Right-to-Buy Scheme

– in the House of Commons at 6:56 pm on 11th January 2006.

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Motion made, and Question proposed, That this House do now adjourn.—[Kevin Brennan.]

Photo of Brian Iddon Brian Iddon Labour, Bolton South East 7:02 pm, 11th January 2006

Given that 2005 was the 25th anniversary of the statutory right-to-buy scheme, which was introduced by the Housing Act 1980, it seems appropriate to assess the policy's impact on the British housing scene today. I was elected to Bolton metropolitan district council in 1977 and for 20 years I served on its housing committee, which I chaired from 1986 to 1996. For most of those 20 years, the council house waiting list remained at about 5,000 applications. When it started to rise in the late 1980s, I became concerned, but I became alarmed when it rose to about 8,500.

The right-to-buy policy had started to impact by then. Unfit private sector houses were still being cleared, albeit on a much-reduced scale, and council house building had stopped completely. The housing committee therefore formed a partnership with five preferred housing associations. The council provided land at nil cost in order to keep rents down, and we started to build our way out of what was becoming a housing crisis. Thus was born Bolton Community Homes Ltd, which still thrives today. It compiles a joint housing register for all social housing, called "Homes For You". Councillor Noel Spencer, the current chairman of Bolton At Home, which is an arm's length management organisation, told me that the "Homes For You" housing register has recently exceeded 20,000—the highest expression of interest in social housing that Bolton has ever seen.

"Homes For You" in Bolton runs a choice-based lettings system. Every week, a list of available properties is published in the property section of the Bolton Evening News. In one corner of its advertisement appear the results of expressions of interest in properties that were advertised two weeks earlier. These weekly lists provide evidence of a steadily rising demand for social housing, which was one reason for seeking this Adjournment debate. Bolton is not able to build its way out of its difficulties today because its housing capital resources have been shifted to the pathfinder authorities and to other areas of the country.

Another reason for seeking this debate was that I and others believe that Bolton's highest-ever housing registration figure has been inflated as a result of the right-to-buy scheme. Bolton has sold 28 per cent. of its housing stock, close to the national figure of 30 per cent. Of course, it is always the better homes in the high-demand areas that are sold first. On some Bolton estates, sales stand at well over 50 per cent.

Knowing that council house modernisation schemes affect valuation prices very little, tenants sometimes wait in the hope that a modernisation programme will improve their property before they exercise their right to buy. Investment in the decent homes policy might be accelerating sales for that reason, but there is no doubt that current prices in the private housing sector are the most significant impacting factor.

In Bolton, house prices rose by an average of 12 per cent. in 2001–02, by 16 per cent. in 2002–03, and by a significant 32 per cent. in 2003–04, although the rise slowed to 10 per cent. in the first half of 2004–05. The National Housing Federation has reported that a person on average earnings in the north-west needed to borrow 6.1 times their annual salary in May 2005 to purchase an average home. In Bolton, the borrowing ratio was worse, at 6.3 times the average salary.

That brings me to public sector valuations, which have always lagged behind private sector valuations for similar houses in similar areas. In Bolton, sale prices are established by private sector valuers. Completion of sales takes about 12 months, but the valuation is front-loaded, which means that the sale price can be significantly out of date at the time of completion.

Bolton's chief housing officer reported in February 2005 that, of 26 applications referred for determination to the district valuer, 19 were reduced by an average of 6 per cent. Five valuations remained the same, while two were increased by an average of 4.4 per cent. Those two increases were the first ever valuation increases by the district valuer in Bolton since the right-to-buy policy was introduced in 1980.

