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Part 1 - Reforming Right to Buy

1.1 Background

Right to Buy ( RTB) dates back almost 30 years, but in its current form derives from the Housing (Scotland) Act 1987 ('the 1987 Act'), which was later amended by the Housing (Scotland) Act 2001 ('the 2001 Act'). In general terms, the 2001 Act 'preserved' the RTB entitlements of existing tenants and introduced 'modernised' RTB entitlements for new tenancies that started on or after 30 September 2002. To help set our proposals for reform in context, we offer a brief summary of the main elements of the current arrangements.

'Preserved' Right to Buy entitlements

Tenants who have RTB entitlements over their current house that date from before 30 September 2002 can buy after a two-year qualifying period with relevant landlords. For houses their discount starts at 32 percent of the market value, rising by 1 percent a year up to a maximum of 60 percent. For flats their discount starts at 44 percent of the market value, rising by 2 percent a year up to a maximum of 70 percent.

'Modernised' Right to Buy Entitlements

Tenants who gained the right to buy on or after 30 September 2002 can buy after a five-year qualifying period with relevant landlords. Their discount starts at 20 percent of the market value after those five years and rises by one percent a year for all house types, up to a maximum of 35 percent or £15,000, whichever is the lower.

Under current arrangements some tenants of social landlords have no RTB entitlements (for instance if they live in group housing or their landlord has charitable status) or have had their RTB entitlements suspended (for instance by the ten-year suspension or a pressured-area designation). All possible factors that may affect a tenant's RTB entitlement can be found in sections 61 to 84A of the 1987 Act. Existing exemptions and limitations will continue to remain in force as they currently stand unless any of our proposals to reform them are adopted.

1.2 The need for change

Since its introduction RTB has resulted in the sale of about half a million properties. It has been a key reason for the marked change in the tenure mix of housing in Scotland in that period. More than 67 percent of Scottish households are now owner-occupiers - almost double the proportion of owner-occupation before RTB came in.

We recognise that RTB has brought certain advantages. It has extended the benefits of home ownership to many families. And in many cases it has helped to create communities that are more mixed. However, it has also had disadvantages, chiefly that of removing properties from the social rented sector and so reducing the number of homes available for social rent. As a result, prospective tenants, many of whom are homeless, must wait longer for properties to become available.

We want to reform RTB to strike a better and fairer balance between tenants who wish to own their own home and the needs of prospective tenants for social rented accommodation.

In Firm Foundations we proposed

• exempting new build social housing from RTB; and
• varying RTB discounts by (a) locality or (b) type of property, or both.

The proposals aimed to safeguard newly-built social housing from purchase and to bring more local flexibility to RTB policy.

There was a strongly positive response to the proposal to exempt new social housing from RTB. Our analysis of responses showed that most people saw exemption as important in keeping good quality stock within the social rented sector and in removing an existing barrier to the development of new social housing. However many people believed this measure would have only a limited impact in safeguarding the stock of social housing, and that we should introduce a wider range of exemptions, or even a complete end to RTB.

1.3 Progress since Firm Foundations

In light of the clear response to Firm Foundations, we confirmed that we would legislate to exempt new social housing from RTB. We also announced that we would examine further options for using reform of RTB to safeguard social housing, but not at the expense of removing existing RTB entitlements.

As part of this process we sought the views of key stakeholders - COSLA, the Scottish Federation of Housing Associations ( SFHA), Shelter and tenants' groups. The key messages from stakeholders were that we should further restrict RTB and should explore the possibility of devolving policy decision-making to the local level.

We also assessed how possible changes to the RTB might affect the number of sales in the future. Chart 1 shows the number of houses sold under RTB since 1979-80. Sales fell from their peak in 1990, with a slight rise in 2003, marking a surge before modernised RTB entitlements were introduced. Sales have been falling mainly because most tenants who want and are able to buy have already done so. The shortage of mortgages resulting from the current credit crunch and the less generous modernised RTB entitlements are likely to further depress sales levels over the short term.

Chart 1. RTB sales in Scotland between 1979-80 and 2007-08

Source: Housing Statistics Branch, Scottish Government.

