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Right to Buy is making the housing crisis worse. Here's how to reform it

The government should ban private landlords from buying former council housing and abolish discounts on the properties.

A resident walks towards council run housing in Lambeth on London. Photograph: Getty Images.

In October 1980, Margaret Thatcher’s first Housing Act as Prime Minister introduced the Right to Buy. Over 30 years later, this flagship policy, which was ostensibly about helping aspiring home owners, has facilitated the transfer of thousands of council homes into the hands of private landlords.

Yesterday I published a report, From Right to Buy to Buy to Let, which shows that at least 36% of all homes sold under Right to Buy in London are now rented out privately. Surely there could be no better indication of the extent to which the policy has represented poor value for money to both taxpayers and local authorities alike?

In the case of taxpayers, not only did they pay to build the home, they then subsidised the considerable discounts offered to tenants and then – once the homes were sold – missed out on the rental income that would have covered the build costs. To add insult to injury, with 36% of former council homes now in the private rented sector, taxpayers are left to foot the bill for extra housing benefit to cover excessive, unregulated, private rents. This is because many of these homes will be let to benefit claimants, while many would-be council tenants are now forced into the private rented sector. In some London boroughs, the average housing benefit claim by private sector tenants is over £100 a week – £5,200 a year – more than council tenants.

Even more absurdly, local authorities are now frequently forced to rent their former homes back at market rates to discharge their statutory homelessness duties. Right to Buy has led to the pillaging of local authority housing budgets by central government, and handed a huge state subsidy to those council tenants fortunate enough to be able to raise a deposit. Eric Pickles’s recent announcement that discounts will increase from 60% to 70%, meaning homes can be bought for less than a third of their market value, is nothing short of Whitehall-sanctioned robbery of taxpayers and local authorities alike.

Why on earth should taxpayers, paying sky high rents in the private sector with no hope of raising a deposit to buy a home, subsidise better off council tenants to buy their home? Had local authorities been required to replace the homes sold, the situation today would no doubt be rather different. But not only was there no requirement for them to do this, they were actively prevented from doing so because receipts from Right to Buy sales were kept by the Treasury. To a great extent, the causes of London's current housing shortage can be directly traced to this decision.

When the coalition announced they were reanimating the corpse of Right to Buy, they made much of their commitment that every home sold will be replaced. Yet in London it takes 1.6 sales to fund one new property, with no guarantee that the replacement will match the size or rent of the home sold.

My report makes the case for significant reforms to Right to Buy. Most notably, in recognition that Right to Buy should be about genuinely supporting aspiring home owners, it shouldn’t be possible for these homes to ultimately line the pockets of under-regulated private landlords. Covenants should be placed on these homes to ensure they are never let privately and breaking this covenant should be a criminal offence, as it is to illegally sublet a council flat. Discounts, which force local authorities to write off a huge proportion of a property’s market value, should be abolished. In the spirit of localism, councils should have a "right not to sell" if it is not in the community interest to do so, or if it would undermine their ability to respond to local housing need. Finally, if a home is sold, it should be replaced; one-for-one and genuinely like-for-like.

Housing is the greatest challenge facing London and is the most significant threat to the capital’s economic future. Right to Buy, as it is currently constituted, has played a central role in causing and exacerbating London’s housing crisis and inflating welfare spending. Reform is long overdue.

Tags:Housing