LGA submission to MHCLG’s consultation on Reforming the Right to Buy

• The LGA welcomes that Government has taken on board the key concerns of the sector on the Right to Buy scheme, which has been reflected through this consultation and earlier changes to the scheme. It has become increasingly impossible for local authorities to replace homes as quickly as they are being sold; the LGA has long-called for reforms to the scheme and these measures have been a step towards replacing sold homes and ensuring the sustainability of social housing stock. The government needs to take further measures to give local authorities more flexibility and control over how the scheme operates in their areas, to ensure it is working for their residents, housing market and local area.
• With more than 123,000 households in temporary accommodation and more than 1.33 million households on a social housing waiting list, we are facing a chronic shortage of social housing. We are calling on the government to continue taking action to reform the Right to Buy scheme to ensure that it is fit for purpose and does not hinder the development of good quality, sustainable social housing stock. Primarily, local authorities need to be given the control, power and flexibilities to shape the Right to Buy scheme to best serve their local housing market and residents needs; with the power to set the discount rate, exempt newly built properties in perpetuity and protect their investment in retrofitting or improving their existing stock.
• During the period 30 October and 20 November, there was a significant increase in the number of Right to Buy applications made by social housing tenants in response to the reductions in discounts available on their properties. Some local authorities reported receiving more applications in that three week period than over the course of a typical year. This has resulted in significant resourcing challenges for local authorities as they try to meet the statutory timescales for accepting applications. We urge the Government to consider undertaking research to determine how many applications were made across the country in this time period, how many applications will be accepted, and the resultant number of social housing stock lost. The Government should then clarify what steps they intend to take to offset this loss of social housing stock. 

Question 1: How long do you think someone should be required to be a secure tenant before qualifying for the Right to Buy?

We believe the qualifying period for secure tenants in social homes to purchase their property should be increased to a minimum of 15 years, with local authorities given discretion on the discount available to account for the number of years in which rents have been paid. 

Given the chronic shortage of social homes, with over 123,000 households in temporary accommodation as of June 2024 and 1.33 million households on waiting lists for social housing in March 2024. We consider this would better support local authorities to rebuild their stock of homes, whilst still giving tenants the opportunity to purchase their home through the scheme.

Question 2: Should someone be prevented from exercising the Right to Buy if they have already benefitted from the Right to Buy or if they own another property?

Yes.

We agree that someone should be prevented from exercising the Right to Buy if they have already benefitted from the scheme or if they already own another property. The main purpose of the Right to Buy scheme as originally envisaged was to allow local authority tenants to buy their homes at a discount, thus making home ownership more accessible.   

Question 3: Do you have any other views of criteria to determine eligibility for the Right to Buy?

The affordability of home ownership for tenants is a growing concern for local authorities. While the upfront costs of purchasing their home through the Right to Buy scheme are generally within reach for tenants, the long-term costs of maintaining the property can be more challenging. This is especially true for leasehold properties, where local authorities are increasingly focused on retrofitting and making necessary improvements to meet net-zero targets. A proportion of these costs may therefore be the responsibility of leaseholders depending on the nature of the work and the lease agreement. 

Another concern raised by local authorities is the use of third-party funding to facilitate Right to Buy purchases. Many authorities have reported instances where sales have been made to households receiving housing benefit or Universal Credit, with funds from family members, associates, or other external sources being used to secure the purchase. The sale of much-needed social housing to those on benefits, with financial support not directly coming from the household itself, is seen by many authorities as inequitable.

One potential solution to these concerns would be the introduction of an affordability criterion to determine eligibility for the Right to Buy. To qualify for a Right to Buy mortgage, a tenant would have to meet the same affordability criteria as other mortgage applicants. However, this is only to provide reassurance that a household can afford mortgage repayments not other ongoing maintenance costs and day-day. Further reassurance could be provided through a financial health check, conducted by the authority, to assess the named tenant's ability to afford both the purchase and ongoing maintenance costs. Such a measure would ensure that those exercising the Right to Buy are financially capable of owning and maintaining their homes in the long term. Further consideration would need to be given to how this could be resourced; any new responsibilities given to local authorities would need to be covered by new burdens funding.

