2. TRENDS IN RIGHT TO BUY SALES
2.1 Introduction
2.1.1 This chapter describes trends and patterns in Right to Buy sales in Scotland from its introduction in 1980 to the present day. It looks at the overall impact of the Right to Buy on the housing stock by tenure, types of properties sold, values of sales and discounts received, and includes sales on modernised Right to Buy discount terms.
2.2 Overall trends in Right to Buy sales
2.2.1 Since the introduction of Right to Buy, sales of social housing to sitting tenants have had a direct and substantial impact on the tenure mix of Scottish housing. Between 1 October 1980 and 31 December 2005, nearly 454,000 local authority and Scottish Homes dwellings had been sold to sitting tenants. 8
Figure 2.1: Right to Buy sales from 1980 to 2005
2.2.2 Figure 2.1 shows Right to Buy sales from 1980 to 2005. 9 The annual rate of sales of council houses to sitting tenants peaked at just under 40,000 in 1989, at the height of the housing boom, falling rapidly in the early 1990s as the housing market crashed. Sales then settled at around 15,000 per year from the mid 1990s onwards. 2002 and 2003 saw an upturn in Right to Buy sales, with sales in both years exceeding 16,000 (local authority and Registered Social Landlord ( RSL) sales taken together). This could have been the result of 'panic' buying, prompted by a misconception that the 2001 Act had changed the terms of the Right to Buy for existing tenants. It may also have been a response to the housing market at that time. Tenants may have anticipated that rising house prices would eventually make buying unaffordable to them, or they may have opted to buy in a rising market which offered the prospect of a better long-term profit from a future onward sale. Sales over the last two years have declined by between 12% and 14%. This is to be expected - the vast majority of tenants buying over this period have the preserved Right to Buy, and tenancies for new tenants are on modernised terms which means they cannot buy until October 2007 at the earliest. Over time, the proportion of sales on preserved terms will decrease as the number of tenants remaining with such terms decreases.
2.2.3 Not surprisingly, the proportion of the social rented sector stock sold each year under Right to Buy follows the same pattern as the number of sales (Figure 2.2). At peak sales points in 1989 and 2003, 4.5% and 3.5% of the total stock was sold in these years respectively. Annual sales are now running at about 2.5% of the total stock in the sector.
Figure 2.2: annual sales as a percentage of total stock at December each year from 1980 to 2005
2.3 Right to Buy and housing mix
2.3.1 Sales of houses, rather than flats, dominated until 1986, when the introduction of higher discount rates and changes in eligibility rules for the purchase of flats resulted in the number of flats sold increasing markedly. Sales of flats subsided to around 5,000 per annum from the mid 1990s. In recent years around 40% of sales to sitting tenants have been flats, and the remainder have been houses (see Figure 2.3).
Figure 2.3: Sales to Sitting Tenants by house type
2.3.2 Since the introduction of more generous discount arrangements in 1986, the average discount granted to tenants purchasing flats has remained broadly at around 63%, and for houses at around 50% (Figure 2.4). While these are below the maximum discounts possible, they are nevertheless closer to the maxima than the minima. This pattern has been maintained in recent years. As Figure 2.5 shows, a very high proportion of sales between 2002 and 2005 of both houses and flats were at, or close to, the maximum discount - 48% of house sales and 62% of sales of flats. The recent slight decline in sales at full discount may have been a response to the sharp increase in general house prices during that period. For those intending to buy, the additional discount from postponing purchase may have been outweighed by the possible future increase in purchase price.
Figure 2.4: Average discount by property type
Figure 2.5: Proportion of sales by percentage discount: Sales between 2002 and 2005
2.3.3 In 2004/05 some 3% of all local authority dwellings 10 were sold to sitting tenants, with sales representing some 3.4% of all local authority houses and 1.8% of all flats. The higher rate of sales of houses compared with flats has had some impact on the composition of local authority housing. In 1980/81 the General Household Survey reported that 50% of social housing in Scotland consisted of houses and 50% flats. By 2005, some 45% of local authority dwellings were houses and 55% were flats. While new building and demolitions will also have had some impact on the mix, it is clear that the Right to Buy has increased the proportion of flats within the social housing stock.
