Sold out

Originally posted on August 17 on Inside Edge 2, my blog for Inside Housing

Can the government afford to be complacent about the rate at which right to buy homes are falling into the hands of private landlords?

Pete Apps’s freedom of information investigation for Inside Housing revealed that 38 per cent of former council houses in 91 local authorities are now rented privately. The proportion is as high as 65 per cent in places like Milton Keynes and Stevenage. This figure is for leasehold council flats but there seems no reason to think that the rate for freehold houses will be significantly different, given that many were originally sold longer ago.

It also seems reasonable to suspect that this rate has been increasing over time in line with the growth of buy to let in the wider housing market:

• Private renting has long since overtaken social renting as a tenure and on its current trajectory will overtake buying with a mortgage by the early 2020s
• CML statistics for the second quarter show that loans to first-time buyers were down 8% on a year ago but buy to let loans were up 25%
• Latest DCLG estimates show that 90% of the 137,000 homes added to the stock in the year to March 2014 were private rented. Between 2010 and 2014, the owner-occupied stock shrank by 186,000 while the private rented stock grew by 676,000.

Right to buy sales since 1980 total 1.92m in England and 2.55m in Great Britain. On a transfer rate of 38%, 730,000 could now be in the hands of private landlords in England and 970,000 in Britain.

That’s enough to be a significant factor in the overall decline of owner-occupation in the last few years. Right to buy was part of a rapid expansion in mortgaged ownership in the 1980s before it levelled off and then began to fall from around 2003. The last English Housing Survey showed that the overall home ownership rate has fallen to just 63.3%, the same as in 1985.

The mythology of right to buy says that it was the key to Mrs Thatcher’s creation of a property owning democracy. But with ownership rates plummeting among younger people and are even down among 45-54 year olds it didn’t last long.

And if the right to buy has failed to create a stable property owning democracy, what of the other Conservative justification for it: the elimination of so-called ‘barracks of the poor’?

Depending on their location, ex council homes can be sold for huge sums (see Saturday’s Guardian for one example) or provide badly needed homes for Generation Rent. But it seems likely that many more are still being rented to people who would once have qualified for social housing but now pay much higher rents, and receive much higher housing benefit, for ex-right to buy homes. Private rented ex right to buy stock may also be one explanation for the mistaken perception that migrants are jumping the queue for social housing.

The government clearly sees the extension of the right to buy to housing association tenants as a crucial element in its Help to Buy-driven strategy to arrest this decline. The NHF estimates that 221,000 households will have the right and the means to buy. As things stand, 100,000 or more of these could eventually end up in the hands of private landlords.

But the association right to buy discounts will be funded by forcing councils to sell off an estimated 210,000 ‘expensive’ homes as they become vacant. It would not be a surprise to see an even greater proportion of them transfer straight from social to private renting without ever being owner-occupied at all.

The details, including the precise definition of ‘expensive’, have yet to be worked out. But the implications are alarming people right across the political spectrum, and especially in London. At the very least, the government could look at an idea advanced by Labour’s Tom Copley last year: mandatory covenants on right to buy properties to ensure that they cannot be privately rented.

I’ll leave the rights and wrongs of the new right to buy, and the feasibility of one for one replacements, for other blogs. Pete Jefferys has an interesting take on this on Shelter’s policy blog.

Seen from the government’s perspective, the promotion of home ownership among tenants may seem justification enough for the policy. Brandon Lewis told Inside Housing that extending the right to buy is ‘part of our wider efforts to help anyone who works hard and wants to own their own home achieve their dream’. However, it should alarm ministers that so many of the long-term gains look set instead to go straight into the pockets of private landlords. There are no benefits – and no votes – for the government in that.