Question 4: What level should the percentage discount for an eligible tenant start at and what level should the maximum percentage be?

Local authorities should be empowered to set their own discount levels, including the option to set a minimum discount of 0 percent. This would remove the economic advantage of tenants purchasing social homes in their area at a discounted rate and help support local authorities to rebuild their stock of homes.

While this approach may lead to varying scenarios between neighbouring local authorities, local authorities are best placed to make decisions that reflect the unique economic circumstances of their own communities. 

A nationally set maximum discount does not offer the flexibility needed to ensure that discount levels align with local conditions. Regionally set maximum discounts, on the other hand, would better account for local house prices, housing needs, and the costs of replacing properties. Although it is important to note that average house prices can still vary widely even within individual local authority areas, so care would need to be taken in adopting such an approach. As highlighted in Savills research commissioned by the LGA, “regional maximum discounts could be set to strike the optimal balance between sales, receipts, and replacements, thereby providing a much greater sense of value for money for the public purse.”

Question 5: Do you agree that the same rules governing percentage discounts should apply to flats and houses, and that the discount should increase by one per cent for every extra year that an individual has been a public sector tenant, up to the maximum?

We support the proposal that the same rules governing discount percentages should apply to both flats and houses. The current system is inequitable and has led to larger discounts for socially rented flats, which are often in high demand within local areas.

However, local authorities should have the flexibility to control the percentage increase in discounts for each additional year an individual has been a public sector tenant.

Question 6: Do you agree that cash caps should be retained alongside discounts capped at a percentage of the market value of the home?

Yes.

We support the retention of cash caps alongside the discounts capped at a percentage of the market value of the home. The removal would result in areas with higher house price areas seeing discounts that are significantly in excess of the new proposed cash caps, negatively impacting housing stock and ultimately increasing the current pressures on local authorities to address local housing need.

Question 7: Do you agree that the current exemptions to the Right to Buy scheme should be retained? If yes, please outline any changes that should be made to the exemptions.

Yes.

Local Authorities should be given the discretion to exempt specific property types from the Right to Buy scheme across a designated period of time, in order to reflect local supply and demand. This would allow local authorities to protect property types that are most needed in their areas, such as large family homes, adapted properties, and those in rural or village locations.

If local authorities can demonstrate a shortage in supply for certain types of properties, for example by demonstrating need from their local housing waiting list, they should have the flexibility to exempt specific property types from purchase through the Right to Buy. For instance, local authority areas that include Designated Protected Areas or National Parks face significant challenges in replacing housing stock once it is sold under Right to Buy. While exemptions in rural areas could address some of these issues, granting local authorities broader powers to exempt specific property types when there is a clear local need would provide the flexibility to respond to changing housing demands and market conditions.

The demand for certain property types will fluctuate across different areas and over time. By allowing local authorities the discretion to apply exemptions, the Right to Buy scheme could better reflect these local pressures and ensure that housing policies remain responsive to evolving needs.

Question 8: Should newly built social housing be exempt from Right to Buy? If yes, please explain why the existing cost-floor provisions are insufficient.

Yes.

Newly built social housing should be exempt from the Right to Buy scheme in perpetuity. For this to be fully accounted for in local authority housebuilding programmes and planning, this should apply to all properties that will commence delivery from April 2025. Additionally, local authorities should be given flexibility to remove these exemptions on newly built social housing when they feel it is appropriate.

In many areas, the existence of the Right to Buy scheme serves as a disincentive to developing new properties, particularly during periods of economic uncertainty. Local authorities run the risk of not only losing the stock of homes in which they have invested heavily, but also making a financial loss.