2.3.4 Up to 1987, around 60% of sales were of larger four or more apartment properties. From 1987, reflecting the higher share of sales of flats, the proportion of sales which were four or more apartments fell and, from 1990, has been around 40% of all sales (Figure 2.6). 11 Currently, 10% of sales are of one and two apartment properties, whereas in 1980 this was 1%. It appears that there has been a pattern of sales which has led to proportionally fewer larger properties remaining within the social housing stock.
Figure 2.6: Percentage of sales by apartment size
2.4 Right to Buy and tenure change
2.4.1 In 1979 some 55% of houses in Scotland were rented from either a council or housing association, 35% were owner-occupied and the remainder were rented privately. By 2005, the relative shares of socially rented and owner-occupied housing had almost reversed - 26% were social rented and 67% were owner-occupied. Right to Buy has, without question, had a major impact on levels of home ownership. Between 1979 and 2005, more houses were sold to sitting tenants than were built by the private sector. In the peak period for Right to Buy sales - between 1988 and 1992 - increases in levels of owner-occupation through the Right to Buy were significantly higher than rates of new building (Figure 2.7). Since 1995, however, new house building has consistently provided more opportunity to access home ownership than the Right to Buy. This trend is expected to continue.
Figure 2.7: New private house building and sales to sitting tenants
2.5 Geographical variations in sales
2.5.1 Figure 2.8 shows the total sales in each local authority area since 1980, and Figure 2.9 12 shows the numbers of sales in 2005. Over time, the greatest numbers of sales (over 40,000) have taken place in Glasgow, with over 30,000 sales in Fife and North Lanarkshire, and high numbers also in Edinburgh (around 25,000) and South Lanarkshire (over 20,000). The pattern of sales across local authorities remains broadly the same in 2005 when compared to the uptake from 1980 to 2005. Notably, whilst most sales over time have taken place in Glasgow, most sales in 2005 were in North Lanarkshire. Edinburgh, which has the fourth highest number of sales over time, had the eleventh highest number of sales in 2005. The figures for 2005 provide a snapshot, and must be seen in the context of stock desirability, market values of properties and the ability of tenants to purchase in 2005.
Figure 2.8: Total sales to sitting tenants from 1980 to 2005 by local authority
Figure 2.9: Sales to sitting tenants in 2005 by local authority
2.5.2 The proportion of social housing stock to have been sold varies significantly between local authority areas, ranging from 50% in South Lanarkshire to around 26% in Glasgow (Figures 2.10 and 2.11). Generally, proportions appear higher in more affluent local authority areas, but of course patterns of uptake can vary significantly even within local authorities. While at a national level the Right to Buy has undoubtedly driven the trend towards increased home ownership, there are notable local variations. The proportion of properties purchased through the Right to Buy relative to total private stock varies from 43% in North Lanarkshire to 10% in East Renfrewshire. Chapter 4 looks in more detail at the impact of the Right to Buy at the local level.
Figure 2.10: Right to Buy Sales between 1980 and 2005, by local authority area, as proportion of Social Housing Stock in 2005 plus Right to Buy Sales to 2005
Figure 2.11: Right to Buy sales between 1980 and 2005 as % of estimated total owner-occupied stock in 2005
2.6 Modernised Right to Buy
2.6.1 Tenants whose tenancy started on or after 30 September 2002 are subject to modernised Right to Buy terms. Under the modernised Right to Buy there is a single discount structure for all property types. This starts at 20% of the market value after the initial five-year qualifying period, and then increases by 1% each year up to a maximum of 35% or £15,000, whichever is the lower.
