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New Right-To-Buy Policies Could Put Chill On £10B Annual Investment In Affordable Housing

Boris Johnson

A UK government plan to give housing association tenants the right to buy their home has the potential to deter institutional investors from putting money into the sector and building tens of thousands of homes with lower rents, the British Property Federation has warned. 

The proposal would give housing association tenants the right to buy their rented home at a discount to the market price. It was first proposed by David Cameron’s government in 2015, and it has now been revived by Boris Johnson. It is a reboot of a policy introduced by Margaret Thatcher in the 1980s that gave tenants the same right to buy socially rented homes from local authorities. 

Proponents of the scheme say it gives lower-income renters the ability to own their property. Critics argue that the homes sold are very often not replaced, so the supply of overall affordable housing drops. 

Earlier this year the BPF produced a paper arguing there are institutional investors willing to plough up to £10B a year into the affordable housing sector. Combined with debt and more government funding, this could facilitate the building of 140,000 homes a year. 

The paper was produced in conjunction with Legal & General Capital, and supported by a steering group including M&G Investments, PGIM, Federated Hermes and LaSalle Investment Management.

Those investors are attracted by the stable returns offered by affordable housing. But the new proposal must be carefully constructed to avoid making those returns less predictable, the BPF said. 

“New private capital, both equity and debt, has started flowing into the sector, attracted by its stability and returns,” BPF Director of Policy Ian Fletcher said. “It is important this announcement does not risk undermining the interest in investment in the sector and further reducing supply.”

The potential problem lies in the fact that if housing association tenants can buy their own home, investors don’t know what the income will be from their portfolios.

It also has the potential to create blocks of apartments that start off owned solely by investors, then become a mix of rented and owner-occupied homes, which institutions don't like because it reduces their control of the environment. 

And the cost of building a new home can sometimes be higher than the price at which an old home was bought from a tenant, making it uneconomical to build new units. 

“While the extension of right to buy to housing associations may support more people into homeownership, the homes bought must be replaced on a like-for-like basis,” Fletcher said. “Without this, the availability of affordable homes will continue to be stretched at a time when we urgently need more stock, not less.”

The initiative also fundamentally misses the core issue, helping people into social housing and reducing the waiting list, Fletcher said. Extending right to buy runs the risk of exacerbating this challenge by diverting government funding away from new affordable housing supply.

The government has said it will ensure homes sold to tenants are replaced, with the cost potentially being partially borne by the state.