I shall give my hon. Friend the Minister some idea of how low the valuations in Bolton are. For example, Hargreaves house in the town centre was built in 1958. Recently, a two-bedroom flat there was valued at £28,000, and was sold for only £8,400. Bolton council recently completed internal refurbishment of the flat, and the discounted purchase price hardly covered the cost of that refurbishment. In addition, almost immediately before that sale the council had spent £638,000 refurbishing Hargreaves house, both externally and in the communal areas. However, the cost-floor rules do not allow such improvements to be taken into consideration in the sale of the property. In contrast, Marsden house is a recently built block of flats less than a quarter of a mile away from Hargreaves house. The selling price of a typical two-bedroom flat there is £150,000.

To accommodate a large family, two three-bedroom semi-detached properties in Mancroft avenue, built in 1932, were recently converted into a six-bedroom house at a cost of £28,000. Yet the converted property was valued at only £57,500, and it sold at a discounted price of £27,600—less than the conversion cost. Again, the cost-floor rules allowed that to happen. Will my hon. Friend the Minister therefore be prepared to look at the cost-floor rule to prevent such anomalies in the future?

It seems to me that the guidance for valuations of tenanted public sector homes is not working to the advantage of the public purse. How is it possible to reach those valuations in any case, when there are very few comparisons with sales of tenanted properties in the private sector? Will my hon. Friend the Minister also look at the valuation guidance, in the interests of the public purse?

According to a recent parliamentary answer by my right hon. Friend the Deputy Prime Minister, housing waiting figures have gone up by 50 per cent. nationally since 1997. That means that another 1.5 million are waiting for an affordable home in the public sector. The worst-hit areas, of course, are London and the south-east, where rising property prices have meant that waiting lists for council homes have risen by 77 per cent. In the case of Hertsmere council in Hertfordshire, they have risen by a massive 2,424 per cent since 1997. In the early days of the RTB scheme, we were led to believe that houses sold would be replaced, but no Government, not even a Labour one, have met the demand for social housing.

That brings me to capital receipts. For every house sold in Bolton, 75 per cent. of the capital receipt ends up in the Treasury. I wonder how much of the pooled income from across the country is spent on providing new, affordable public sector homes. More than generous discounts, heaped on top of ridiculously low valuations, have meant that capital receipts, even had they all been spent on building new homes, have been nowhere near enough to build the replacement homes we need. In most financial years, significantly more council homes have been sold through the RTB policy than were built by local councils and housing associations put together.

Despite the RTB scheme's obvious popularity, first realised by Margaret Thatcher, it was always destined to affect most those in the greatest housing need. The Office of the Deputy Prime Minister has established that more than 15 years after purchase at least half the purchasing households remain in occupation on the estates, which helps to stabilise them. However, many of the homes sold end up in the hands of private landlords who let former council houses at more than double council rents. That has put a huge strain on the housing benefit budget. Furthermore, tenants evicted by their council landlords for antisocial behaviour often end up living round the corner on the same estate, and on at least double the rent, which is often met from the public purse.

Owner-occupation rose from 58 per cent. in 1981 to 71 per cent. in 2004, but with it comes responsibility. Unfortunately, many former council tenants, persuaded to purchase their homes by low valuations and generous discounts, by low mortgages since 1997 and by successive Governments, have not always realised the true cost of maintaining a home.

The RTB is preserved for those tenants whose homes have been the subject of large-scale voluntary transfer. An accelerating number of sales is creating increasing financial difficulties for those housing associations—registered social landlords, we call them today—that have taken ownership of a considerable number of former council home properties.

The effect of the RTB policy in rural areas has been devastating, particularly in attractive parts of the country where properties are sold off as second homes. The Housing (Right to Buy) (Limits on Discount) (Amendment) Order 2003 reduced the RTB discount in 41 local authority areas in London and south-east England that were experiencing high levels of homelessness and high property prices. The changes appear to have slowed sales. Will my hon. Friend the Minister therefore review the current position and consider extending the order to other local authorities?

