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ANNEX B
PRÉCIS
A summary series of recent research commissioned by Communities Scotland
No. 9 Assessing the Long-run Impact of the Right to Buy
Local authorities' new obligation to draw up local housing strategies, and the opportunity to make bids for "pressured area" status, results in a need to analyse the impact of the Right to Buy on the supply of affordable housing. This research tested out various methodologies which might form part of such an analysis. Whilst the study confirmed that many of the potentially relevant approaches and data sources are somewhat problematic, it was able to identify a number which could be recommended as both relatively practicable and affordable.
Through an analysis of national and case study area data, the study found that:
- at a national level, increased turnover rates have almost wholly compensated for the 38 per cent loss in council housing stock since 1980 so that total annual relet supply is virtually unchanged over the period;
- the national figures obscure the fact that relet supply has fallen in line with stock in areas of Scotland where housing markets are "potentially pressured"
- the disproportionate impact of the Right to Buy on family-size housing is reflected in potentially pressured areas where relet supply of this type of accommodation has fallen markedly during the 1990s.
As regards methodology for demonstrating affordable housing shortages at the local level, the research concluded that:
- in determining the appropriate areal scale for such an analysis, authorities should focus on definable settlements or urban neighbourhoods which could be defined as "social housing search areas" - these might equate to "letting areas";
- in measuring the relationship between RTB sales and relet supply, authorities may find it useful (i) to refer to the historic sales data held on the Scottish Executive's S3 sales dataset (available from the Business Intelligence Unit of Communities Scotland), (ii) to use locally-specific waiting list and lettings data mainly as a means of ranking sub-areas in terms of the current balance between supply and demand, and (iii) to illustrate changes over time at sub-area level supply by drawing on historic data on lettings;
- in analysing the role and position of RTB resales in the housing market, authorities (i) might find it useful to draw on the Register of Sasines/Land Register (RoS/LR), though these data will need to be matched against other sources to identify RTB resales in a reliable way, and (ii) would be well-advised to triangulate any findings produced through such an analysis against the informed views of local property professionals;
- household surveys carried out to contribute to such an analysis would be relatively expensive and not necessarily essential, whilst postal surveys carried out within this context are unlikely to generate reliably representative results.
Background
The impact of the Right to Buy has for some time been one of the most hotly contested issues in Scottish housing. Serious concerns about its medium and longer-term effects have been voiced ever since the passage of the 1980 legislation; anxieties which were further inflamed by the refinements to the legal framework enacted during the 1980s mainly with the aim of further boosting sales. Only recently, however - more than a decade later, has major legislative reform taken place.
The study arose from the Scottish Executive's review of the Right to Buy, following the 1999 Housing Green Paper and in preparation for the Housing (Scotland) Act 2001. With the aim of reducing inconsistencies in tenants' rights across social rented housing, the Act widened the scope of the RTB to include much of the stock managed by housing associations. At the same time, however, it tightened the rules on eligibility and limited the incentives available to new tenants taking up their right to purchase. And it accepted that, in certain "pressured areas" the RTB could have a damaging impact which would justify more wide-ranging restrictions on its operation.
Section 45 of the Housing (Scotland) Act defines "pressured areas" as localities where:
(a) there is a clear excess of demand for social housing over the supply of such accommodation; and
(b) it can be demonstrated that the operation of the RTB is exacerbating the situation.
In such circumstances, the Act allows for the operation of the RTB to be suspended for a (potentially renewable) period of up to 5 years. This suspension would apply to any new tenancies created in the area during the period - whether relating to new tenants entering council housing or existing tenants transferring. The designation of a locality as a "pressured area" would be a Ministerial decision in response to a proposal put forward by a local authority.
The detail of how the pressured area concept will be operated in practice is left to be defined by non-statutory guidance. This project was commissioned to inform such guidance, as well as to assist authorities in analysing the role of the Right to Buy in a more general sense within the context of producing local housing strategies.
