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The Right to Buy public housing in Britain: a welfare analysis

Author

Listed:
  • Richard Disney

    (Institute for Fiscal Studies and University of Sussex)

  • Guannan Luo

    (Institute for Fiscal Studies and City University of Hong Kong)

Abstract

We investigate the impact on social welfare of the United Kingdom (UK) policy introduced in 1980 by which public housing tenants (council housing in UK parlance) had the right to purchase their houses at heavily discounted prices. This was known as the Right to Buy (RTB) policy. Although this internationally-unique policy was the largest source of public privatization revenue in the UK and raised home ownership as a share of housing tenure by around 15%, the policy has been little analyzed by economists. We investigate the equilibrium housing policy of the public authority in terms of quality and quantity of publicly-provided housing both in the absence and presence of a RTB policy. We find that RTB can improve the aggregate welfare of low-income households only if the council housing quality is sufficiently low such that middle-wealth households have no incentive to exercise RTB. We also explore the welfare effects of various adjustments to the policy, in particular (i) reduce discounts on RTB sales; (ii) loosen restrictions on resale; (iii) return the proceeds from RTB sales to local authorities to construct new public properties; and (iv) replace RTB with rent subsidies in cash.

Suggested Citation

  • Richard Disney & Guannan Luo, 2016. "The Right to Buy public housing in Britain: a welfare analysis," IFS Working Papers W16/20, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:16/20
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    File URL: https://www.ifs.org.uk/uploads/publications/wps/WP201620.pdf
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    References listed on IDEAS

    as
    1. Bruce, Neil & Waldman, Michael, 1991. "Transfers in Kind: Why They Can Be Efficient and Nonpaternalistic," American Economic Review, American Economic Association, vol. 81(5), pages 1345-1351, December.
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    Cited by:

    1. Marta Schoch, 2020. "Essays on political economy, inequality and development," Economics PhD Theses 0120, Department of Economics, University of Sussex Business School.

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    More about this item

    Keywords

    housing policy; Right to Buy; social welfare;
    All these keywords.

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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