Alternative route

Love it or hate it the right to buy has remained one of the most significant housing policies throughout the past three decades. It has also been subject to marked policy changes in the post-devolution decade begun in 1998, with Scotland adopting a very distinctive approach to right to buy, compared with the policy changes in England, Northern Ireland and Wales.

RTB enables ‘better off’ council tenants with moderate incomes to purchase their homes at a substantial discount from open market vacant possession values. While there are some positive arguments in favour of RTB, it is not a policy that directly assists a significant number of low income households. Tenant purchasers tend to have higher incomes than households that become, or remain as, social sector tenants; albeit they also tend to have lower incomes than households moving into shared ownership and other low cost homeownership schemes.

In all four UK countries, RTB sales (including Northern Ireland Housing Executive sales to sitting tenants) rose in the early devolution years, in response to rising house prices (and house price expectations). From 2003 onwards sales began to fall, partly as prices had moved beyond the reach of tenants, and partly in response to the new policies the four countries introduced to limit the impact of RTB.

While sales fell over the devolution decade in all four countries, the levels of sales fell least in Scotland. By 2007, Scottish RTB sales had dropped to 7,420 homes a year - just over half the 1998 level. This compares with around a 60 per cent drop in England and Wales, and a more than 80 per cent drop in Northern Ireland. Over the decade as a whole, RTB sales in Scotland represented 23 per cent of what remained of the country’s social stock in 2007, compared with 32 per cent in Northern Ireland, 15 per cent in Wales and 13 per cent in England.

Setting limits

Since 1999 all the devolved administrations have introduced measures designed to limit the impact of RTB. In England, Northern Ireland and Wales the effective discount levels were reduced with the introduction of lower national, regional or local ‘caps’ on maximum discounts, while the Housing Act 2004 lengthened the qualifying time for RTB eligibility to five years and made a number of other detailed amendments to its operation in England and Wales.

In contrast Scotland introduced the ‘modernised RTB’ in 2002, under which tenants qualify for a 20 per cent discount after five years, and then an extra 1 per cent discount for each subsequent year of their tenancy, rising to a maximum of 35 per cent after 20 years. There is also a maximum cash limit of £15,000. However the ‘modernised’ RTB only applies to new tenants since 2002, and existing tenants are still eligible for the old RTB, which - uniquely - in Scotland is not subject to any cash cap on maximum discounts.

Scotland has also taken (and applied) the power to suspend the operation of the modernised right to buy in selected ‘high housing pressure areas’ (but not the old RTB). In contrast in 2003 England introduced a lower, maximum £16,000 discount cap in selected high housing pressure areas (including most of London and parts of the south east).

These measures have not just contributed to the substantial fall in the numbers of sales, but also the marked decline in the average level of achieved RTB discount in England, Northern Ireland and Wales (see graph: Cut price). However, average discount rates have not yet fallen in Scotland, as to date the great majority of sales have been under the old uncapped RTB, rather than the ‘modernised’ RTB.

Impact assessment

What does all this mean for Scotland’s social housing stock? My own economic assessment of RTB suggests the ‘discount’ levels of the Scottish modernised RTB are broadly in line with the economic value of RTB sales. This is because they are sales to sitting tenants with an entitlement to sub-market rent, who on average remain in residence for a further 15 years following the RTB sale. They are not open market sales with vacant possession.

On that basis, sales that provide sufficient receipts to invest in two new social rented dwellings from day one broadly balances out with the loss of three relets 15 years hence (based on the Treasury’s investment methodology). There is no need for a ‘one for one’ replacement since RTB households are the same households allocated their rented dwellings on the basis of housing need; it is just that post-RTB they occupy the dwellings as owners rather than tenants.

The critical issue arising from RTB sales is that, in the past, discounts have been at excessive levels, and that receipts from sales have not been used to re-invest in new rented stock. Rules on the use of receipts vary from country to country, but in all cases in practice they have been used predominantly either to reduce new central government financial provisions and/or to invest in the refurbishment of the retained council stock.

In the short run the cash limits in England, Northern Ireland and Wales have provided a ‘quick fix’ to bring down discount levels to a point where they represent value for money to the public sector. But in Scotland, the first decade of devolution has continued with sales at high values that impose a substantial net replacement cost on the public sector.

Nonetheless, modernised RTB in Scotland offers a better long-term balance between providing tenure choice to existing social sector tenants and protecting public sector finances, and thus the resources available for low income households. If there is a case for Scotland to consider further measures to reduce discount levels for pre-2002 tenants, there is a similar case for the other three countries to consider structural reforms to the RTB along similar lines to the Scottish ‘modernised’ RTB.

There’s a twist, however. The economic evaluation above does not support the case for the suspension of RTB in high pressure areas, or its total abolition, provided that discounts are not excessive. But then - devolution or not - attitudes to RTB on all sides of the UK’s borders remain highly polarised and seem to be guided more by love or hate than detached evaluation.

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