A pressurised housing status exists in Scotland, and East Renfrewshire council became the first to win it. Tenants there are prevented from exercising their right to buy until the status is lifted, which makes sense to me. Will my hon. Friend also consider providing a level playing field between the right-to-acquire policy, applicable to housing association tenants who can receive a maximum discount of only £9,000 in the north-west region, and that for council house tenants, including those managed by arm's length management organisations, whose discounts are far more generous?

As a result of abuses to the original RTB scheme, changes have been made, too, to the qualifying period before a public sector tenant can make an RTB application, to the discount calculations and to the rules for repayment of discounts. Those exercising their RTB must now offer the property back to the council at the market price if they choose to sell it within 10 years of purchase. It will be interesting to measure the effect of those changes on RTB sales.

At the end of September, local authorities across England became duty bound to write to all their secure tenants to explain how the purchase price of their homes is calculated, provide details of how to apply and explain the potentially high costs associated with owning a home. The home ownership section of Bolton Community Homes has included a warning in its leaflet about the private companies whose representatives still appear on doorsteps to try to persuade tenants to exercise their right to buy. Sometimes they pretend to be working with the council. They spread rumours that the right to buy is coming to an end, when it is not, and that the council is about to sell off its homes, when it is not. They also tell tenants that their rents are likely to double.

Photo of Ken Purchase Ken Purchase Labour, Wolverhampton North East

Would not the right to buy not matter so much if councils were still able and willing to build new housing to replace the stock lost?

Photo of Brian Iddon Brian Iddon Labour, Bolton South East

That is certainly an underlying theme of this debate.

Recent Shelter research, published in August last year, showed that housing affordability and a safe neighbourhood are valued considerably ahead of home ownership by British citizens. Britain's housing policies are transferring wealth upwards and widening the gap between the richest and poorest families, when what the country really needs is a redistribution of wealth downwards.

According to research from Sheffield university, if current trends continue, in 30 years the richest 10 per cent. of children will have access to more than 100 times more housing wealth than the poorest 10 per cent. My worry is that we are creating a situation that will badly stigmatise the poorest in our society, trapping them in residual social housing with high rents. Reliance on benefits prevents those tenants from escaping that trap, even if they want to work to support their families with dignity.

I look forward to the response from my hon. Friend the Minister.

Photo of Jim Fitzpatrick Jim Fitzpatrick Minister (Office of the Deputy Prime Minister) (London) 7:16 pm, 11th January 2006

I congratulate my hon. Friend Dr. Iddon on securing this debate on the right-to-buy scheme and I acknowledge his experience in these matters. I will try to respond to the points he has raised.

The Government want to offer as many people as possible the opportunity to own a home, provided that they can sustain the commitments that go with it. We have acted to help first-time buyers, including people living with family, key workers, and those renting privately or from social landlords. The right to buy is a key part of our strategy.

Our new HomeBuy scheme, due to commence in April 2006, will help some 100,000 households into home ownership by 2010, including 30,000 key workers. That will build on the success of our starter home initiative, which helped more than 10,000 key workers to find a home, and on our existing shared ownership and equity loan schemes. I should stress that, as my right hon. Friend the Deputy Prime Minister has said, we are committed to the principle of the right to buy. It has helped more than 1.7 million people to realise their aspirations to own their homes.

The right to buy has been a great benefit to individuals and their families, freeing them from a dependency mindset. It has brought wider social benefits too, by helping to create sustainable mixed-tenure communities, and it has generated more than £45 billion in capital receipts, which have been used to reduce local authorities' debt burden and free some resources to be ploughed back into social housing and other public spending.

But the right to buy has led to problems. The rules have been exploited by some tenants and by some companies. Other tenants have bought but have found the costs of home ownership burdensome. My hon. Friend refers to valuation of homes sold under the right to buy. Under section 127 of the Housing Act 1985, that is the price that the property would realise if sold on the open market by a willing vendor, disregarding any improvements made by the tenant. The market price depends on a number of factors, including the condition of the property, what the surrounding area is like and its location in relation to services. Improvements may add a lot of value in some areas, but much less in others.

