Can the New Right to Buy Scheme Really Solve the UK’s Housing Crisis?

It is no secret that Britain is in the grips of a chronic housing shortage.

• In 2012/2013, an additional 108,109 new homes were built, one of the lowest years for homes being constructed since 1923. The UK needs to build at least 220,000 every year to keep up with the projected demand and this figure does not take into account the already existing shortfall in homes today.
• The average purchase price of a home is almost seven times the average salary.
• Social housing waiting lists have nearly doubled in ten years.

In October 2011, the Prime Minister announced that he wanted to “raise Right to Buy discounts to a level which will make the scheme attractive again and rejuvenate the housing stock.”. To make this happen, the Government increased the maximum cap on the right to buy discount to £75,000 (now £77,900). This change was implemented by the Housing (right to buy) (Limit on Discount) (England) Order. In 2013, the maximum discount was increased to £100,000 for homes in London (now £103,900).

Despite these increased discounts, a large number of people, are struggling to get a foot on the property ladder, or, if they have purchased their first home, cannot afford to move to the next level. This indicates that there is still a massive shortage of housing in Britain which is contributing to the general unaffordability of home ownership – not only for disadvantaged members of our society but the young, well-educated professionals too.

So the question needs to be asked – “to what extent has the right to buy scheme alleviated the housing shortage, and what will be the consequences of the new proposal to extend the right to buy option to Housing Association tenants”?

Let’s take a look…

Many factors have created the housing crisis we have on our hands today, so in the interests of brevity I have listed what I believe to be the top three below:

The Protection of the Green Belt

Many visitors to the UK often wonder how the country manages to have 64.1 million souls reside on an island with roughly the same land mass as the US state of Oregon and maintain so much green space.

The answer lies in an extraordinarily effective policy known as the Green Belt. Put simply, under the Town and Country Planning Act 1947, a ring of countryside is to encircle a number of major British cities, including London, with the single purpose of alleviating urban sprawl. In his latest book, The Road to Little Dribbling, Bill Bryson, a fierce advocate for the British environment, calls the green belt, “the most intelligent, far-sighted, thrillingly and self-evidently the most successful land management policy any nation has ever devised”.

Although the green belts have succeeded in keeping Britain green and beautiful. They have also been sharply criticised for ensuring vast tracts of the country are unable to be constructed upon. This inevitably drives prices up in over-crowded urban areas.

The Bureaucratic Red-Tape

Any property developer will tell you that obtaining Council planning permission can be as drawn-out and painful as a tooth extraction.

Developers have to negotiate a forest of red-tape and may need to re-submit planning applications many times before gaining approval.

Margaret Thatcher

In 1980, Margaret Thatcher introduced the Right to Buy scheme, and for the first time, many people who never dreamed in a million years that home ownership was within their reach, had an opportunity to get onto the property ladder.

The following years saw Mrs Thatcher handing over deeds to new homeowners and the Government coffers receiving a windfall. To illustrate, £692 million was generated from council home sales in 1980–1981, £1.394 billion in 1981–1982 and £1.981 billion in 1982–1983.

The problem was the amount of money that was being generated from the sales of the houses being distributed to local Councils so they could replace housing stock dwindled year on year. Correspondingly, rents rose due to the shortage of houses available.

To quote from Andy Beckett’s analysis of the right to buy scheme in the Guardian a few months ago, “home ownership was made possible for wealthier council tenants through discounts paid for by their poorer neighbours.”

Prior to May 2015, to be eligible to purchase your council house under the right to buy scheme, you had to be a tenant for a minimum of five years. This has now been reduced to three years under the Deregulation Act 2015.

In July 2014, the government further increased the right to buy discount, raising the maximum discounts for a house to 70% of its value. The maximum discount cash caps will also increase each year (on 6 April) by the percentage change in the Consumer Prices Index (CPI) published by the Office for National Statistics.

As of 6 April 2015, you can now buy your council home at a discount of up to £77,900, or £103,900 if your home is in London.

The Housing and Planning Bill 2015-16, which is currently passing through Parliament, will extend the right to buy scheme to housing association tenants. In this year’s Queen’s Speech, the government stated that this move will give 1.3million housing association tenants the right to buy their homes while requiring councils to sell off high-value properties and invest the proceeds into building affordable accommodation. It also argued that the policy could help reduce social housing waiting lists. This is because rather than there being just one rented property there will be two – one with a new homeowner and a new one available for those in need on the waiting list.

The extension of the right to buy scheme to housing association tenants encountered fierce criticism, with almost half of housing associations refusing to back the proposal. In response to this the government proposed to drop its threat to force housing associations to sell homes to tenants under the right to buy scheme and pursue a voluntary programme instead.

Ministers gave social landlords a week to sign up to the alternative, industry-led proposals and a majority of housing associations around the country have since voted in favour of a voluntary deal despite several local authorities publically calling for the housing providers to reject the offer.

Will the voluntary scheme come to fruition, or will the government revert to its original plan to force housing associations to sell homes to existing tenants at a huge discount? More importantly, will these proposed changes help to alleviate the housing shortage in the UK? Unfortunately, we do not have the answers as yet but watch this space and we will keep you updated as the bill passes through Parliament and becomes law.

Saracens Solicitors has years of experience in property law and social housing management, both from a landlord and tenant perspective. If you would like any legal advice on issues surrounding property law, then call our office on 020 3588 3500.