Is this really the right time for a Right to Buy comeback?

The Tories want to revive and extend Margaret Thatcher’s flagship housing policy. Ben Chu looks at what the possible consequences could be

Margaret Thatcher with the new owners of a property in Essex which was sold for just over £8,000 in 1980 (PA)

What has been announced?

The Conservatives have pledged to extend “Right to Buy” to housing association tenants. Right to Buy was introduced by Margaret Thatcher’s government in 1980. It allowed council tenants to purchase their homes at a discounted rate. Some 1.88 million council homes have been sold in England under the policy. That’s about 37 per cent of the original total stock. Sales fell in the Labour years as the discount was reduced. But it was revived again in 2012 by the Coalition.

What are housing associations?

State-regulated social organisations promoted by Conservative governments in the 1980s and 1990s to replace the historic role of councils in providing “affordable” housing. They allocate housing on the basis of need and charge below market rental rate. Any profit they make is used to invest in the construction of more affordable housing. They can also borrow from banks to build more with the loans secured on their stock. As the stock of council homes plummeted, the stock of housing association homes grew, as the chart shows. Today there 2.7 million homes rented from housing associations versus 2.2 million rented from councils. The Coalition increased the rents housing associations are allowed to charge tenants – to 80 per cent of market rates – so they would have more funds to invest in housing construction. This was to compensate for a large reduction in government construction grants. But this doesn’t seem to have had much success. The total number of new affordable homes built in 2013-14 was just 43,000 according to the latest statistics, down from 60,000 in 2010-11.

How does this relate to Help to Buy?

Help to Buy is an entirely separate scheme dreamed up by the Coalition which offers state equity loans for first-time buyers with small deposits and a mortgage guarantee for both first-time buyers and home movers. It was introduced by George Osborne in 2013 to try to get the housing market moving by increasing the number of transactions – which had collapsed – and to help first-time buyers on to the property ladder.

Who stands to benefit from the Right to Buy extension?

There are 5 million people living in 2.5 million housing association homes in the UK. The Tories say up to 1.3 million families would be eligible. But the National Housing Federation (NHF), which represents housing associations, calculates that just 220,000 people would be able to take advantage of the Tories’ proposed Right to Buy extension. If they did, though, the Conservatives have said they could benefit from a discount on the market sale price of up to 70 per cent.

Anyone else?

Private landlords could ultimately benefit. In London, the UK’s tightest housing market, it has been estimated that 36 per cent of properties sold under Right to Buy have made their way into the hands of private landlords. The son of Ian Gow, one of Mrs Thatcher’s top aides and housing minister during the peak years of Right to Buy, reportedly owns at least 40 ex-council flats on one south London estate. Often, councils are forced to house needy housing applicants in their old housing stock. But they have to pay landlords market rents to do so. This has helped to push up the housing benefit bill, which is set to hit £24bn this year. That’s almost 12 per cent of the entire welfare bill and up from just 5 per cent in 1980.

How much will the extension cost?

That’s difficult to say because it depends on the take-up. The Tories say they would ensure a “one-for-one replacement” of any housing association property sold and that the ultimate bill for that new construction will be financed by “requiring local authorities to manage their housing assets more efficiently”, with the most expensive properties sold off and replaced as they fall vacant. One Conservative aide cites the example of a six-bed Georgian home owned by Southwark Council that raised £3m at auction in 2013, enough to build 20 new affordable homes. The figure the party cites for proceeds from this new requirement on councils is £4.5bn a year. However, the NHF estimates that the government could have to pay £11.6bn to housing associations alone as compensation for them being forced to sell their own assets at deep discounts.

What about the social housing stock?

Margaret Thatcher’s original Right to Buy policy slashed the council housing stock because she prevented councils from using the sale proceeds to invest in new construction. The Tories today insist they will require councils to replace every sold housing association unit with a new-build affordable home, meaning the total social housing stock will not decline. But this pledge has been met with deep scepticism because when Right to Buy for council houses was revived by the Coalition in 2012 ministers also included a demand for councils to replace stock. Yet for every 10 council homes sold since then construction work on only around three has begun.

What will the policy mean for house prices?

Nothing directly, because the Right to Buy extension would simply switch ownership of a residence from housing associations to tenants. But if housing supply fails to keep up with housing demand – as it has for most of the past 30 years – that will certainly mean prices drifting higher.

Any other damaging side effects?

A Right to Buy extension could reduce housing associations’ stock. That would put a dent in their income by reducing their rental take. But it could also limit the amount they could invest in new construction by making it more difficult for associations to borrow to invest using their stocks as security. Associations are currently building around 23,000 homes a year – about 16 per cent of total new housing supply. That could easily slump under this policy, putting even more pressure on the market.

What does the housing industry think of the Tory proposal?

It is not impressed. “Right to Buy has already had a huge impact on the supply of genuinely affordable homes, which is being cut at a time when more and more people are in need. The next government should be reviewing the way the policy currently works, not extending it”, said Gavin Smart of the Chartered Institute of Housing. “The expansion may be good politics, but represents terrible policy”, said Adam Challis, of the property firm management firm JLL. “Not a responsible approach”, said the Royal Institution of Chartered Surveyors.