Against that background, we estimate there would be between 46,000 and 84,000 sales in the period 2012-2022 were the current RTB policy to remain unchanged. The range of our estimate reflects uncertainties about how the current economic downturn may affect future housing market conditions and sales. Bearing in mind these uncertainties, we estimate that the full package of the reforms that we outline below could reduce sales by about 20 percent. Therefore, depending on how the economy fares and its impact on future housing conditions, our reforms could mean we retain an extra 10,000 to 18,000 homes for social rent between 2012 and 2022. Also, RTB has in the past discouraged councils from building houses. Reforming RTB represents an important part of our initiative to encourage new council-house building and retain these properties for future generations of tenants.

We recognise that our proposed reforms would affect social landlords' (particularly councils') financial position. The main effect over the short term would be a fall in income from sales receipts. However that would be offset over the longer term by the continuing rental income from properties that might otherwise have been sold.

We know that social landlords use some of the income from RTB sales receipts to fund improvements to existing stock, often to bring properties up to the Scottish Housing Quality Standard by the target year of 2015. Our modelling indicates that these reforms will not greatly affect social landlords' capacity to invest and that uncertainty associated with current economic conditions is likely to have much more effect. However, because investment capacity varies considerably between social landlords, we are keen to hear their views on how our proposed reforms would affect them, and invite them to answer the following question:

1.4 Ending the Right to Buy for new supply social housing

Section 109 of the draft Bill would achieve our aim of ending RTB on new social housing by amending how the existing law on RTB applies to housing let under a Scottish secure tenancy ( SST) (the form of tenancy under which councils and RSLs rent out most social housing).

For section 109 to work fairly and effectively, it must include a clear definition of what we mean by 'new supply social housing'. It would work in two ways to identify houses let under an SST that are to be considered 'new' and therefore not eligible for RTB.

Principally, it would end RTB on housing let under an SST for the first time after the date on which the section comes into force (the start date). In effect, we are proposing that the primary definition of new supply social housing should be housing first let as social housing (that is, under an SST) once section 109 has come into force.

This would mean that people becoming tenants in such housing after the start date would not be entitled to RTB for such housing. It would ensure that housing being rented as social housing for the first time once the section came into force would always remain available for renting as social housing. This would include newly built houses and also newly acquired houses being rented as social housing for the first time.

We also propose, in some circumstances, to safeguard social housing first let on an SST after 25 June 2008 (the date of the Parliamentary announcement that we would legislate to end RTB on new social housing). This would mean that people who took up tenancies in new social housing after 25 June 2008, but before the start date for section 109, would keep their RTB entitlement over those properties. However, if they move without exercising their RTB and the house is let again after the start date, the new tenant would have no RTB entitlement over that property. So, after the start date people who became tenants of housing that was first let under an SST after 25 June 2008 would have no RTB over those properties.

We believe that this approach to defining new supply social housing in these two ways would increase the amount of social housing that could be safeguarded for future generations without infringing the entitlements of existing tenants.

Adding to the safeguards for existing tenants, section 109 also provides that a tenant of a new supply social house would be entitled to buy it if:

• their landlord has required them to move to a new supply social house under any of the circumstances listed in paragraphs 9 to 15 of schedule 2 of the 2001 Act (one example is if their current house is to be demolished); or
• the landlord did not inform them within the set timescale that they would not have RTB over the new house they have been offered for rental.

Also, where a tenant who was entitled to RTB moves first to new supply social housing (over which they would not have any RTB entitlements) and later moves to a second property that is not new supply social housing, they would generally still have the RTB over the second property. They would also be able to count their period in occupation of the new housing towards the minimum qualifying period and for discount entitlement purposes.

Section 109 would ensure that the social housing it defines as 'new supply' would no longer be eligible for RTB. Social landlords would still be able to sell properties if they wanted but, in certain circumstances, councils would require Ministerial consent and RSLs would require the SHR's consent to do this.

