The Right to Buy Scheme and the UK's Social Housing Crisis

Introduction:

In 1980, under the government of Margaret Thatcher, the Housing Act was passed. This gave local authority tenants the right to be able to purchase their house without the previously necessary local authority permissions. Suddenly, over 5 million tenants were now able to purchase their homes (Eardly, 2022), which did not come without consequences, both socially and economically.

This essay argues that scrapping right to buy scheme is not the correct decision to ease the UK social housing crisis. It will consider both the benefits and consequences of the right to buy (RTB) scheme, as well as other measures that can be used to ease the crisis, such as RTB and planning reforms.

The UK Housing Crisis:

The housing crisis in the UK can be referred to as ‘one of the biggest economic and social challenges the country faces’. (Breach, 2023) We can see in figure 1, as of June 2021, there were almost 1.6 million people on local authority housing registers. This represents an effective 27 year backlog if the current rate at which we are building social housing were to continue. The current housing crisis has been caused by low levels of housebuilding over recent years, due to rising costs for materials (a rise of 24.5% during 2021) (Hemming, 2024), and the UK’s planning system which is said to cause this shortage of homes by making it very difficult to build’ (Breach, 2022), resulting in the demand for social housing far exceeding supply. As we know from basic supply-demand economics, this has resulted in a significant increase in both property and rent prices in the private sector as many people who qualify for social housing are not able to have their needs met by the local authority, so have been forced to enter the private market. In fact, house prices have risen by over 1070% between 1980 and 2018. (Land Registry, 2018) This can have many consequences, most notably a significant rise in homelessness as people have been unable to afford rising rent costs. According to the National Housing Federation, it is estimated that if we do not act, 5.4 million households will be paying a third of their income on housing costs (NHF, 2023) - this is completely unsustainable and proves to us that something must be done to ease the UK housing crisis.

Why was the Right to Buy Scheme Implemented?

The RTB scheme was widely celebrated at the time of its introduction, and it can even be said that it contributed to the Tory election victory in 1979. (Birch, 2013) It has always and probably will always be a key aspiration for people to own their own homes, (According to a YouGov poll in 2021, 76% of Brits would like to) (Pheby, 2021) so it is clear to see why the policy was so popular at the time. Michael Heseltine, the secretary of state for the environment when the scheme was introduced, even stated that: ‘There is in this country a deeply ingrained desire for home ownership. The Government believe that this spirit should be fostered.’ (Heseltine, 1980) For each of the first three years of the scheme there were over 100,000 homes sold, (Eardly, 2022) demonstrating its popularity at the time. Therefore, we can see that British people were given what they wanted by the right to buy scheme, making it an important political decision.

Furthermore, the scheme aimed to, as Michael Heseltine stated: ‘reverse the trend of everincreasing dominance of the State over the life of the individual.’ (Heseltine, 1980) This aligned the RTB scheme with other key conservative policies in the 1980s related to privatisation- this was simply the privatisation of housing. In this way the scheme presented a further reduction in the welfare state, instead allowing the free market to control housing more than ever before. (Cooper, 2020) Private owners would now be responsible for the upkeep of their properties, which would help to reduce the ‘burden on local property taxpayers’, as local councils would no longer have to subsidise rent and maintenance costs. (Disney and Luo, 2015) This, combined with the monetary injection that the RTB scheme would bring for local councils as a result of the selling off council housing stock (even at a reduced price), provided a large financial incentive for the scheme’s implementation at the time.

Finally, the RTB scheme aimed to greatly reduced barriers to homeownership for some of the lowest income groups in society, which played a large role in increasing social mobility and sparking a culture of wealth creation. ‘Communities of different social classes’ (Bradley, 2022) were created, demonstrating how the scheme brought people from many different incomes and backgrounds together, helping to reduce inequality. More people were now able to get on the property ladder, and the policy helped homeownership in the UK increase from 55% of householders in 1979 to 71% in 2003, (The Week, 2024) reducing inequality by benefiting some of the poorest people in the country.

Consequences of the Right to Buy Scheme:

Although the RTB scheme had clear benefits, many would suggest that these were outweighed by its various consequences. For a start, the scheme led to a large reduction in social housing stock. We have already seen in figure 1 the large waiting lists for social housing, and this was undoubtedly somewhat caused by the selling off of over 2 million homes under the RTB scheme. (Department for Levelling Up, Housing & Communities, 2024) This created a large housing shortage, which resulted in many people who would usually be eligible for council housing being forced to enter the private sector. In figure 2, we can see how the affordable housing stock per 1000 people has declined since 1980. It has decreased by over a third, which can be attributed to the selling off of social housing stock under the RTB scheme. As we mentioned earlier, this led to a large expansion of the private sector, pushing up the prices due to the increased demand. The private sector was further expanded due to many of the sold off council properties entering the market- in fact over 41% of all council houses sold under the RTB scheme are now being let on the private market! (New Economics Foundation, 2024) These were homes meant for the poorest of society that are now being let at market rates in order to maximise profits for their owners. Therefore, we can see that there is a supply side market failure present in the housing market- the market has failed to provide housing at socially optimal levels. As a cost of this market failure, we have seen a negative externality on the general public, as there has since been a rise in households claiming housing benefits which must be funded by the taxpayer. (Hill, 2022) In fact, ‘one study calculated that the higher cost of accommodation in the private rented sector in a local authority led to an additional cost of £3.2 million per annum compared to the equivalent in social renting.’ (Cole et al, 2015) Scrapping the RTB scheme would certainly prevent more people in the future from claiming this benefit through helping to preserve the remaining social housing stock.