Whilst we are welcoming of the Government increasing the cost floor protection from 15 years to 30 years, as announced at the Autumn Budget, this is still not sufficient and does not act as a proper incentive to local authorities to develop new social homes. The cost floor should be an indefinite protection for properties purchased through Right to Buy.

Given that the existence of the cost floor mechanism is to ensure costs are recovered, and in the case of new build units, to (in theory) enable the further replacement of the sold unit, there would seem to be a strong case for allowing the cost floor to be increased by inflation, specifically an index based on construction cost inflation, in order to ensure that this mechanism still serves its purpose. 

Question 9: If yes, how long after construction should newly built social housing be exempt from the Right to Buy?

Newly built social housing should be exempt in perpetuity. There will likely be differing views among local authorities regarding the length of time newly constructed social housing should remain exempt. However, it is essential that local authorities are able to recover the cost of building newly built social housing at the point of sale, to avoid both financial losses and the depletion of in-demand housing stock. 

An in-perpetuity exemption period would provide local authorities with a stronger incentive to build new housing stock and help mitigate the financial risk associated with these investments. Additionally, exemption in perpetuity would be a step towards long-term sustainability for social housing, by enabling local authorities to replace the units sold, thereby maintaining the overall housing supply.

Question 10: How can local authority investment in retrofitting or improving homes to a high standard be protected under the Right to Buy scheme?

To protect local authority investment in retrofitting or improving homes to a high standard under the Right to Buy scheme, specific safeguards are needed. Currently, local authorities face a significant risk when investing in retrofitting and renovation, as they may not fully recoup these costs if the property is sold through the Right to Buy. Extending the cost floor protection indefinitely could help mitigate this risk by ensuring that local authorities are not financially penalised for investing in improvements.

Additionally, exemptions for newly improved or refurbished homes should be considered to provide adequate protection and encourage local authorities to invest in upgrading existing stock. Such measures would incentivise local authorities to improve housing quality, knowing that their investments would be safeguarded.

The financial challenges associated with retrofitting, especially in the context of net-zero targets, are already significant for local authorities. Recent research from Savills shows that the additional cost of meeting net zero by 2050 is now over £25 billion. These challenges are further exacerbated by the potential sale of improved properties through Right to Buy, which undermines the long-term sustainability of such investments.

Question 11: If answering on behalf of a local authority, would exemptions to market rent homes have a significant impact in allowing more cross-subsidy for the building of affordable housing?

Yes.

Exemptions should also apply to market rent homes to incentivise increased delivery of market-rent homes by local authorities. Individual local authorities are best placed to provide evidence or case studies demonstrating the impact of this in allowing more cross-subsidy for the building of affordable housing. They should also have the flexibility to remove exemptions in order to reflect local housing markets and needs.

Question 12: Should the time period in which the local authority has the right to ask on the sale of the property for repayment of all or part of the discount received be increased from five years to 10 years?

Yes.

We support the proposal to increase the time period in which the local authority has the right to ask on the sale of the property for repayment of all or part of the discount received from five years to 10 years. The local authority should also have first right of refusal before a property goes to market sale if the property is sold within 10 years.

Question 13: Do you have any other views on restrictions that might apply to a property following its sale under the Right to Buy? 

The government should consider implementing restrictions to address the number of Right to Buy properties that end up in the private rented sector. 

2023 Savills research estimates that 40 to 50 per cent of former Right to Buy properties are now in the private rented sector. A high number of authorities report estate management issues, including challenges when work is needed to retrofit or improve a property that contains multiple dwellings, forming a key driver for many authorities having repurchasing programmes for former Right to Buy properties. Furthermore, properties ending up in the private rented sector sits at odds with the main purpose of the Right to Buy scheme which is to support home ownership.

To address this, the Government should consider introducing a requirement that all property sold under the Right to Buy scheme are subject to restrictive covenants relating to properties being rented privately. This could be aligned with the restrictions on letting in the First Homes policy. Furthermore, if an owner wishes to sell, at the point of sale the local authority should get right of first refusal on re-purchase irrespective of the time that has passed since the original sale.