Our proposals for ending RTB on new social housing are designed to create a fair and effective way to identify new social housing where RTB should not apply, while respecting the rights of existing tenants. We would welcome your views on whether we have got the balance right and invite your answers to the following questions:

1.5 Ending the Right to Buy for new tenants entering the social rented sector

We propose to add a new section to the draft Bill that would end RTB entitlements for new tenants entering the social rented sector after the date on which the section comes into force. This reform would mean that new tenants who enter the social rented sector for the first time or who return to the sector after a break would not be entitled to the RTB on the property they move into or any property they move to later.

Over time this reform should significantly reduce the number of social rented homes that are sold through RTB and so help to maintain the supply of social rented stock, while not affecting existing tenants' entitlements. The reforms should make social rented accommodation more easily available, which should benefit future tenants as they should get a rented home sooner than they otherwise would.

We do not intend to make any changes to the RTB entitlements of existing tenants. In general this will mean that:

• tenants who remain in their current tenancies would continue to have their existing RTB entitlement over that property - either on preserved or modernised terms;
• tenants who transfer voluntarily to a new tenancy would get modernised RTB entitlements over that property; and
• tenants who are required to move by their landlord (for example, if their current property is to be demolished) would keep their existing RTB entitlement over the property to which they transfer.

We also propose to include provisions for tenants of other relevant landlords (listed in section 61(11) of the 1987 Act, as amended), such as those employed and housed by the regular armed forces, police, or fire authorities. These provisions would ensure that they continue to get modernised RTB entitlements (unless any other RTB exemptions or limitations prevail) if they transfer directly to the social rented sector without a break between tenancies. This would mean that tenants who started their current tenancy with a relevant landlord before the date on which the section comes into force and who transfer directly to the social rented sector after that date would continue to get modernised RTB entitlements.

We would welcome your views on these proposed reforms and invite you to answer the following questions:

1.6 Reforming pressured-area designations

We propose to amend existing rules on pressured areas (sections 61B and 61C of the 1987 Act) to extend and devolve the process for designating pressured areas. Specifically, our proposals would involve:

• extending the timeframe of pressured-area designations to increase the maximum designation period from five to ten years;
• extending the scope of pressured-area designations by allowing particular housing types, as well as areas, to be designated as pressured; and
• devolving decision-making on pressured areas to councils.

Under current arrangements a council may ask Ministers to designate any part of its area as a 'pressured area' for a period of up to five years. Ministers may decide to designate the area as pressured if a great deal more social rented housing is (or is likely to be) needed than is available; and if the RTB would worsen the situation. The effect of a designation is to suspend all modernised RTB entitlements in the designated area. Those tenants with preserved RTB entitlements are unaffected. Fourteen pressured-area designations are now in force across 12 local authority areas.

Our aim in proposing these reforms is to:

• make pressured-area designations more effective in safeguarding social rented accommodation; and
• let councils match RTB to local housing need more easily.

Extending the maximum designation period from five to ten years would stop more RTB sales going ahead in each pressured area, which would make it more worthwhile for a council to apply for designation. We also recognise however that a ten-year designation period could be too inflexible to adjust to changing local circumstances. We would welcome views from stakeholders on this issue.

Extending the scope of pressured-area designations to include particular housing types would allow councils to better meet demand for certain types of social rented accommodation in particular areas. For example, it could make it easier to house families in areas where demand for larger houses is high.

Our proposal to devolve decision-making on pressured area designations to councils is in keeping with the Concordat's broad aim of promoting accountability of local partners in achieving policy outcomes. In so doing we need to develop a decision-making process which would ensure that councils adequately justify pressured area designations for all areas included in their applications.

We believe that the reformed housing and planning delivery framework would help councils see pressured-area applications in a clearer strategic context. They would consider the pressure within the affordable rented stock in terms of geographic areas and house types as part of their Housing Need and Demand Assessment and will say how they will deal with this in their Local Housing Strategy.