Within the context of four "case study" localities, identified as "potentially pressured housing markets", the research road-tested a number of possible approaches to analysing the long-run impact of the Right to Buy on the supply of social housing. This confirmed that:
- local authority records of historic RTB sales, lettings and 1980 stock at sub-area level are often substantially incomplete or entirely unavailable;
- household surveys of RTB resale purchasers are inevitably both complex and expensive, whilst postal surveys of this group tend to generate disappointing and inadequate response rates;
- whilst the Register of Sasines/Land Register (RoS/LR) data held by the Land Value Information Unit (LVIU) contain useful data about open market sales of former RTB homes, reliable identification of such transactions necessarily involves matching this with data from another source.
Bearing these findings in mind, the remainder of this Précis sets out a possible step-by-step approach to analysing the local impact of the Right to Buy. It should be emphasised that the suggested framework is a broad-brush outline of the way forward rather than a prescriptive model. The appropriate approach for any individual local authority will inevitably depend on its own circumstances, as well as on the scope and flexibility of its own internal information systems and on the resources it wishes to invest in the exercise.
Step 1 - Determine areal framework
In framing a case for "pressured area" status under the new regime, it will be appropriate to define the areas concerned in relation to localities recognisable to social housing tenants and potential tenants as "housing search areas". In many cases, these may be analogous to "letting areas" as recognised by social housing managers. 1 In assembling statistical evidence to support pressured area bids it is likely to be necessary to construct unit postcode groupings to serve as proxies for the spatial units defined.
Step 2 - Calculate extent of social housing shortfall at local area level
On the basis of the areal units defined in Step 1, a local authority might decide to carry out a social survey to assess housing need. The simplest and cheapest method for most authorities, however, is likely to be to express housing waiting list applications for homes in the area as a ratio of the annual number of lettings to new tenants. 2,3 "Waiting list" as used here refers to non-council tenants assessed as having some degree of current housing need, and currently requiring housing (as opposed to those registered as an "insurance policy").
Step 3 - Identify localities in highest demand
Having ranked sub-areas according to the ratio of waiting list applications to the annual flow of lettings, the areas where implied waiting times are longest can be identified. Projected development of social rented housing over the next 5 years (the term of a pressured area designation) must also be taken into account at this stage.
Step 4 - Compare demand in potential pressured areas against threshold
The local authority will need to demonstrate that areas with a relatively high ratio of waiting list applicants to supply in the local context can be described as having a "substantial shortfall" in national terms. For example, the Scotland-wide ratio of local authority waiting list applicants (excluding transfer list applicants) to the annual number of lettings to new tenants is currently just under 4.2. National (and local authority level) data on lettings and waiting lists are collected and published by the Scottish Executive in its Statistical Bulletin (Housing) series. 4
Step 5 - Demonstrate an increase in relative pressure
Although it might not be regarded as mandatory, a pressured area bid might be stronger if a local authority could demonstrate that the shortfall of social housing was growing in an area put forward - by reference to historical trends in waiting list data. To underpin such a claim, it would probably be necessary to show divergence from the local authority-wide figure - i.e. that the size of the waiting list in the "pressured area" was growing relative to the size of the waiting list across the authority as a whole. This would help counter any concern that an apparent increase in need in the "pressured area" resulted simply from a general weakening in waiting list management (leading to a build-up of "deadwood").
Step 6 - Calculate sales numbers at local level
It will be necessary to show that any areas identified as potentially pressured through the waiting list analysis (steps 2-5) also have relatively high rates of initial RTB sales. The first part of this calculation will be to enumerate sales numbers at an areal scale consistent with waiting list and stock data. If comprehensive computerised data are not already held within the authority, it may be advisable to draw on the Scottish Executive's S3 dataset, using postcode groupings to proxy the areal framework used for waiting list and stock data.
Step 7 - Calculate sales rates at local level
This will involve deriving stock figures within the same areal framework used for sales numbers. Ideally, the figures used will relate to stock in 1980. If necessary, these will be estimated by adding current stock figures to sales numbers (Step 6).
