At the Labour Party conference last week, deputy prime minister John Prescott dropped heavy hints that he is planning to make substantial changes to it. Shelter's external affairs director Ben Jackson has referred to the "desperate need to change the policy in areas of severe housing demand". But is the right-to-buy policy as damaging as critics claim?
The arguments for reviewing it are simple. Since 1980, when the policy was introduced, nearly two million social housing sector homes have been sold. Despite continual investment in new housing, the sector has shrunk by 25% and the sales have obviously contributed to this. Over the years, sitting tenants have benefited from average discounts of about 50% when buying their home. Building replacement rented accommodation thus costs twice as much as the sale receipt.
Right to buy is also accused of being a major factor in the social polarisation of tenures. In 1981 nearly half of all council tenant household heads were employed; by 2000/01 fewer than a third were in work.
The numbers of homeless households in temporary accommodation are at record levels, and undiscounted house prices are beyond the means of households with modest incomes. Not surprisingly many say we cannot afford to lose any more housing stock through right to buy in areas of high housing demand, or the needs of those on low incomes for affordable rented housing will never be met.
But if one digs a little deeper there are major questions over all of these criticisms. Could it be that the right to buy is good value for money and can have positive effects for communities and society as a whole?
Good value
First, the value for money issue. With discounts of up to £38,000 on flats, right- to-buy sales are obviously good value for the buyer. But can they be good value for anyone else?
The key point here is that the sales are made to sitting tenants, most of whom would have continued to occupy the same dwelling for many years as a tenant if they had not bought it. So a property sold under the right to buy would probably not have become available to a new tenant for many years even if it had not been sold. And in the private sector, sales to secure sitting tenants are routinely made at substantially less than vacant possession market prices, simply because the tenanted dwelling has less value.
A comparison of the numbers of right to buy purchasers still in residence against the numbers of sales since 1980 suggests that on average people have stayed in their property for about 10 years after exercising their right to buy. More than three-fifths of all households that exercised the right to buy between 1980 and 1990 are still in residence now.
Investment in new dwellings provides lettings from the day they are completed. Ending the right to buy would provide, on average, a new letting only 10 or more years hence. But time is money and benefits in the future are worth less than benefits now.
The Treasury convention for assessing investment plans is based on an assumed annual discount rate of 6% – the benefit of a letting is reduced by 6% for each year that it is deferred. On this basis (see graphic left), a letting 10 years hence is worth 54% of a letting available today – a compound 10-year discount rate of 46%.
In many cases, the right to buy has helped to blur the social boundaries between council estates and private housing areas
While this compounded investment discount is less than the past average right-to-buy discount of 50%, the difference is not great. Moreover, average right-to-buy discount values are now falling as the lower maximum discount limits, introduced two years ago in England and Wales, begin to bite.
By the last quarter of 2001, the average right-to-buy discount in England had fallen to 43%, and as house prices continue to rise the maximum discount rules will drive down the average value of discounts.
Even if the average time people stay after exercising their right to buy does not rise above 10 years, it can be argued that operation of the right to buy policy under the 1999 maximum discount rules imposes no real net costs. Indeed, right to buy sales can now be seen to generate a small surplus, in terms of the Treasury's investment appraisal methodology.
Benefits for society
It is important to remember that the social polarisation of tenures is not the same as social polarisation in a geographical sense.
Yes, people with higher incomes are more able to use the right to buy, so those who remain public sector tenants are now more likely to be unemployed. But on many estates, the right to buy has helped keep these working households in the neighbourhood, thus blurring the social boundaries between council estates and private housing neighbourhoods and lessening the stigma of the former.
Admittedly, in some areas there has been a polarisation between estates with high levels of sales and those with few or no sales. And yes, the choices available to new tenant households have diminished, and there are localised problems with sold properties being rented out by less scrupulous private landlords. But for all that, the social impact of the right to buy has been mixed. It has certainly been far more complex than suggested by a one-dimensional concern about polarisation of tenures rather than neighbourhoods.
Review, but don't restrict
There is still a case for reviewing details of the operation of the right to buy, both to remove anomalies and prevent abuses, and to consider whether or not it should apply uniformly in all areas. There is also a case for considering whether it should apply uniformly across all social sector tenures, as it will now in Scotland for future tenants. Moreover, there is a case for giving social landlords a "first refusal" power to buy back dwellings, at open-market value, if the right-to-buy purchaser decides to sell.
But simply stopping the right to buy in high-demand areas will have little or no immediate effect on re-let levels in those areas. They will continue to reflect the long-term impact of right-to-buy sales over the past two decades. Restricting the right to buy is not a quick fix.
Restriction would also impose costs on the government. The government requires 75% of right-to-buy receipts to be set aside for repayment of loans (only 25% may be reinvested). The set-aside receipts are effectively used to offset new housing capital expenditure provisions. Areas of high demand would have more to gain from being exempted from the 75% set-aside rules, provided all the money was used for new affordable housing. This would give far more immediate gains – lettings available to new applicants – than would be achieved by stopping the right to buy.
The problems in high-demand areas are more to do with inadequate investment in new affordable housing than the operation of the right to buy. Right-to-buy receipts have been increasingly used to underpin total housing investment, with central government providing less and less net new resources. In England alone, right-to-buy sales have generated £28bn over the past two decades, while net new government housing investment has fallen 72% in real terms. Much of the income from right-to-buy has gone into funding other council services, and there has been insufficient investment in new affordable rented housing to make good the deferred and long-term impact of right-to-buy stock losses on new lettings in areas of high demand.
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Housing Today
Postscript
Steve Wilcox is professor of housing policy at York University, and compiles the annual UK Housing Review
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