The Government recognise that there are concerns about right-to-buy valuations, so we commissioned research from the College of Estate Management. This was published in 2004 and is available on the Office of the Deputy Prime Minister website. It recommended that guidance should be issued for those involved in right-to-buy valuations, so we convened a working group of practitioners led by the Royal Institution of Chartered Surveyors. The working group is preparing guidance, which will be published quite soon.

My hon. Friend referred to the cost floor, and suggested that it may not be working well. Under the cost floor, the right-to-buy discount should not reduce the price of a property below what the landlord spent on it during the previous 10 years. If my hon. Friend would like to send me more of the examples that he mentioned, our officials will look into the matter.

My hon. Friend also referred to the use of capital receipts. As he said, local authorities pay the Government 75 per cent. of their receipts from right-to-buy sales, which are taken into account when we determine the level of investment in housing that we will support, bearing in mind local needs. So pooling is a means of redistributing resources to areas where the need is greatest.

Like my hon. Friend, many Members will have seen the leaflets pushed through doors on council estates, claiming that the Government are about to do away with the scheme and urging tenants to buy now, with a little help from the company that has issued the leaflets. Research published in March 2003 highlighted the motives of some companies: to persuade people to agree to sell the homes they bought under right to buy to the company, at the discounted price available to tenants. So those companies are able to buy up ex-council homes cheaply and then let them out at market rents, which are unaffordable for people in the greatest housing need. I am glad to say that the Government have made such exploitation a whole lot harder. We have also tackled another abuse, which endangered regeneration schemes by forcing councils to pay compulsory purchase compensation to people who had bought their homes at discounted prices knowing full well that they were scheduled for demolition.

My hon. Friend mentioned antisocial behaviour by tenants. We agree that eviction often simply moves the problem round the corner, so our respect action plan, published yesterday, sees eviction as a last resort. It emphasises managing antisocial behaviour through rehabilitation, family support, antisocial behaviour injunctions and of course antisocial behaviour orders. Furthermore, we have given landlords the power to suspend right-to-buy applications from tenants involved in antisocial behaviour.

In the Housing Act 2004, we tightened up the right-to-buy rules to make the scheme fairer to both landlords and tenants who are committed to their communities. As my hon. Friend noted, we had previously lowered the maximum right-to-buy discount available to tenants in 41 areas under the greatest housing pressure, in terms of high levels of homelessness and high house prices.

Photo of John Battle John Battle Labour, Leeds West

I understand the rules for Adjournment debates, so I appreciate my hon. Friend allowing me to intervene. I am also grateful to my hon. Friend Dr. Iddon for securing the debate.

In the light of my hon. Friend's comments about the gap that is emerging between people who can buy and the poorest who cannot, does my hon. Friend the Minister accept that there will be a real problem when the best family housing has been sold off? We are facing a crisis of hidden homelessness. People who have to rent can never get a job because they would come off housing benefit and would be unable to pay their rent. At the bottom end of the market, the gap is too great for people to get on the ladder to buy. We need more homes that people can afford to rent.

Photo of Jim Fitzpatrick Jim Fitzpatrick Minister (Office of the Deputy Prime Minister) (London)

My hon. Friend makes a powerful point, which was appropriately emphasised by my hon. Friend the Member for Bolton, South-East.

We have also made it easier for social landlords in rural areas to restrict the resale of ex-council homes to local people, to help them to stay in the areas where they were born and brought up, if they want to do so. We have modernised right to buy as part of our programme to encourage the development of sustainable mixed communities.

Exploitation is not the only concern, however. As my hon. Friend the Member for Bolton, South-East said, some people who bought their homes have since found it difficult to afford the cost of maintaining them. Some of them may not have thought far enough ahead; some have been the victims of unforeseen life chances, while others may not have had access to information about the implications of home ownership.

