New research: almost 40% of Right to Buy homes are now being privately rented

David Kingman looks at some new research which suggests that nearly 40% of the former council homes sold under the popular Right to Buy scheme may have ended up belonging to landlordsIf_Blog_To_Let_signs

A new piece of research which has been undertaken by the magazine Inside Housing suggests that almost 40% of ex-council homes which have been sold to private individuals under the Right to Buy scheme could now be being re-let to tenants, a finding which demonstrates the perverse consequences of giving away such a valuable resource at a discount.

Right to rent?

When it was originally launched by Margaret Thatcher’s Conservative government in 1980, the Right to Buy was supposed to be a means of expanding private home-ownership to the masses by selling off local authority housing to tenants at a substantial discount. However, despite the sale of something like 1.5 million former council homes, levels of owner-occupation have been falling since the early 2000s, and more and more people are now renting privately: in 2014, for the first time since records began, the English Housing Survey recorded that more people were renting from private landlords than were living in social housing.

The new research from Inside Housing suggests that the Right to Buy may have unexpectedly helped to accelerate these trends. Based on Freedom of Information responses from 91 local authorities across England, the research revealed that nearly 48,000 of the 127,763 former council flats and maisonettes which they had sold on a leasehold basis since the policy was first introduced are now occupied by someone other than the primary leaseholder – a strong indication that they are being rented out.

This finding should be interpreted with a note of caution, as the numbers clearly demonstrate that leasehold Right to Buy properties – where the local authority retained the freehold of the estate on which it was located – only represent a small share of the total number of homes that were sold under the scheme, as most former tenants purchased the freehold. However, there is no single source of data which would enable local authorities to easily track how many properties that were sold freehold under the Right to Buy have now ended up in the private rental sector, so looking at this sample is the easiest way of attempting to work it out.

Was it worth it?

Proponents of the Right to Buy would be likely to argue that it was all about increasing peoples’ economic freedom and sense of empowerment; therefore, if they wanted to rent out their discounted property or sell it on to a landlord then that was entirely the type of entrepreneurialism the policy was supposed to encourage.

On the other hand, critics would argue that the Right to Buy was conducted at an enormous cost to the taxpayer as valuable public sector assets were being sold at below their full value, the main result of which was to enrich a single, very fortunate, generation at the expense of subsequent ones for whom the shortage of social properties has resulted in much higher housing costs. Just how lucky some members of this generation were was recently underlined by the re-sale of a former local authority home in Covent Garden for £1.2 million – representing an 800% profit for the couple who bought it under the Right to Buy in 1990.

The transfer of former council homes into the private rental sector has also imposed a direct cost on the public purse in two other ways. Firstly, in an ironic twist, the shortage of social housing since the Right to Buy was introduced has largely been resolved through housing low-income tenants in the private rented sector, using Housing Benefit to subsidise the cost. The Housing Benefit bill now stands at £25 billion a year, and judging from the figures uncovered by Inside Housing, quite a lot of this money may be being spent on renting former Right to Buy properties back from their current owners – except at much higher rents than they were previously. Secondly, it has made it more complicated and expensive to manage the costs of upkeep and maintenance on estates which are now divided between private renters and remaining social tenants.

Given all the perverse impacts which it seems to have had, it is concerning that the government is pressing ahead with its manifesto pledge to extend the Right to Buy to people who rent from Housing Associations as well. If the same trends continue, then a policy which is supposed to boost home-ownership levels could easily accelerate the growth of private renting instead.