We would welcome your views on these proposals and invite you to answer the following questions:

1.7 Developing guidance for RSL applications to extend the ten-year suspension

We propose to develop guidance to support RSLs that apply to extend the ten-year suspension of RTB entitlements for some tenants beyond 2012. Under current arrangements (section 61A of the 1987 Act) RSLs may apply to Scottish Ministers to extend the current ten-year suspension of the RTB, which is due to expire in September 2012, for up to another ten years; that is, to September 2022. This arrangement generally applies to tenants of non-charitable RSLs who have modernised RTB entitlements. There is no limit set on the number of exemption periods that may be sought by RSLs.

The ten-year suspension was intended to give RSLs time to adjust to the new arrangements (that is, the introduction of the modernised RTB). The basis on which an RSL might apply for an extension is not set out in legislation. Existing guidance on the modernised RTB ( SEDD Circular 5/2002) states that RSLs should have assessed how extending the RTB might affect their organisation and that there should be evidence of continuing problems of financial viability.

The advantage of RSLs applying to extend the suspension beyond 2012 would be to further safeguard social rented stock for the benefit of prospective tenants and local communities. Forecasts indicate that if the suspension came to an end in 2012, 2,800 RSL properties would probably be sold under the RTB over the ten years from 2012 to 2022. Although relatively few RTB sales would be prevented, we recognise that this would help some communities, where even losing a few properties to RTB could be damaging.

We also recognise that extending the current suspension may disappoint tenants who want to own. Therefore the criteria for assessing requests for extensions need to challenge the RSL to justify its continuing suspension of RTB entitlements in each case. We think that the criteria ought to include:

• meeting housing need;
• safeguarding stock; and
• financial impact on other policy priorities (such as meeting the Scottish Housing Quality Standard ( SHQS) by 2015).

Such an approach, if adopted, is likely to be based on the current pressured-area application process. We are keen to seek views from

stakeholders on how best to develop the approach and we invite your responses to the following questions:

1.8 Revising guidance on landlords' continuous occupation discretionary powers

We propose to revise existing guidance on landlords' discretionary powers in relation to the continuous occupation rule (section 61(10)(iv) of the 1987 Act) to encourage landlords to use these powers where warranted. The continuous-occupation rule effectively 'resets the clock' on a tenant's RTB qualifying period and discount entitlement if there is a break of more than one day between ending one tenancy and taking up another.

We support this provision's broad aim because it is consistent with our general policy aim of safeguarding social rented accommodation. However, we recognise that although this rule applies to all tenants, it disproportionately affects certain groups who experience a break in tenancies.

Landlords may choose to disregard a short interruption in occupation when calculating the RTB qualifying period and discount, if they consider that the interruption resulted from circumstances outwith the tenant's control. Current guidance on the modernised RTB ( SEDD Circular 5/2002) suggests that the effect of 'fire, flood and the need to escape domestic abuse' could all be regarded as 'outwith the control of the tenant'. However these examples are not intended to be exhaustive and landlords should consider each case on its merits.

Ex-service personnel can face particular difficulties in bridging their tenancies. Sometimes no social rented accommodation is available when they leave the armed forces, which means that they must try to find other accommodation for the period between leaving the armed forces and starting a Scottish secure tenancy ( SST). This break in continuity puts them at risk of losing the opportunity to use their years in the armed forces to meet RTB qualifying conditions and get the best possible discount.

We think that the problems that ex-service personnel experience when exercising their RTB are not the result of the legislation itself, but rather the way it is being implemented. This is why we propose to specifically amend guidance to encourage landlords to use their discretion and disregard breaks in occupancy that arise from circumstances similar to those outlined above. This is intended to help ex-service personnel while maintaining our overall drive to safeguard social housing.

The main benefit to ex-service personnel of landlords using their discretion in such instances would be that once they transferred to a social landlord they would be eligible to make a RTB application straight away (provided that they had already served the minimum five year qualifying period).

Other groups of tenants who are housed by their employers (that is, in tied housing) may have been similarly affected by this rule. These include janitors, sheltered housing wardens and some police and fire service personnel. However, we understand that these tenants are generally less likely to experience a break between ending the tenancy with their employer and starting a Scottish secure tenancy ( SST).

We would welcome your views on these points and invite you to answer the following questions:

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