Despite the fact that the RTB scheme did help to reduce barriers to homeownership for some of the poorest in society, it can also be argued that its overall effect was actually to increase inequality in the UK. Often, the very poorest in the country were not able to afford to buy their homes, in fact only the most well off council tenants were able to. Inequality can also be looked at through geographic disparities in sales. Often, homes in popular urban areas are the first to be sold. This is represented in a recent government report- we can see that ‘In 2023-24, approximately 50% of the total number of sales were made by 19 Local Authorities, all of which were urban centres’. (Ministry of Housing, 2024) This has reduced affordable housing availability for people in the most expensive areas, having the opposite effect to what was intended by the scheme. Therefore, we have seen trends of low income households being concentrated in less desirable areas, exasperating regional inequalities.

Furthermore, intergenerational inequality has also increased in the UK as a result of the RTB scheme. We have just seen in figure 2 how the remaining housing stock per capita is much less than ever before in the UK, caused by the selling off of social housing stock under the RTB scheme. This has made it much more difficult for young people, especially those from low income backgrounds, to find affordable housing. Future generations will also struggle to get onto the housing ladder as their ability to save for homeownership will have been reduced from being forced to rent in the more expensive private sector. In figure 3, we can see the average housing value and equity among home owners by age. It shows that the RTB scheme has resulted in large generational wealth divides, and those who were born in the post war years have benefited the most. These people were at the right age (around 30- 40) to benefit from the scheme when it was first announced, and many were able to buy their homes, leading to this pattern of wealth distribution. (Arundel, 2017) Future generations will struggle greatly to find social housing if the stock is not increased, and therefore it can be argued that the RTB scheme should be scrapped in order to prevent a worsening of the UK housing crisis.

Conclusion/Policy Recommendations:

Overall, it can be argued that the UK’s housing crisis was not totally caused by the RTB scheme, but also due to the government’s failure to construct new affordable homes. The RTB scheme cannot realistically be scrapped without significant political losses for the government, and we have also seen some of the large benefits that it brings to the country, such as through helping some of the poorest in society get on the housing ladder. Therefore, I recommend a multi-faceted approach towards solving the housing crisis. Firstly, RTB discounts must be significantly reduced, and all homes should be replaced at a one-to-one rate in the same (or as close as possible) geographic area where they were sold. This is entirely possible, as it has been calculated that ‘it should be possible to fund new homes let at Affordable Rent levels, with no more than 30% of the cost of the new homes needing to come from the RTB receipts.’ This can be done by ‘borrowing against the net rental income stream from the new property’ (Communities and Local Government, 2012) Furthermore, I recommend that the government reverse their decision to stop councils from retaining 100% of their RTB receipts. This money should instead be reserved for local authority housebuilding. At the same time as this, we must totally reform the planning system, bringing it in line with most other Western countries by removing limiting regulations such as green belts around major cities. (Breach, 2022) This will incentivise private firms to invest in housing in the UK. Finally, if these measures don’t prove to be enough to solve the housing crisis, there is also an option to impose a land value tax. This will help to end the speculative holding of land and will encourage developments on currently disused land. It can easily replace other taxes such as council tax, and thus have little impact on the regular person. (Jones 2008) In these ways, we will be able to solve the UK housing crisis without totally scrapping the RTB system, although a reform is definitely necessary. Overall, a combined approach consisting of right to buy and planning reforms, as well as large scale social housing construction is essential to solving the UK housing crisis. Addressing this crisis is not just economically beneficial but is also a moral necessity to ensure the fundamental human right to adequate housing is fulfilled.

Works Cited:

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2. Breach, A. (February 2023), ‘Housing’, Centre for Cities, [Online]. Available at: https://www.centreforcities.org/housing/ (Accessed: 29 January 2025)

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20. Arundel, R. (February 2017), ‘Equity Inequity: Housing Wealth Inequality, Inter and Intra-generational Divergences, and the Rise of Private Landlordism’, [Online]. Available at: https://www.tandfonline.com/doi/full/10.1080/14036096.2017.1284154 (Accessed: 1 February 2025)

21. Communities and Local Government, (March 2012), ‘Reinvigorating Right to Buy and One for One Replacement’, [Online]. Available at: https://assets.publishing.service.gov.uk/media/5a795fdce5274a2acd18c50a/2 102589.pdf (Accessed: 2 February 2025)

22. Breach, A. (December 2022), ‘A very short guide to planning reform’, Centre for Cities, [Online]. Available at: https://www.centreforcities.org/publication/a-veryshort-guide-to-planning-reform/ (Accessed: 2 February 2025)

23. Jones, J. (2008), ‘How a land value tax would help resolve Britain’s housing crisis’, [Online]. Available at: https://www.labourland.org/downloads/papers/HousingCrisisPaper.pdf (Accessed: 2 February 2025)