As published on ConservativeHome.Com
David Davis MP: How to revive the Right to Buy
Iain Duncan-Smith’s proposal to gift tenants’ their council houses if they hold down a job for a year was described by housing associations as ‘bonkers’, dismissing it out of hand. I would not be so discourteous, but serious problems remain nonetheless. It has the laudable aim of increasing the number of home-owners, but the massive perverse incentives inherent in the policy could lead not only to a loss of social housing stock, but a far smaller increase in home ownership than expected.
The proposals are patently unjust to those on low wages living in the private rented sector, who will not have the opportunity to receive their homes as gifts. It is also probable that giving away houses to those on low incomes will lead to property investors trying to snap them up, and creating dubious schemes to that end.
We already have a serious shortage of social housing in this country, and this policy will do nothing to reverse that. A much simpler and more attractive solution is to revive Right to Buy and expand it to include housing associations. The Government should meet the cost of the discount (which should be generous) and the housing associations should be allowed to spend the recovered capital on new social housing. This would have the benefit of increasing dramatically the number of available social houses and increasing the number of lower income homeowners.
I have to admit to a personal bias. In 2002, when I was shadowing John Prescott, I announced just such plans to reinvigorate Right to Buy, and to counter New Labour’s attempts to kill it off. It was a Conservative manifesto pledge in 2005, when we won more votes than Labour in England.
It is important to remember that social housing was always intended as a safety net, it was never for well-off tenants who can afford the market rate but are financially better off paying lower, subsidised rents. In Westminster alone there are over 2,000 social tenants earning £50,000 a year or more and 200 are on six-figure salaries. The late RMT union baron Bob Crow earned £145,000 a year, yet lived in a council house. These properties would be better used if they were allocated to those in need of the support subsidised housing provides, and if they could not be physically reallocated then this Right to Buy scheme would let us recycle the capital to create new housing.
Subsidised rent creates a perverse incentive to stay in social housing even if your income improves and you no longer need to. Because relatively well off sitting tenants can hang on irrespective of need those in real need end up languishing in temporary accommodation or, at worst, homeless.
Thatcher’s Right to Buy saw social housing sold to tenants at an affordable discount. This recognised that most social housing never changed hands. However, councils were forbidden from using the money to build new houses, and therefore this did not lead to the release of new social housing.
Right to Buy became a conduit for social mobility, as people in need earned their way to affording their own home. However, the number of people who own their homes has been steadily falling since 1992. This is part of the problem Iain Duncan-Smith is properly trying to reverse, but gifting homes is not the way to do it.
Key to the fall in home ownership has been the failure of supply to keep up with demand. Even though there are 6 million more households than in 1981, the number of new houses built each year has halved. in social housing the picture is even more stark. In the decade 1973-84, at a time of relatively stable population, 1.7 million new social dwellings were built. In the last decade the figure was 318,000, to cope with a population increase of more than 4.5 million.
Along with necessary planning reforms, expanding Right to Buy would go some way to solving both problems, in a way that is both revolutionary and tried-and-tested.
Allowing councils and housing associations to invest the money from social housing sales into buying replacements would provide a valuable stimulus for the construction industry. The (large) stream of capital could incentivise the building industry to release some of their land bank for social housing, and it certainly would send a clear message to those on low wages that the Conservatives are on their side.
The result: more homeowners, more homes and shorter waiting lists for social housing.
After implementing these rules Right to Buy would work in equilibrium. The money housing associations raised by selling houses would be used to acquire new houses, leading to a constant flow of tenants. This would free the capital tied up by people living in social housing but who can afford their own home and extend the opportunity of home ownership to those paying rent long-term, an investment they would otherwise never see a return on.
After announcing the policy in 2002, a senior Labour Cabinet Minister grudgingly admitted that this was an excellent policy and that he had no answer to it. It would deliver more social housing, more social mobility and more home ownership.
Housing Associations might resist change, but the numbers work perfectly well. When we first aired this policy over a decade ago I had recently stepped down from the Public Accounts Committee where we had unfortunately had cause to investigate the housing association sector, so I was familiar with its internal economics. Despite the claims of the sector, the economics of this scheme worked very well, and whilst it did not increase net social housing “stock”, it would dramatically increase available social housing for new tenants.
This policy would elegantly achieve a number of worthwhile policy aims. It would create more stakeholders in a property owning democracy. It would increase home ownership. It would increase social mobility by rewarding work, thrift, effort and ambition. It would reduce the monolithic nature of too many housing estates, and inject pride of ownership into them. From a Conservative viewpoint, what is not to like? I never understood why we dropped this policy after 2005; time to bring it back.