Right to Buy receipts and shared ownership by Simon Little

Since the Right to Buy scheme began in October 1980 nearly 1.87 million homes have been sold under the system. Councils were encouraged by the idea that the properties sold would be replaced, keeping council stock new and up to date. This has not been the case in recent years, being exacerbated by the extension of the Right to Buy scheme to housing associations.

A recent focus has been on the use of Right to Buy receipts to re-invest in new properties. Currently councils can only spend 30% of the receipts on construction costs; however the Local Government Association has recently declared that local authorities should be able to spend 100%. The Association further calls for increased freedom for councils to borrow and invest. An article in The Times notes that since 2012 nearly 55,000 homes have been sold under the Right to Buy yet only 12,000 have been replaced. This shortfall has inflated the already overheated housing market.

The Affordable Homes Programme has been implemented by London mayors to assist councils with financing building projects. This funding comes with many restrictions which have discouraged London councils from bidding for a share of the pot. One such restriction is that Affordable Homes Programme monies cannot be combined with Right to Buy receipts on the same scheme and Right to Buy receipts must be spent within three years. This impact is intensified by the income from Right to Buy receipts growing from £4.7 million in 2014 to £5.9 million in 2016. The current Mayor of London has pushed for the rules surrounding Right to Buy receipts to be relaxed, however the Government expects councils to borrow the money required to build the much needed homes. Such funding is not easily obtained; with Brexit looming it is unlikely that any extra funding will be made available.

The Treasury advisor, Arlingclose, proposes a solution whereby Right to Buy receipts are used to purchase part of an open market home, with the remaining portion of the equity bought by a local resident. The buyer would pay rent on the council’s 30% share, this being known as the Open Market Shared Ownership model. Over 50 councils have supported such a move due to the decline in social housing tenants and the reduction of private landlords. The latter is demonstrated by a 50% decline in buy to let mortgages granted in the last year. This solution allows additional shared ownership units to be added to the council’s portfolio without the need to build new housing. Shared ownership is attractive not only to growing numbers of first time buyers but also recent divorcees who lack the capital to buy a home outright.

Arlingclose’s proposals are a colossal change to current council funding. This request to review the current arrangements and the possibility of using Right to Buy receipts to contribute to the open market shared ownership scheme was submitted in June 2017, we all await the outcome.