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Right to Buy Resales in Scotland - Research Findings

DescriptionThis is a summary of a report in the 'Right to Buy' re-sales in Scotland.
ISBN
Official Print Publication Date
Website Publication DateDecember 29, 1998
Development Department Research Programme Research Findings No 39 (1997)
Right to Buy Resales in Scotland

Hal Pawson, Craig Watkins and James Morgan,
Heriot-Watt University

ISBN 0-7480-6480-xPublisher The Scottish OfficePrice £5.00
Since 1980, almost 330,000 former public sector homes have been sold under the Right to Buy in Scotland. These properties now account for a quarter of the entire owner occupied sector. The main objectives of this study were to investigate the extent to which former public sector homes have been traded on the open market, the social and demographic changes occurring as a result, and the position of resold properties in the housing market price structure.
Main findings
  • Just over a fifth (21.5 per cent) of properties sold under the Right to Buy since 1980 have subsequently been resold on the open market.
  • There is some variation in rates of resale between different areas. Of the 11 districts where this study was undertaken, figures ranged from 14.8 per cent in Ross and Cromarty to 23.4 per cent in Edinburgh. Variations between figures for different types of former landlords (eg between Scottish Homes and local authorities) are greater.
  • Most resales (80 per cent) have involved terraced and semi-detached houses. However, resale propensities are higher for flats than for houses (ie a flat is more likely to be resold over a period).
  • In the main, resale purchasers have been young families with children. Whilst purchasers tend to be younger than vendors, their social class composition is similar.
  • Resale purchasers have been split evenly between first time buyers and existing owners.
  • During the 1990s, resales have been accounting for 11-15 per cent of all second hand transactions in the national housing market.
  • In 1995, resale prices averaged 25 per cent lower than other second hand dwellings.
  • More than 90 per cent of resale vendors claim to have undertaken home improvements on their properties and these improvements contribute towards the average difference of £22,000 between the discounted prices paid by vendors and the sale prices received.
Introduction
By 1995, around a third of Scotland's public sector housing stock (as at 1980) had been sold to sitting tenants under the Right to Buy. The influx of former public sector homes has accounted for the greater part of the rise in home ownership in Scotland over the period. Former public sector homes now account for around a quarter of all owner occupied housing in Scotland. The comparable figure in England is only a tenth.
Rates of resale
Just over a fifth of homes sold under the Right to Buy in Scotland have been subsequently resold on the open market, an estimated 67,000 dwellings. The rate of resales for ex-Scottish Homes properties (29.5 per cent) is somewhat higher than that for former local authority homes (19.4 per cent).
The proportion of former local authority homes sold under the Right to Buy and subsequently resold is relatively consistent across the country. Of the 11 (old) local authority districts where the fieldwork was undertaken, the highest rate was in Edinburgh (23.4 per cent) with the lowest in Ross & Cromarty (14.8 per cent). The much greater variation in rates of resale affecting former Scottish Homes properties (12.0-55.1 per cent) is probably a reflection of the distribution of schemes developed by the former Scottish Special Housing Association for migrant workers.
The proportion of former public sector houses resold is somewhat higher than the comparable figure for flats. However, this is purely a consequence of the fact that a greater proportion of houses rather than flats were sold early in the RTB regime. Once this factor is accounted for it becomes clear that the propensity to be resold is slightly higher for flats than for houses. The highest resale propensity within the overall 'flats' category is for 4-in-a-block properties, though the figure for 'other flats' is also higher than that for houses.
The properties
The great majority (80 per cent) of former public sector homes resold on the open market have been terraced and semi-detached houses. Nevertheless, flats and maisonettes have accounted for 17 per cent of resales (40 per cent in Edinburgh). The comparable figure for England in the period up to 1991 was only four per cent.
The purchasers
Most resale purchasers were found to be younger, family households. In 70 per cent of cases households included children, and in 65 per cent the head of household was aged under 40. By comparison, the vendors tended to be older and a smaller proportion of households included children. On the other hand, the social class composition of vendors was similar to that of purchasers.
Resale purchasers were split evenly between first time buyers and those who had previously been home owners. Even in respect of resold flats, 35 per cent of purchasers were former owner occupiers. Around one in six resale purchasers who were already homeowners had previously lived in a property purchased under the Right to Buy.
In most cases, purchasing the resold property involved an increase in the size of the purchaser's home. In only 26 per cent of cases did the purchase entail a move to a smaller property. Even amongst first time buyers who had previously lived with parents, half moved to a dwelling of the same size or larger than their former home.
