Councils’ ability to replace homes sold under Right to Buy (RTB) will be all but eliminated within five years without major reform of the scheme, new analysis from the Local Government Association reveals today.
The current Right to Buy system only allows councils to keep a third of each RTB receipt to build a replacement home and prevents local authorities from borrowing to make up the shortfall.
A new analysis by Savills, commissioned by the LGA, examines the impact of continued restrictions on councils’ ability to borrow to build new homes to find that:
- Two thirds of councils will have no chance of replacing homes sold off under Right to Buy on a one-for-one basis in five years’ time unless a significant restructuring of the scheme takes place
- Around 12,224 homes were sold under RTB last year. Faced with ongoing borrowing restrictions and based on the levels of sales remaining consistent, the analysis estimates that in 2023 councils would only be able to replace approximately 2,000 of these homes
- Less than a third of councils would be able to sustain any kind of one-for-one replacement of homes sold under the scheme in five years’ time.
Additional rules applied to Right to Buy, including a significant portion of all receipts being handed over to the Treasury rather than the communities in which the homes are sold, are hampering the ability of local authorities to re-invest in housing.
The LGA said that, in the last six years, more than 60,000 homes have been sold off under the scheme at a price which is, on average, half the market rate, leaving councils with enough funding to build or buy just 14,000 new homes to replace them.
This leaves a shortfall of 46,000 homes which could have provided secure affordable housing for key workers, victims of domestic violence, veterans, people facing homelessness, and others in desperate need of a home they can afford.
The UK’s average family size is 2.4.
Applying this to the number of homes sold off reveals that councils have lost enough homes to house the populations of Basingstoke, Worcester or Lincoln.
The LGA is warning that without a fundamental re-examination of how the scheme is funded, the Right to Buy, which helps families and individuals who otherwise wouldn’t be able to get on the housing ladder into home-ownership, faces becoming a thing of the past.
Councils are therefore calling for a comprehensive package of reform to the funding of Right to Buy, including allowing all councils to borrow to build new homes, enabling local authorities to keep 100% of all sales receipts, and for councils to have the ability to set Right to Buy discounts locally to reflect community needs.
Cllr Martin Tett, LGA housing spokesman, acknowledged that Right to Buy “changes lives” and it was essential that it continues to do so.
“However, we are now in a situation where without fundamental reform of the way the scheme is funded, this vital stepping stone into homeownership is under threat.
“Councils urgently need funding to support the replacement of homes sold off under the scheme, or there’s a real chance they could be all but eliminated. Without a pipeline of new homes, future generations cannot benefit from the scheme.
“Enabling all councils to borrow to build and to keep 100% of their Right to Buy receipts will be critical to delivering a renaissance in house building by councils.
“If we’re to truly make Right to Buy sustainable, we must also move towards greater flexibility on discounts locally so we can reflect local community need.
“Councils are closest to their communities and it’s essential this money is reinvested in homes in those areas so our residents can access secure, affordable housing.
“This money is badly needed to deliver homes for our residents – instead of resting in an account in Whitehall, it should be sent back to where it belongs.”
Steve Partridge, a director at Savills Housing Consultancy and author of the report, said given unrestricted access to matched funding alongside one-for-one receipts, councils have the capability to deliver an annual national replacement rate of around 1.3 to 1 – that would be around 16,000 homes against annual Right to Buy sales of around 12,200 homes.
“However, this masks a radically different picture at the regional and local level where receipts are insufficient to deliver anything near to one-for-one replacements in all five northern and midlands regions.
“It is clear that with flexible support local authorities can more than replace those homes sold under the Right to Buy. The lifting of debt caps would need to form an essential part of this support.
“The government programme for lifting borrowing headroom announced in the Budget and shortly to be consulted on is a very useful first step and will be seen as a welcome opportunity for many authorities to achieve a bigger replacement programme.”