Step 8 - Integrate findings of "social housing shortage" and sales analysis
Identify as "potentially pressured areas" those localities which have a high ratio of need to the volume of lettings as well as a rate of RTB sales significantly above the local authority average.
Step 9 - Calculate the average sale price of former council homes sold on the open market
Firstly, "resale transactions" need to be identified. There are a number of ways this could be done, depending on the state of data available. However, there is one approach that can be applied in all areas. The first stage of this process is to match RTB purchaser names on original sales records against current electoral register entries for these addresses. Transaction records relating to these properties can be obtained direct from the Area Offices of Communities Scotland. Local authority data on the size and type of the homes concerned can be matched against the transactions data. Average figures for properties of different types and sizes can then be calculated. Because of small cell sizes it will probably be necessary to calculate area averages on the basis of data for a number of years, with actual values updated to current prices as appropriate.
Step 10 - Consult local property professionals on role and position of RTB resales in local housing markets
Partly for the purposes of triangulation, solicitors/estate agents with a significant presence in local markets should be consulted for their views on (a) typical prices of resold council homes, (b) typical prices of comparable "mainstream market" properties, and (c) the characteristics of purchasers of resold council homes. Again, however, it may be unrealistic to imagine that property professionals will be able to comment meaningfully on market characteristics in very small settlements where the annual volume of sales is likely to be minimal.
Step 11 - Relate RTB resale prices to mainstream market prices and to waiting list applicant incomes
The case for pressured area status will be strongest where it can be shown that (a) former council homes trade alongside mainstream market properties at relatively similar prices, and/or (b) few, if any, households being rehoused in social housing receive incomes sufficient to sustain a mortgage of the size required to purchase a suitable former public sector home sold on the open market. In order to make this case, however, local authorities will need to refer to recent survey evidence on households requiring affordable housing, or collect their own income and employment data on housing applicants. The latter would probably break new ground for many, and would require careful attention to data quality to counter potential dangers of income understatement. One further item to underpin a pressured area bid would be to gather evidence of significant demand for former council homes from commuters or second home purchasers originating from outwith the area. However, such evidence could be collected only through a relatively expensive household survey and would need to be interpreted in the context of migration data relating to mainstream market transactions.
About the study
The study, led by Hal Pawson, was carried out by the School of Planning & Housing, ECA/Heriot-Watt University, working with the Department of Building, Engineering & Surveying, Heriot-Watt University. It involved the analysis of local authority administrative records and RoS/LR data, as well as household and postal surveys of RTB resale purchasers. The project was supported by an advisory group comprising representatives from the Scottish Executive, Communities Scotland and from four local authorities: Highland, Edinburgh, Aberdeenshire and Dumfries and Galloway. The research report itself is available on the web site: http://www.communitiesscotland.gov.uk
The way forward
This Précis forms an Annex of Scottish Executive "Guidance on the Modernised Right to Buy". The guidance points to the approach set out in this Précis as a suggestion for local authorities to follow in putting forward a submission for pressured area status.
Related research
Maclennan, D., O'Sullivan, A. and Macintyre, C. (2000) Evolving the Right to Buy: Evidence for Scotland; Edinburgh: Scottish Executive. Available at: http://www.scotland.gov.uk/library3/housing/ertb-00.asp
National Steering Group to Rural Partnership for Change (2001a) Rural Partnership for Change: Report of the National Steering Group, Edinburgh: Scottish Executive. Available at: http://www.scotland.gov.uk/library3/housing/nsgfr-01.asp
Pawson, H., Watkins, C. and Morgan, J. (1997); Right to Buy Resales in Scotland; Edinburgh: Scottish Office CRU
Further information
For future information about the study please contact Dr Cathy Sharp, Research Manager, Communities Scotland, 91 Haymarket Terrace, Edinburgh EH12 5HE by e-mail: sharpc@communitiesscotland.gov.uk or by telephone 0131 479 5190. The full research report is available on the Communities Scotland Website: http://www.communitiesscotland.gov.uk
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