2.6.2 Due to the five-year qualifying period, it will be Autumn 2007 before significant numbers of sales might start to be seen on modernised terms. There are, however, some local authority tenants who have already been able to purchase their home under the modernised Right to Buy; for example any tenants who have transferred from a previous tenancy and signed a new tenancy agreement on or after 30 September 2002. Such tenants may already have accrued the required five-year qualifying period, and would be able to exercise their Right to Buy immediately, but the Right to Buy discount would be calculated under modernised terms.
2.6.3 By September 2005, some 450 modernised Right to Buy sales had taken place, with the rate of such sales running at a little under 100 per quarter (Figure 2.12).
Figure 2.12: Right to Buy sales under modernised terms in Scotland
2.6.4 From the limited evidence of these 450 early sales, sales under modernised terms appear to include properties with the same average market value as sales under preserved terms but - reflecting the lower discount structure - significantly lower absolute and percentage discounts (Figure 2.13). While the average discount for preserved Right to Buy sales in 2004/05 was just over £27,000 for both houses and flats, for the limited number of sales under modernised terms the discount was just over £13,000 for houses and around £12,000 for the flats sold.
Figure 2.13: Market value and selling price of houses and flats: modernised and preserved sales in 2004/05
2.6.5 Sales which might take place under the modernised Right to Buy will be limited in places by 'pressured area' designations. The effect of such a designation is to suspend the modernised Right to Buy for a period of up to five years for tenants in areas designated by the Scottish Ministers. Pressured areas are discussed in more detail in Chapter 6.
2.7 current and possible future trends in the rights to buy
2.7.1 Figure 2.2 showed the annual rate at which local authority 13 properties have been sold up to 2005. The rate of sales peaked at 4.4% of the total stock in 1989 and reduced to around 2.5% during most of the 1990s. The increase to around 3.5% in 2003 appears to have been temporary, and the rate has fallen back to around 2.5%. The increase in rate of sales in 2002-04 seems likely to have been triggered in part by the general increase in house prices at this time.
2.7.2 There are a number of factors which make it more likely that future rates of Right to Buy sales will fall below the current rate than that they will increase. Local authority Housing Revenue Accounts ( HRA) show that over the past ten years housing benefit income accounts for an additional 1% per year of local authority rent income, and now stands at around 65% of income. 14 In some local authority areas, the valuation of Right to Buy properties has increased markedly in recent years, reflecting the general increase in house prices. The reduced purchasing power of tenants, combined with higher prices, is likely to exert downward pressure on Right to Buy sales. Moreover, because of turnover in tenancies, increasing proportions of tenants have rights under modernised terms, which lengthen the qualifying period and reduce the amount of discount available.
2.7.3 Figures 2.14 and 2.15 show projected levels of sales to sitting tenants from 2004/05 to 2015/16. Sales in the three local authorities which have transferred stock to housing associations (Glasgow, Scottish Borders and Dumfries & Galloway) are included in the local authority figures, in order to show clearly the potential impact lifting the Right to Buy suspension for housing associations in September 2012 may have on sales. Figure 2.14 assumes that the relative rates of sales remain the same for both preserved and modernised local authority sales. This would see annual local authority sales drop from about 13,000 in 2004/05 to about 8,500 by 2015/16, when slightly more than half the sales would be on modernised terms. This projection makes the assumption that the modernised Right to Buy will be as popular as the preserved Right to Buy was in 2004/05. Figure 2.14 assumes that there will be relatively high rates of sales of housing association properties from September 2012, when significant numbers of tenants in these properties will be able to buy for the first time. Sales might number between 3,500 and 4,500 per year up to 2015, and then level off to a rate of around 3,000 per year thereafter. The projections for housing associations in both Figures 2.14 and 2.15 take account of the fact that only some of their tenants (currently around 80,000) will have the Right to Buy. The projection also assumes that new build rates for affordable housing continue at the current rate and that around half of the new build tenancies are entitled to the Right to Buy.