This approach could address the management issues associated with privately rented former social units purchased through the Right to Buy scheme and promote sustainable home ownership, while helping to rebalance social housing stock.

An alternative approach would be to require purchasers to use the property as their sole and main residence throughout the repayment period. If it is permanently rented privately during that period, then the discount received upon purchase should be repaid. We recognise this could require administrative capacity to monitor adequately - this could be mitigated by requiring Right to Buy purchases to inform the local authority of any change in use (e.g., being let out) during the 10-year repayment period. 

The government should also consider introducing further restrictions that might apply to a property after it has been sold to ensure they are retained in active use as a dwelling house. This could further address the issue of former Right to Buy properties becoming short-term lets, buy-to-leave properties, or being converted into other use classes.

Question 14: Should there be a target for all local authority homes sold under the Right to Buy to be replaced, as far as possible, with a home of the same size, tenure and/or location as the home sold? Please provide detail to support your answer and indicate which consideration is the most important (tenure, size or location).

Local authorities are already committed to replacing homes sold under the Right to Buy scheme, however this is very challenging in the current financial landscape. The costs associated with replacing a local authority home are often above the value received through Right to Buy receipts, and this will likely remain the case even with the recent reduction in discounts. A like for like replacement target would not provide local authorities with the flexibility needed to fulfil local housing needs.

Replacement of homes should be dictated by local housing needs; local authorities are best placed to understand this and develop social housing stock that best serves the residents of the communities they serve. It is vital that local authorities have the autonomy on the decision making around replacement to ensure they are meeting the needs of their local residents. By way of illustration, there are particular challenges within local authority areas that include Designated Protected Areas or National Parks who face significant challenges in replacing housing stock once it is sold under Right to Buy, especially within the same location.

Local authorities particularly need to be given flexibility on the size and location of replacement housing stock. The LGA recognises the significant need to replace homes sold under the Right to Buy scheme with more affordable or social housing to ensure the sustainability and availability of social rent housing stock in the long-term and address the chronic shortage. Replacement targets may not be the way to address this, given the motivation to do this already exists within local authorities. Instead, the government should introduce measures to ensure local authorities have the resources and powers necessary to replace and retain their social housing stock.

Question 15: If answering on behalf of a local authority, do you have any evidence to demonstrate the impact of increased flexibilities around spending of Right to Buy receipts in accelerating and boosting replacement homes?

Individual local authorities are best placed to provide evidence or case studies demonstrating the impact of increased flexibilities around spending of Right to Buy receipts in accelerating and boosting replacement homes. 

While increased flexibilities are welcome and much needed, there are other measure beyond this that are needed to ensure local authorities are able to maintain adequate levels of social housing.

In particular, measures need to be taken to address the significant financial pressures on Housing Revenue Accounts (HRAs). The financial challenges do not arise from one single driver and are the result of a variety of pressures, which cumulatively are resulting in councils facing impossible trade-offs between meeting statutory obligations, building new homes, maintaining, repairing and updating properties or HRA’s going into deficit. The pressures are significant and affect every local authority’s HRA to a greater or lesser extent. 

Question 16: Do you have any evidence to demonstrate that combining receipts with grant would accelerate and boost delivery of affordable housing and how the risk of double subsidy would be mitigated?

Flexibility should be built into the scheme so that Right to Buy receipts can be combined with other government grants or funding such as the Affordable Homes Programme (AHP) to deliver new, acquire existing and regenerate social homes.

This would particularly help in relation to bringing forward brownfield redevelopment or other sites with exceptional costs, for example, cost of remediation or general viability issues.

Authorities have to balance the reinvestment of receipts with securing AHP grant, in an environment where they cannot mix funding streams. Authorities reported that they divide development scheme phases on the same sites and schemes into two 1) to be financed via Right to Buy receipts and 2) to be finance by the AHP grant” Authorities stated that the ‘one change’ that would be of the most benefit in receipts reinvestment is ”the ability to mix and match 141 receipts and grant”, and was referenced by every authority that participated in the Savills research.

