of a total £5.23 billion in Right to Buy receipts were paid to the Treasury, almost a quarter.264 The Department has in the past explained that around 50 per cent of receipts are available for replacement social housing.265

119.Shelter said it did not support abolishing Right to Buy, but instead reforming it so the money from sales were used to reinvest fully in like-for-like replacements in local areas.266 Ipswich Borough Council said it should be able to retain 100 per cent of sales receipts for building replacements, and have up to 5 years to do so.267 The Local Government Association (LGA) recommended that Right to Buy should be put “on a more sustainable footing” by allowing councils to retain all of the receipts, noting that:

In the last six years, more than 60,000 homes have been sold off under the scheme at half the market price on average, leaving councils with enough funding to build or buy just 14,000 new homes to replace them. Our modelling suggests this capacity is likely to worsen without reforms to the scheme.268

120.Crisis, the homelessness charity, estimated that the current replacement rate was less than 2 in 5.269 Since the Government committed to a one-to-one replacement rate in 2012, there have been 85,646 sales and 28,090 starts on site and acquisitions (there is no clear data for completions). Completion data is not disaggregated from wider delivery statistics, so an accurate replacement figure is not calculable, but the current sales to starts and acquisitions ratio is 0.33, or 1 in 3 replaced. Although some allowance should be made for the time between sale, identifying land and commencing work, this is still not near one-to-one. The Government admitted in the consultation on Right to Buy receipts that replacements were not matching the pace of sales and the commitment was not being met, which is why it is disappointing that there has been no response to the consultation. When we asked the Minister why no response had been forthcoming, he said:

There are a number of reasons. One is that we have had a change of Government. Another is we have had the general election and presently we are in a rather challenging and fast-moving crisis situation. I certainly want to look at the evidence in that particular consultation and to make sure that we get the response to it right […] Those are the reasons and, as and when we can publish it but get it right, we will.270

121.It is important to note that sales to sitting tenants do not typically have an immediate impact on the amount of council housing accommodation available, as the purchasers would have continued to occupy their home for a number of years anyway, meaning the accommodation would have been unavailable to a household on the waiting list. The 1979 government argued that it would be 30–40 years before there was an effect on letting to a new tenant. 40 years later, we are seeing the detrimental effect of these properties not being available for new tenants, because they have not been replaced by a succession of governments over that period.

122.The Minister rejected the contention that Right to Buy reduced the social housing stock over time.271 As discussed earlier in Chapter 3, the Minister said that since 2010 there had been 120,000 sales of social rent homes, replaced by 140,000 social rent homes. Under further questioning, Tracey Waltho, the Director of Housing and Building Safety, said that the receipts from sales contributed to only some of the 140,000 new builds.272 We asked again for further details via correspondence.273 The Minister wrote that the Department did not collect data on the number of social rent homes which are funded directly by Right to Buy receipts.274 According to the Minister, only 4 per cent of the 323,000 affordable homes delivered between 2010 and 2019 were funded “through other funding, including Right to Buy receipts”: this is around 12,920 homes.275 The Minister told us that Right to Buy “is resulting in an increase to the housing stock”.276

123.The 3 year deadline was cited as problematic by many, due to the nature of the housebuilding cycle. Research by the Home Builders Federation identified the average period from grant of planning to completion across all sites is 3.25 years.277 Furthermore, the process of development is inexorably subject to risks and delays, which the three year deadline does not allow for. Phillip Glanville, representing the LGA, told us that:

There is a three-year cycle from sale to spending of receipt. If you are talking about getting planning permission, going out to tender and getting on site to delivery, that is almost an impossible window unless you have an existing development programme.278

Nottingham City Council argued “strongly” for an extended time limit, to help deal with time-consuming work required, such as site assembly, remedial works, planning permissions and local consultations.279

124.The original basis for limiting the percentage of receipts councils could retain was to reduce public expenditure; the aim was to prevent local authorities having to borrow more by using all of their receipts. The Government, with the removal of the HRA borrowing cap, and the acceptance of the need for replacements, has made it clear this original premise is no longer in effect. This means the rationale for limiting receipts no longer exists. If the Government wants the sold properties to be replaced, it needs to in turn to loosen the restrictions.

125.Local authorities should receive 100 per cent of Right to Buy receipts. The time limit for using these receipts to fund a replacement should be extended to five years, rather than three. Councils should also be allowed to combine receipts with other pots, like grant funding, to maximise flexibility. Receipts must be used to fund like-for-like tenure replacements: a sold social rent home should be replaced with a new social rent home. Without these changes, Right to Buy will make achieving the development of the desired 90,000 properties per annum unachievable.

Limiting the transfer to the private rented sector

126.Where someone sells their home within five years of buying it through Right to Buy, they will have to pay back some of the discount. Within the first year, the whole discount must be paid back; 80 per cent in the second year; 60 per cent in the third year, 40 per cent in the fourth year; and 20 per cent in the fifth year. Additionally, if sold within ten years of purchasing, it must first be offered to either the former social landlord or another social landlord in the area at full market value (known as the ‘right of first refusal’).

127.Despite these restrictions, a BBC News investigation in March 2019 found that 139 council tenants resold their properties within one month, making £2.8 million collective profit though the average time people kept their Right to Buy home was seven-and-a-half years.280 In 2017, analysis by Inside Housing of FOI data concluded that 40 per cent of former Right to Buy flats were being privately let, a phenomena it called ‘Right to Buy to Let’.281 Based on previous studies, Inside Housing predicted that 50 per cent of all former Right to Buy homes would be rented privately by 2026.

