Right to Buy
The Right to Buy scheme is a policy in the United Kingdom which gives secure tenants of councils and some housing associations the legal right to buy, at a large discount, the home they are living in. There is also a Right to Acquire for assured tenants of housing association homes built with public subsidy after 1997, at a smaller discount. About 2 million homes in the UK have been sold in this manner since 1980. the new owners were spending only 43 pence a week more on their mortgage than they had been spending rent, and immediately began to improve in spruce up their properties.. They became much more open to conservative appeals, thereby undermining what had been traditional Labour strongholds. On the other hand, the program caused a housing shortage for low income people, and helped start a housing bubble of escalating prices.
Individual local authorities have always had the ability to sell council houses to their tenants, but until the early 1970s such sales were extremely rare.
The Labour Party initially proposed the idea of the right of tenants to own the house they live in, in its manifesto for the 1959 General Election which it subsequently lost. Later, the Conservative-controlled Greater London Council of the late 1960s was persuaded by Horace Cutler, its Chairman of Housing, to create a general sales scheme. Cutler disagreed with the concept of local authorities as providers of housing and supported a free market approach. GLC housing sales were not allowed during the Labour administration of the mid-1970s but picked up again once Cutler became Leader in 1977. They proved extremely popular, and Cutler was close to Margaret Thatcher (a London MP) who made the right to buy council housing a Conservative Party policy nationally.
In the meantime, council house sales to tenants began to increase. Some 7,000 were sold to their tenants during 1970, but in two years that figure soared to more than 45,000 in 1972.
After Margaret Thatcher became Prime Minister in May 1979, the legislation to implement the Right to Buy was passed in the Housing Act 1980. Michael Heseltine, through his role as minister for the Environment, was in charge of implementing the the legislation. Some 6 million people were affected; about one in three actually purchased their unit. Heseltine noted that, "no single piece of legislation has enabled the transfer of so much capital wealth from the state to the people." He said the right to buy had two main objectives: to give people what they wanted, and to reverse the trend of ever increasing dominance of the state over the life of the individual.
He said: "There is in this country a deeply ingrained desire for home ownership. The Government believe that this spirit should be fostered. It reflects the wishes of the people, ensures the wide spread of wealth through society, encourages a personal desire to improve and modernize one's own home, enables parents to accrue wealth for their children and stimulates the attitudes of independence and self-reliance that are the bedrock of a free society."
The sale price of a council house was based on its market valuation but also included a 33% to 50% discount to reflect the rents paid by tenants and also to encourage take-up. Mortgages involved no down payments. The legislation gave council tenants the right to buy their council house at a discounted value, depending on how long they had been living in the house, with the proviso that if they sold their house before a minimum period had expired they would have to pay back a proportion of the discount. The sales were an attractive deal for tenants and hundreds of thousands of homes were sold. The policy became one of the major points of Thatcherism.
The policy proved immediately popular, and indeed Labour had previously engaged in it on a small scale. Some local Labour-controlled councils were opposed, but the legislation prevented them from blocking purchases, and gave them half the proceeds. Sales were much higher in the South and East of England, than in the inner city of London and in the North.
Half the proceeds of the sales were paid to the local authorities, but they were restricted to spending the money to reduce their debt until it was cleared, rather than being able to spend it on building more homes. The effect was to reduce the council housing stock, especially in areas where property prices were high such as London and the south-east of England.
200,000 council houses were sold to their tenants in 1982, and by 1987, more than 1,000,000 council houses in Britain had been sold to their tenants, although the number of council houses purchased by tenants declined during the 1990s.
The Labour Party was initially against the sales and pledged to oppose them at the 1983 general election, but then dropped their official opposition in 1985. However, at the 1987 general election, the Conservative government warned voters that a Labour government would still abolish the scheme.
When Labour returned to power in 1997, it reduced the discount available to tenants in local authorities which had severe pressure on their housing stock; this included almost the whole of London.
Right to buy rules after 2005
The Right to Buy rules were changed in 2005. Five years' tenancy is now required for new tenants to qualify, and properties purchased after January 2005 can no longer immediately be placed on the open market should the owner decide to sell. Such owners must now approach their previous landlord (council or housing association) and offer them "first right of refusal". If the previous landlord is no longer in existence, for example in cases where the former landlord was a registered social landlord which has ceased business, then the property has to first be offered to the local housing authority.
The time in which a Right to Buy conveyance should take place has been reduced from 12 months to 3 months. The Financial Conduct Authority now governs and regulates most types of mortgage-selling.
The Financial Services Authority's governance of Right to Buy purchases was partly to solve the widespread problem of Right to Buy mis selling from brokers and solicitors alike. Each had their own agenda and many were actively charging excessive fees which were then taken out of their client's discount. Fortunately, the above actions that have been taken coupled with the end of the boom period seem to have brought this problem under control.
In 2009, the Localis think tank suggested, as part of a review of principles for social housing reform, that the right to buy should be extended into equity slivers, which could be part earned through being a good tenant.
At the 2011 Conservative Party Conference, David Cameron proposed to increase Right to Buy discounts in order to revitalise the housing market and generate receipts which could be spent on new housing. Social housing professionals have expressed concerns over the proposal.
As of 2 April 2012 the Right to Buy discount has been increased to a maximum of £75,000 or 60% of the house value (70% for a flat) depending on which is lower. In March 2013 the maximum discount in London was increased to £100,000.
The aim of the scheme is, for every additional home sold, a new home will be built for 'affordable rent' at up to 80% of market rent, aimed at maintaining the level of affordable housing while also increasing the number of properties available for those on the waiting list. The five year tenancy criterion will remain, and should the property be sold within the first five years of the original sale, part or all of the discount will be required to be paid back.
The right-to-buy scheme has been criticised for the following reasons:
- Speculating investors were able to buy up council properties through deferred transaction agreements, hastening the rise in property costs;
- Commercially and socially valuable council assets being sold at below their market value or replacement cost;
- The remaining stock of council housing was concentrated in undesirable areas with little employment opportunity, further isolating and stigmatising the tenants.
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