Currently, tenants in council homes are eligible to buy their homes at up to a 70% discount against the market value. The Prime Minister announced that extending the scheme to those in homes owned by housing associations "could benefit up to 2.5 million tenants".
Mindful of the familiar criticisms levelled at Right to Buy, the PM was at pains to say that an extended scheme would sit within the government's existing spending plans and would guarantee "one for one replacement" of property sold.
The government has committed to work with housing associations over the coming months in bringing forward the new Right to Buy scheme. Setting aside some fundamental questions for the time being, let's take a look at some of the practical challenges with which the development industry will need to grapple in bringing forward new developments and retro-fitting existing ones.
Tried and tested?
An extension to Margaret Thatcher's flagship scheme was first proposed by David Cameron before the 2015 election, but the policy was quietly shelved. Theresa May revived the policy in 2018 with a pilot in the West Midlands, but the scheme was kicked into the long grass as the Conservative Party readied itself for a leadership election. Although an evaluation of the pilot was published quietly in early 2021, little came of it. On each occasion questions of funding, value for money and the delivery of replacement homes posed real questions.
It's fair to say that an extension to the Right to Buy scheme has a chequered history. However, if this is third time lucky, there are likely to be a number of implications for the wider development industry:
Commercial deals between developers and housing associations are currently predicated on the basis that affordable housing will be provided and retained as such in perpetuity, with values determined accordingly. If housing associations stand to lose their asset through Right to Buy – but end up with a government-backed receipt – what implications might this have for commercial deals with those delivering the units?
The potential conversion of affordable homes to private homes through the Right to Buy scheme poses some interesting questions relating to design. Affordable homes in a development are often physically separate to market homes and there are good practical reasons why this may be the case – housing associations can more efficiently manage homes within their portfolio which are arranged around a distinct core, for example. Could the prospect of affordable homes eventually being taken private hasten a return to pepper-potting of affordable homes throughout a development? This is likely to pose challenges to both housing associations and developers during the early life of a development.
How will any extension of the Right to Buy scheme coexist with planning controls on existing schemes?
Most planning obligations impose requirements to provide a stated percentage of homes as affordable homes, as well as requiring those affordable homes to remain affordable in perpetuity (other than in respect of staircasing). Any extended Right to Buy is likely to be incompatible with such requirements, meaning that section 106 obligations entered into in the pre-extension world will need to be revisited or the obligations subject to a general release.
On a similar theme, many planning agreements impose bespoke obligations on the affordable homes in a development, such as caps on the service charges attributable to the affordable homes and different rights in respect of car parking. Will service charge caps or parking entitlements be lost when the Right to Buy is exercised or will newly converted private homes benefit from rights over and above those originally provided as open market housing?
The mooted extension to the Right to Buy scheme has a number of implications. The headlines will focus, rightly, on key issues such as the value for money of the scheme to the public purse and how the government intends to secure the prompt delivery of affordable homes to replace those lost to the private sector.
Beyond those headlines, however, the extension of the scheme poses many practical questions for those in the development industry – not just housing associations – as to how future developments should be structured and how the scheme can be made backward compatible with existing consents.
Given that the proposed extension to the Right to Buy scheme could have implications beyond its impact on housing associations, developers may wish to engage directly with the government on the emerging policy. Hogan Lovells has an excellent track record of advising clients on planning matters, as well as on the legal and policy arguments that are most likely to shift government thinking. We also have regular contact with senior officials and advisers in government to whom arguments can be put. Please contact Hannah Quarterman, Julia Marlow or Robert Gardener for more information on how Hogan Lovells can help you to engage with these proposals at a formative stage.
Authored by David Wood.