Right to Buy Hundreds of former council tenants are now property millionaires as rental housing stocks decline!

Council House Value

The housing crisis doesn’t seem to be going away anytime soon because the private rented housing market is shrinking at an alarming rate and the stock of social housing isn’t getting replenished fast enough to meet current needs.

The decision to implement the right to buy program in 1980, which allowed tenants to purchase council homes, has contributed significantly to the depletion of social housing stock. However, one of the scheme’s unintended outcomes was that some of those former council house tenants became property millionaires.

We at KIS Finance have investigated the reasons for the gradual sale of social housing stock and how some people’s decision to buy property has made them property millionaires.

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Where are these millionaire former tenants of the council?

Many people who bought council houses have benefited from a significant increase in property value as a result of the significant rise in property prices over the past few decades, particularly in London.

In 1996, the average price paid for a property in London, according to Savills, was £79,000. By 2022, the average had increased to £544,113, up six times from £478,853 in 2018. Westminster, Kensington, and Chelsea are the areas of London with the highest prices. The least expensive property available right now in Westminster is £350,000 – and that will just get you a studio condo! The average price of a home in Kensington and Chelsea, according to Zoopla, is around £2,409,002.

Council tenants who bought apartments in a 9-story building in Westminster’s Clarendon Place have done particularly well. In recent years, some three-bedroom apartments that were once owned by the local government have sold for between £2.25 million and £1.8 million. When they sold it six years after purchasing it, another flat owner in the same block made a profit of over £1.6 million.

Other Londoners have also performed well. Ex-council homes in Shepherdess Walk in Hackney have sold for between £1 million and $2 million. One property was purchased by the tenant in 2000 for £171,000 and later sold for £1 million in 2014. Another was purchased through the Right to Buy program in 1997 for £220,000 and later sold for £1.94 million in 2013.

In 1995, a discount apartment in Branch Hill was purchased for £130k, and in 1996, another for £240k. Later, a flat in the same block sold for £1 million.

40% of council houses sold under the scheme in London are now privately rented, which goes against the original goal of home ownership by allowing people to turn the scheme into a business opportunity that makes money for them.

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Rental Value

The average monthly rent for private landlords in England is £1,162, compared to just £410 for a council property, making the rental market even more expensive for potential tenants. This brings the average cost to £2,343 in London, which is more than four times the amount the Local Authority typically charges (£505).

The benefits for some individuals who purchased their homes have been enormous as a result of significant increases in property prices in some areas, particularly many parts of London. As a result, there are currently hundreds of ex-council tenants who have become property millionaires by purchasing their council properties!

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Where exactly did the decline in socially rented housing begin?

Since Margaret Thatcher launched the original Right to Buy program in 1980, the UK’s stock of social rented housing has been declining at an alarming rate for a considerable amount of time. In 1979, council homes housed 42% of the population in the UK. Through the “Right to Buy” program, tenants of council and social housing have been able to purchase their homes at a lower price since 1980.

The program was launched with the intention of providing tenants with an opportunity to improve their financial situation. Since its launch, approximately 2 million council homes in the UK have been sold to tenants of the council.

A crisis in the social housing market The Chartered Institute of Housing has expressed concerns that the ongoing loss of council properties is continuing to impact the affordable housing crisis, as social housing is not being replaced sufficiently. In 1997, there were 3.5 million council houses, but by 2022, this number had decreased to 1.6 million. The stock of affordable housing has been further impacted by the June 2022 decision to extend the Right to Buy to properties owned by housing associations, with up to 2.5 million tenants potentially benefiting from the program.

The existing supply of affordable housing will continue to decline as a result of the new Right to Shared Ownership program, which went into effect in December 2022. Tenants who live in homes that were constructed as part of the government’s Affordable Homes Programme between the years 2021 and 26 can purchase shares in their homes that range in value from 10% to 75% under the initial program. In the coming years, more tenants will be eligible for this.

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Decrease In Social Housing

We are likely to see a further decrease in the supply of social housing because there is little chance that the same number of homes will be constructed to replace the lost stock.

The private rental market is shrinking at the same time as the exodus of private landlords. In the past year, 35,000 more properties were sold than were purchased by landlords, resulting in an average of 66 properties being lost daily to the rental market. Private landlords are leaving the market as mortgage rates rise and increased regulations make the buy-to-let market less appealing to many.

Is “Right to Buy” obsolete?

The discounts offered and the length of residency required to be eligible for the program have changed over time. Currently, the maximum discount is £87,200, or 116,200 in London, or up to 70% of the property’s value. After being discontinued in Scotland in July 2016 and Wales in January 2019, the program is now only available in England.

Between 1988 and 1989, 135,701 right-to-buy purchases reached their all-time high. This number has decreased significantly, reaching 10,878 sales in 2021/22. However, the worrying trend of a decreasing pool of social housing properties appears likely to continue with the Right to Shared Ownership scheme’s recent introduction and the right to buy housing association properties’ extension from last year.

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