128.Local authorities often end up renting back homes they once built and owned, to meet the needs of homeless households, due to a shortage of social housing in the area. Other former Right to Buy properties are subsidised by central Government paying out housing benefit to private landlords. George Clarke expressed concerns about Right to Buy properties ending up in the private rented sector:

Around 42% of all homes that have been sold under Right to Buy are now in the hands of private landlords who are renting it back to the system. I hear stories every day about councils that are now trying to buy back Right to Buy properties, which just seems mad to me.282

CIH said that, while they agreed “one way or another, tenants should be given the opportunity to buy a home”, Right to Buy should be suspended as it was not good value for money due to 40 per cent of sales ending up in the private rented sector.283

129.When we put these concerns to the Minister, he said that “it is for individuals to decide how they wish to dispose of the property that they have bought.”284 While we agree in principle, the purpose of Right to Buy is not to transfer thousands of social homes into the private rented sector. Any property which is then rented back by a council or the rent is subsidised by central Government brings into question the value for money of the initial public investment. The combination of generous discount repayment rules and no restrictions on the use of the property following its sale has created an inadvertent perversion of Right to Buy’s true goal: to increase access to homeownership. We note that Help to Buy, which also aims to improve access to homeownership, prevents a property being sublet unless the owner repays the equity loan assistance in full.285

130.In 2012, our predecessor committee considered Right to Buy reinvigoration.286 It concluded that the Government should reconsider its decision not to opt for a local model for the replacement of Right to Buy sales, suggesting that:

We further recommend that the Government grant exemptions from increased discounts to places such as rural villages and other areas where social housing is limited and cannot easily be replaced. These places could otherwise be left with no social housing stock if there is significantly increased take-up of the Right to Buy.287

The committee concluded that the Government should give councils the option to apply “for an exemption to the Right to Buy where the council can demonstrate that housing is limited and cannot be easily replaced”.288

131.The purpose of Right to Buy is to introduce a route into homeownership, and not reduce the number of social homes or to supplement the private rented sector.

132.We recommend that, in line with the five year period which covers discount repayment, the Government prevents Right to Buy homes being privately let within five years of purchase. This will require legislating to implement a covenant against letting for a five year period. This is not without precedent: Help to Buy properties include a covenant which prevents private renting. The Government’s justification is that Help to Buy is designed to assist you to move on or up the housing ladder, words that could apply just as aptly to Right to Buy.

133.If the Government’s intention is that the Right to Buy should both give people an opportunity to own their homes, but also to provide resources which will then be reinvested into social housing to ensure one-to-one replacements, then consideration must be given to local authorities who are unable to deliver sufficient replacements because of constraints on land availability. We recommend that the Government has discussions with the Local Government Association about ways in which they could ensure Right to Buy does not lead to a reduction in social housing.

134.We caution the Government not to make Shared Ownership Right to Buy a condition of affordable housing grant funding, until our suggested reforms on receipts are implemented. When Right to Buy is implemented for all housing associations, like with the pilots, the Treasury should reimburse housing associations for the cost of discounts. This aligns with the recommendation we made in our report on housing associations and the Right to Buy in 2016. Otherwise, housing associations will face the same difficulties as local authorities in replacing sales.

135.The Government must keep a careful watch on the rate of replacements. If, despite these reforms, replacements are still below a one-for-one rate, the Government must intervene further. The Government should fully disaggregate its quarterly Right to Buy data by tenure for sales and replacements, and publish a full review of the Right to Buy scheme by the end of this Parliament, assessing a full range of options for its future.


252 House of Commons Library, Extending the Right to Buy (England), CBP 7224, 24 August 2015

253 Ibid

254 1,968,380. MHCLG, Live table 678, 27 March 2020

256 Ibid, para 5

257 HM Government, Laying the foundations: a housing strategy for England, November 2011, para 56

259 The Conservative and Unionist Party, Get Brexit Done: Unleash Britain’s Potential, November 2019

260Thousands more people to be given step up onto the housing ladder”, MHCLG press release, 17 October 2019

261 Scottish Government, Right to buy ends in Scotland, 30 July 2016; “Bill ending Right to Buy in Wales is passed by AMs”, BBC News, 5 December 2017

262 Royal Borough of Greenwich (SAH 071)

264 PQ 2659, 13 January 2020

265 PQ 136994, 23 April 2018

266 Q42 (Session 2017–19)

267 Ipswich Borough Council (SAH 009), para 3.22

268 LGA (SAH 024)

269 Crisis (SAH 023)

275 Ibid

279 Nottingham City Council (SAH 060)

283 Q43 (Session 2017–19)

285 With some exceptional circumstances allowing subletting, including a serving Member of the Armed Forces on a tour of duty. Homes England, Help to Buy Buyers’ Guide, February 2018 (amended June 2020)

286 Communities and Local Government Committee, Eleventh Report of Session 2010–12, Financing of new housing supply, HC 1652, 23 April 2012

287 Communities and Local Government Committee, Eleventh Report of Session 2010–12, Financing of new housing supply, HC 1652, 23 April 2012, para 123

288 Ibid, para 125




Published: 20 July 2020