Right to Buy, Wrong to Sell: Why the Conservatives’ ‘Right to Buy’ for Housing Associations will do more harm than good

14^th April 2015

It is further evidence of the priority now accorded to housing policy by the public and the media that much of the interest in the Conservative Party manifesto, published today, has focused on the proposed extension of the ‘right to buy’ policy to housing association (HA) tenants. This comes off the back of previous Conservative commitments such as the ‘Starter Home’ initiative, and the ‘Help to Buy’ scheme, now extended to 2020. I have previously argued that the former scheme is fatally short-termist in its thinking, failing to place enough emphasis on raising supply or allow enough leeway for ‘placemaking’. The extension of right to buy too appears attractive at first glance but contains flaws on closer inspection.

At the outset, it should be said that ResPublica believes strongly in the extension of asset ownership to all in society. Home ownership, as one example of this, is a critical vehicle to reducing inequality and fostering widespread prosperity, and the principle of the right to buy is laudable in this regard. Yet there are different ways to achieve this goal, and against the backdrop of an ever increasing shortfall in housing supply, it is not clear that the Conservative route is the best approach to take.

Initially costing £12 billion, and with a further £6 billion committed towards its extension to 2020, the cumulative cost of the Help to Buy scheme by this date will be nearly £20 billion, while the National Housing Federation suggested £5.8 billion as a “conservative” estimate of the cost of the right to buy extension. For all this money, neither scheme directly aims to increase housebuilding in an under-supplied market. It would be more sustainable to divert this money towards expanding supply, thereby creating assets to be released to the many rather than inflating the value of the insufficiently numbered homes we already have.

Instead, the right to buy extension, assuming that government is willing to fully compensate HAs for the discount they will be forced to provide when selling their property to their tenants, represents a pure financial transfer from the government to those tenants. It passes money to those who already have a home of their own (even if they do not qualify as owner occupiers) rather than investing that money in creating new housing for new occupiers.

The losers from this will, again, be the young, the next generation and the already homeless as more government money goes towards schemes which fail to acknowledge housing supply and long-term affordability as the key priorities within housing policy. Home ownership is a valuable ambition, and one with important social implications, but this policy risks promoting it at the expense of future citizens.

It might be argued that the policy, in swapping the asset portfolios of housing associations out of property and towards cash, will serve as an incentive to increase housebuilding within the HA sector, as cash is an asset with a very poor yield relative to property. Yet it is questionable whether housing associations in the round are the appropriate bodies to most efficiently deliver at scale housebuilding, as for many their skill sets are directed more towards smaller developments and community management.

The policy will serve as a distraction in two important respects. Firstly, it will distract from the wider issue of the rising shortfall in housebuilding, as a result of both its general thrust (prioritising ownership via short-term subsidies rather than by expanding supply) and also the potential legal wrangle over whether the many charitable housing associations are legally allowed to sell their assets for less than their full value. Secondly, by switching housing associations’ focus towards building new houses and away from managing their existing property, it will distract HAs from playing the unique and valuable role they occupy in creating vibrant communities and providing assistance to their tenants in areas such as employment and welfare advice.

Finally, the lag between sale and completing construction of replacement housing means that any promises to replace sold property on a 1-for-1 basis are only credible in the medium-run. Recent evidence suggests that even this may be too strong a statement: despite its long-established status, replacement builds for social housing sold under the original right to buy scheme lag well behind new sales, with Shelter estimating that sales outnumbered replacements by a factor of ten between April 2012 and September 2014. HAs will therefore be unable in the short-run to take on new tenants who may have struggled with private ownership or rental and find themselves in housing need – a vital role, stressed by David Orr of the NHF among others.

For these specific reasons, but also because it again signals a failure to think in terms of a viable long-term plan for housing of the kind for which the recent Homes for Britain rally demonstrated the popular demand, the extension of right to buy is a policy whose impact beyond the short-term will likely be to hinder rather than help in addressing either the escalating housing crisis or the wider goal of extending asset ownership. The Conservative Party’s proud history of housebuilding is at risk; a considered, long-term strategy is required if they are to regain that reputation.

Duncan Sim is a researcher at ResPublica, working within the Society Principle.