Several Members have contacted my ministerial colleagues to inform them that some of their constituents who have bought flats are finding it hard to pay service charges for major works such as putting a new roof on the block. The bills for such work come all at once and can be large, sometimes as much as £40,000 or more.

Such a bill can be daunting, but we should remember that the leaseholder will have bought their property at a significant discount. Over time, its value will have grown, and the major works are likely to increase its value even further. Often the problem is one of cash flow, rather than being unable to pay. However, we have acted to ensure that information about the costs of home ownership is available to tenants who want to own their homes. A range of options is already in place to help leaseholders to pay service charge bills.

On information, buying their home is the biggest purchase most people will ever make, so they should be able to balance the costs against the obvious benefits. Our booklet for tenants, "Your Right to Buy your home", contains sections on things to consider before buying, on the costs of buying and on other regular costs of home ownership.

Under the Housing Act 2004, landlords must give tenants both a written explanation of the key features of the right-to-buy scheme and information about the costs involved. They must be told about stamp duty, survey fees, paying off a mortgage, buying annual insurance and paying for gas, water and electricity. They must also be told about the costs of maintaining their homes, which crucially includes the service charges that the owners of leasehold flats must pay to their landlords.

Besides having a right to information before they buy, leaseholders have a long-standing statutory right to be consulted about major works and long-term agreements, to see the documents showing service charge costs and to challenge the reasonableness of any charge or the standard of the service or work involved.

Leaseholders can be helped to pay off large service charge bills. Landlords can offer them low-cost loans. They can extend the repayment period, or delay repayment until the property is sold. The Government meet 35 per cent. of the cost of their doing so where it exceeds £50,000 in a year. Finally, where major works are funded from specified central Government programmes, service charges must be reduced to no more than £10,000 in any five-year period.

Leaseholders can also get free advice on the options open to them from the Leasehold Advisory Service, known as LEASE, which is an independent advice agency grant-aided by the Office of the Deputy Prime Minister. So a lot of help is available to leaseholders.

We have commissioned research into the impact on service charge bills of local authorities spending on ensuring that all their housing stock meets the decent homes standard by 2010. The report is being finalised and will be published in due course. We are looking into the issues that have been raised about leaseholder service charges.

On the future, as a Government we are committed to encouraging owner occupation. The right to buy is a key element in our strategy. Where is the right to buy going? Conservative Members have called for it to be given to housing association tenants, 1 million of whom—more than half—already have the right to buy or a preserved right to buy because they have transferred with their homes from local authorities. Also to extend the right to buy to all housing association tenants would be costly—up to £300 million a year—and we have no plans to do so.

Some people have called for right-to-buy discounts to be increased, to help even more tenants, but more generosity to tenants means more cost to the taxpayer, who must meet the difference between the price that the property would fetch on the open market and the discounted price that the tenant pays, as my hon. Friend the Member for Bolton, South-East has mentioned.

The Government's aim is to strike a reasonable balance between helping tenants, ensuring value for money for taxpayers and helping those who are homeless or are living in overcrowded accommodation. That is why we changed the discount rules in 1999 and in 2003, when we lowered the maximum limits in London and a few other areas in the south-east of England. Some people want us to go further and lower maximum right-to-buy discounts in other areas. My hon. Friend recently asked us to do so in areas of high demand. My hon. Friend the Minister for Housing and Planning replied that the Government are keeping the position on maximum right-to-buy discounts generally under review, and I reaffirm that today. We do not rule out further changes, but they must be proportionate.

We recognise that the right to buy does not work for everyone. For some people, part-ownership is a long-term solution to their housing needs. That is why we are introducing HomeBuy—an improved range of low-cost home ownership schemes—to go alongside the right to buy and the right to acquire, thus building on the success of what we have already done in partnership with the housing association sector.

I hope that I have responded to all my hon. Friend's points. If I have not done so, I assure him that I will write to him in due course.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Seven o'clock.