Right to Buy... but Flexible

The Housing Crisis might just be the single most damaging and far-reaching ailment the UK suffers.

Right to Buy… but Flexible

1) The UK’s Housing Crisis is making us all collectively poorer.

2) Right to Buy was successful but somewhat flawed.

3) A slightly modified ‘Flexible’ Right to Buy circumvents these flaws and provides a meaningful weapon against the Housing Crisis.

So what is Right to Buy?

The UK’s Right to Buy (RTB) policy allows a social tenant to buy the property in which they dwell. Buyers are provided with a 35-70% discount off the market price of their new home. In London, the maximum discount amount is £116,200. Outside of the capital (who knew such a place existed?) it’s £87,200. And herein lies the problem…

Because the tenant is only offered a discount on the house they’re living in, the inflexibility of RTB has (as a first-order effect) stopped many from being able to buy their own homes.  Why? Despite the huge discount - many tenants still cannot afford to buy their own social home. Especially in London where over 200,000 social houses are in areas where median house prices exceed £500,000. Even if you get 70% off a £500,000 home, this still prices out most of those in social housing! Surely we need something more… flexible?

What is ‘Flexible’ Right to Buy?

Where ‘Flexible’ Right to Buy (FRTB) differs from RTB is that it allows those in social housing to choose to buy a house outside the one in which they were living and still redeem their RTB discount. Making their purchase potentially cheaper and in any area (with social housing) they might prefer. Consumer surplus is sure to increase.

FRTB also allows for a more efficient distribution of housing. When you give people more money and more choice when buying their home, they’re more likely to buy where they are happier, where they can earn more, and even where their families are based.

The tenant’s old home would then be sold, funding the FRTB discount and raising additional revenue for the local councils:

‘A conservative estimate of the impact would see 21,000 tenants take advantage of the scheme with £2 billion of discounts on £9 billion of stock and net receipts of £7 billion.’

RTB has been around for 40+ years, which means modest reforms to the existing infrastructure to allow for FRTB should be relatively simple. One would also imagine FRTB is more politically palatable than other radical housing solutions because you can increase the available homes in areas of high demand without having to fight with a single council or planner.

FRTB does have a few drawbacks, though. Albeit solvable ones.

FRTB is a primarily demand-side measure. Without implementing complementary supply-side measures to increase the housing supply, increasing demand for houses by making them relatively cheaper can end up worsening the Housing Crisis. More people will demand housing when it is cheaper. And if supply stays the same, this means more people are clamouring for the same amount of houses. Not good.

It seems obvious that a policy such as this needs to be used in tandem with sensible and significant supply-side policies. And where do we find these? Look no further than the main Adam Smith Institute’s housing policies: 

• Let residents in each street vote to allow existing houses to be extended upwards or outwards.

• Allow development on small areas of the green belt within walking distance of train stations, whilst preserving areas of exceptional beauty. 

• Liberalise a range of design regulations, including rules on space requirements, height restrictions, window size, corridor width, stair steepness, and minimum lift numbers; Simplify the developer contribution process by replacing section 106 agreements with a single infrastructure levy.

• Legalise subletting for social tenants to make better use of existing social housing stock.

Taking stock…

Sam Bowman, notes in his Housing Theory of Everything - that the Housing Crisis might just be the single most damaging and far-reaching ailment the UK is suffering with.  FRTB is but one right step on a long road to housing recovery.