What does the Right to Buy consultation tell us?

To be clear, those of us who have worked in Housing Revenue Account (HRA) finance for any period of time will know the financial challenges that the RTB has brought over many years: selling valuable assets at an enforced undervalue – one which, at times and in some places, felt like a ridiculous level of giveaway; not being able to use the whole sales receipt to replace sold properties with new homes; having to sell to tenants who have clearly not paid in rent what they are getting in discount; and the adverse impact of RTB sales on proposals for regeneration and better use of land.

All of these are reasons, primarily financially driven, for wanting this policy to be mitigated. The impact of the RTB, the decline in social housing provision and the current housing crisis are inextricably linked.

“Council housing finance professionals have long argued for restrictions on the availability of the Right to Buy, the levels of discount and greater flexibility around the use of receipts”

That’s not to say that pathways to homeownership should not be encouraged, of course they should, but not to the detriment of having low-cost social rented housing available for those in the greatest need.

Since 2012, the so-called reinvigoration of the RTB has had a hugely negative impact on HRA business plans that were supposedly being set free from government intervention. While the rules that came along with this extension of discounts encouraged reinvestment in new supply in theory, in practice they struggled to achieve this. Instead, they created a bureaucracy around so-called one-for-one receipts, the like of which we’ve not seen since the 1980s.

Council housing finance professionals have long argued for restrictions on the availability of the RTB, the levels of discount and greater flexibility around the use of receipts. Some successes have been achieved, notably during and after the COVID period, but, overall, there was so much progress still to make.

The recent consultation and government response, with a commitment to legislate to restrict access to RTB in the context of increasing social housing supply, not only moves the dial, but potentially alters the narrative completely. 

The list of positive changes is numerous; these are just some: 

• Extending the minimum tenancy period before RTB can be exercised from three to 10 years 

• No RTB allowed for a new build for 35 years 

• Restriction of discounts confirmed and strengthened 

• Keeping all receipts for reinvestment by local authorities 

• The ability to spend those receipts in the HRA, with housing associations and ALMOs

• No need to find matched funding for receipts 

• Unlimited reinvestment into acquisitions as well as new build, including Section 106 properties from developers 

• Local authorities can use receipts alongside grant funding from Homes England and the Greater London Authority

• Ten years to spend receipts, compared with the current five

It honestly feels like all of the analysis and sector lobbying have paid off.

“There are a couple of areas where, short of actual abolition of the Right to Buy, the government may have gone further but hasn’t”

So, are there any stings in the tail? Well, there are a couple of areas where, short of actual abolition of the RTB, the government may have gone further but hasn’t: 

• There is still a presumption that if receipts are not spent locally, they should be ‘returned’ to the Treasury, even if the period to spend them has been increased significantly.

• The recent restriction of discounts led to a ‘spike’ in RTB applications, and therefore receipts, and these will still need to be spent in five years.

Of course, the very flexibilities in reinvesting receipts that we have been asking for are being granted at a time when we might expect the restriction on discounts and access to the RTB to lead to a massive drop in take-up. This might be characterised as near 100% flexibility, but with very little to be flexible with in future!

In summary, the fundamental proposition for local authorities with an HRA may best be expressed as:

• In the short to medium term, spend your receipts on new homes – alongside grant and other funding – to take advantage of the flexibilities now available; engage with Homes England and the Greater London Authority to maximise the potential to contribute to the government target of building 1.5 million homes over this parliament.

• In the long term, your business plan is likely to be much better off because of fewer RTB sales. Where they are sold, you should be able to replace the assets much closer to one-for-one.

Looking back over the past 30 years, these are generally positive times in relation to the RTB. Let’s make the most of them.

Steve Partridge, head, Savills Affordable Housing Consultancy