2.7.4 The projection in Figure 2.15 shows the underlying rate of sales for those on modernised terms reducing to half the rate for those on preserved terms, in response to the factors identified in paragraph 2.6.7. The annual number of local authority sales in this scenario would reduce to about 6,500 per year, of which some 36% would be on modernised terms. With most tenants only beginning to qualify for purchases under the modernised Right to Buy from Autumn 2007, there is no evidence yet on the impact of the modernised Right to Buy on the rate of sales. This analysis simply indicates some potential impacts, and does not take account of pressured area designations. Figure 2.15 also assumes that the rate of housing association sales post-2012 will be constant at 2.5% of the total stock each year. This would result in sales of around 2,500 housing association properties per year up to around 2015.
Figure 2.14: Projected Right to Buy sales if those with modernised rights buy at the same rate of those with preserved rights
Note: local authority sales include sales in whole stock transfer areas Glasgow, Scottish Borders and Dumfries & Galloway
Figure 2.15: Projected Right to Buy sales if those with modernised rights buy at half the rate of those with preserved rights
Note: local authority sales include sales in whole stock transfer areas Glasgow, Scottish Borders and Dumfries & Galloway
2.7.5 As part of their assessments of the impact of meeting the 2012 homelessness target, when all unintentionally homeless applicants will be entitled to housing accommodation, local authorities provided estimates of reductions in their stock as a result of Right to Buy sales. Estimates were provided separately for the periods 2003-07 and 2007-11. Table 2.1 compares these local authority projections with the outcome of the models at Figures 2.14 and 2.15. The local authority and model projections are very close for the 2003-2007 period, at around 52,000 total sales. They differ for the 2007-11 period, where the total local authority projection is 46,000 sales, which is higher than the modelled range of 36,000 - 39,000 sales. That is not to say that either set of projections are incorrect; much will depend on the operation of the housing market over the next five years.
Table 2.1: Comparison of projections of sales of local authority dwellings over four-year periods from 2003 to 2011, as provided by local authorities in 2005
| 2003/04 - 2006/07 inclusive | 2007/08 - 2010/11 inclusive |
|---|
Thousands | Annual rate % per year | Thousands | Annual rate % per year |
|---|
Local authority estimates | 51 | 2.5 | 46 | 2.5 |
|---|
Rates of Right to Buy sales the same for both preserved and modernised | 52 | 2.5 | 39 | 2.2 |
|---|
Rate of Right to buy for modernised sales at half the rate of preserved sales | 52 | 2.5 | 36 | 2.0 |
|---|
2.7.6 While it is too early to judge whether a smaller proportion of the tenants eligible to buy under modernised terms will do so, because of the longer qualifying period and reduced discounts, it seems likely that the underlying rate of sales will also fall.
Trends in sales - summary of key findings
- Right to Buy sales have had a significant effect on the tenure mix in Scotland, and have undoubtedly contributed to the higher levels of home ownership we see today.
- There have been peaks and troughs in sales patterns over time. The number of sales per annum is currently on a downward trend, as fewer preserved tenancy sales take place and new tenants serve the five-year qualifying period for the modernised Right to Buy.
- Right to Buy sales have led to an increased proportion of flats, and a decreased proportion of larger homes, in the remaining social stock.
- Some recent sales (2002-05) have involved discounts at a level markedly lower than the maximum, suggesting that tenants are buying without completing the full qualifying period permitted. Over half of all house sales from 2002-05 were at less than 50% of the maximum discount. The additional discount which could be gained from postponing purchase may appear to have much less value than the possible future increase in price. This may be due to the particularly steep rise in house prices in Scotland over this period, so is unlikely to be sustainable.
- Right to Buy sales by local authorities and large scale stock transfer housing associations are expected to continue to fall over time, and to decline to between 6,500 and 8,500 per year by 2015/16. Estimates of housing association sales after the 2012 suspension is lifted would suggest that between 10,000 and 15,000 properties might be sold between 2012 and 2016. It is, however, currently difficult to predict with any certainty what the uptake of the modernised Right to Buy might be.