Right to Buy should be extended to private tenants, says report

A radical proposal initially put forward by the leader of the Labour party, Jeremy Corbyn, to extend the Right to Buy scheme to tenants of private rented properties has been backed by a think-tank as a way to address the growing affordability crisis facing young aspiring homeowners.

In a new report, the pro-market organisation Civitas suggests that the Bank of England should be placed under a statutory duty to keep the ratio of average house prices to average earnings within a defined range, in order to help control demand and restrict price growth.

The report’s author, Peter Saunders, a research fellow at Civitas, believes that the plan would help address the “generational inequality” that has deepened over the last two decades, largely as a consequence of house prices rising ahead of earnings.

“The result is that the younger generation is now expected to pay a much bigger multiple of its earnings to buy a home than its parents did,” he said.

“The baby boomers are now making capital gains at the expense of their children. Between 2000 and 2014, average earnings rose by 51%, but average house prices rose by 132%.”

Corbyn proposed extending the Right to Buy initiative to the private rented sector during his campaign for the Labour leadership last summer and that vision has now been supported by Saunders who also believes that people in the private rented sector should also be subject to the same Right to Buy eligibility rules as those who can currently buy their council or housing association homes – at the same rates of discount.

Under the proposed plan, Right to Buy in the private sector would be limited to tenants in properties which are at least 25 years old and which they had lived in for several years, so as not to deter buy-to-let landlords from investing in the sector. There would also be measures to ensure landlords were not unjustly penalised, including capital gains tax allowances at the point of sale.

He said: “Like council and housing association tenants, private tenants who exercise their right to buy would be entitled to a 35% discount off the market value of the house, up to a maximum currently set at £77,900 outside London and £103,900 in London. The same rules should apply to private-sector tenants who wish to buy their homes, but with two important riders.

“First, the discount should never be so high as to impose losses on the landlord. In the social rented sector, tenants cannot be given discounts which exceed the amount spent on the property by their landlords in the last 10 years, and discounts in the private sector should similarly be reduced to take account of recent improvements costs incurred by landlords. But in addition to this, the discount should be capped so the price at which the tenant purchases is never lower than the price originally paid for the property by the landlord (including the original transaction costs). This means landlords would never be forced to incur losses on their investments – an important safeguard for recent buy-to-let investors and for those who have bought in more depressed property markets. Without such a cap, existing landlords could be unfairly penalised.”

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