Question 17: How long should local authorities have to spend their one-for-one receipts?

Local authorities should be able to retain their one-for-one receipts indefinitely. Right to Buy receipts are generated through the sale of local authorities’ assets, as such they should have full control and flexibility over the use of these funds. This includes removing time restrictions on their use. It is important that any new housing is constructed in line with the needs of local communities, is of a good standard, and has the necessary infrastructure in place for residents. In many areas, there is already a shortage of affordable housing, and the process of replacing homes lost through Right to Buy requires careful planning, consultation, and development.

Limiting the time local authorities have to spend one-for-one receipts puts significant time pressure on the development process. Furthermore, for more complex sites or larger schemes, land assembly, design and planning may delay the use of receipts. Local authorities often have to navigate complicated site-specific challenges, such as securing land or ensuring the appropriate infrastructure is in place, which can take years to finalise. Allowing local authorities to retain the receipts they receive from sales indefinitely would help assure future development and prevent risks to the finances of future schemes, as well as the risk of non-delivery of homes. This flexibility would enable local authorities to plan strategically, develop in line with local needs, and address challenges as they arise.

Question 18: Should unspent replacement receipts be returned to the relevant Mayoral Combined Authority as happens currently with London Boroughs and the GLA?

No.

Local authorities should not have to return replacement receipts. They should be empowered to make arrangements that best serve their local areas and utilise their resources how they see fit.

Question 19: Should the local authority share and buy-back allowance be incorporated within replacement receipts?

No.

The local authority share and buy-back allowance should not be incorporated within replacement receipts. The local authority share is currently available for capital use and is not returnable if unused. There is also flexibility to use the local authority share within the general fund or to fund the existing stock capital programme. 

Question 20: Do you agree that the total attributable debt should be calculated by multiplying the average attributable debt of each authority’s housing stock?

We would welcome further clarification on what basis the attributable debt would be calculated and how this would affect the compensatory nature of what it was meant to be for the HRA. We would need modelling to understand the impact of this measure. If this reduces the attributable debt significantly, more receipts will fall into restricted use leading to a reduction in local flexibility. It is important that any measures implemented enhance local flexibility around the use of receipts.

Question 21: Should the requirement to return 75 per cent of mortgage repayments that relate to pre-2012 sales be ended?

Yes.

Question 22: Should the Secretary of State be provided with a power to set the rules governing the use of Right to Buy receipts by general determination?

While we can see the streamlining benefits to no longer needing a revised section 11(6) retention agreement to every stock holding local authority or the need to lay amendment regulations whenever they are changed, the government should ensure that local authorities are consulted and well-informed of any changes to the rules governing Right to Buy receipts by general determination. Ultimately, councils should be free to use Right to Buy receipts to support social housing as best fits local circumstances.

Question 23: Should Arm’s Length Management Organisations (ALMOs) be permitted to use Right to Buy receipts to deliver new affordable housing?

Yes.

Allowing the transfer of receipts to Arms-Length Management Organisations (ALMOs) would give greater flexibility as to how new local authority housing is delivered.

Question 24: Do you have any other views on the rules governing Right to Buy receipts that have not been covered by the questions above? 

We are pleased that many of our recommendations have been taken into account and have either been taken forward or are proposed to be. These include:

July 2024

• The maximum permitted contribution from receipts to build replacement affordable housing has increased from 50 per cent to 100 per cent.
• The cap on the percentage of replacement homes delivered as acquisitions each year (previously at 50 per cent).
• Receipts are permitted to be combined with section 106 contributions. 

Autumn Budget 2024 

• All councils in England will retain 100 per cent of receipts from the Right to Buy scheme.
• Discounts on Right to Buy properties would be reduced to pre-2012 levels (from 21 November 2024).
• The cost floor protection period doubled from 15 years to 30 years.