Most purchasers moved only a short distance from their previous home: 73 per cent had previously lived in the 'same neighbourhood' or local authority area and this figure was even higher among those who were previously public sector tenants or who had been living with parents (76 per cent and 84 per cent, respectively).
By comparison with their counterparts in England, resale purchasers in Scotland were more likely to have been motivated by 'low price' or 'value for money' and less likely to have considered the area or location the most important factor inspiring their choice of home.
Rural resales
Older people, former home owners and people in higher social classes account for a somewhat greater proportion of purchasers in rural areas than in urban Scotland. Results in just one of the six 'rural' districts stood out from the others: in Ross & Cromarty the proportion of long distance movers who were older people in social class A or B was considerably higher than elsewhere. It could be that these findings have implications for other parts of the Highlands.
Private renters
Around 4,000 former public sector homes are now in the private rented sector, with most being rented from individuals who were former residents. Half of all tenants were Housing Benefit dependants, with only 11 per cent of heads of household being in full-time employment. The median monthly rent paid by tenants was £300, nearly three times the figure for remaining council-owned properties.
The vendors
Relatively few sitting tenants exercised their Right to Buy with the prime objective of achieving mobility in the short term, though a fifth had expected to move within five years at the time they purchased. It appears that flat purchasers were more likely to have anticipated a move than house purchasers. In practice, however, the proportion of vendors who resold within five years of having bought their home (47 per cent) was substantially greater than the proportion who had expected to do so (20 per cent).
Few vendors had experienced any problems in reselling their RTB home. Only one in six vendors had to market their property for more than three months before achieving a sale. In only three per cent of cases were properties sold at below a 'fixed price'. Nearly half of all vendors (47 per cent) believed that it was easier to sell former public sector homes than other properties, whilst only 17 per cent thought it was more difficult.
Almost all vendors (97 per cent) bought their next home, with a quarter moving to another former public sector property. Nevertheless, only half of this group described their new neighbourhood as 'mainly council owned'.
Typically, vendors' moves involve trading up in property size and value. In their choice of property, vendors tended to be motivated by the search for homes with particular features (e.g. layout, size and number of rooms) rather than by the desire to achieve value for money per se.
Most vendors believed that home ownership would have been inaccessible to them if they had not had the opportunity to buy their former home under the Right to Buy.
Resale turnover
Approximately 67,000 former public sector homes had been resold in Scotland by the end of 1995. 25,000 of these had been subsequently sold for a second time, 6,000 for a third time and 1,500 for a fourth time.
Over a third (37 per cent) of first resales had been resold again. This compares with a resale rate of only 22 per cent of original RTB purchases, implying that resale purchasers are considerably more mobile than original purchasers. The proportion of first resales subsequently resold is fairly consistent across districts.
The majority of first resales which have so far taken place have occurred between three and five years after the original purchase. This probably reflects the desire of vendors to avoid the obligation to repay discount on the original purchase. In relation to properties resold more than once at the time of the research, the elapsed time between the first and second resales has tended to be shorter. The majority of second resales which have taken place have occurred within two to four years of the first resale.
The volume of resales in the housing market
At the peak of resale activity in 1992, sales of former council houses accounted for over 14 per cent of all second hand transactions. There is considerable variation at district level, with a range of at least seven per cent to 22 per cent in terms of the proportion of second hand market transactions accounted for by resales.
Taking account of general changes in property values, the price received by resale vendors was on average some £9,000 more than the valuation at the time of the original purchase. In the great majority of cases (70 per cent of the total) the 'under valuation' was in excess of £5,000. In 45 per cent of cases the 'under valuation' was more than £10,000. However a number of factors need to be taken into account in assessing the true extent of "under-valuation".
Resale prices in the housing market and extent of 'capital gains' realised
In 1995, on average, resale prices were 25 per cent lower than the average price of other second hand dwellings. The average price of resales between 1982 and 1995 is approximately £32,000 with the average price in 1995 reaching £40,000.
Resale vendors achieved significant 'capital gains', averaging £22,000. However, this figure does not take into account the value of home improvements installed by RTB purchasers. The estimates of the value of these averaged £6,000, though this is likely to somewhat exaggerate their impact on market values. Nevertheless, the great majority of vendors have achieved gains sufficient to allow trading up in the market. Most vendors have made 'capital gains' of between £10,000 and £25,000 with the majority using their equity gain to put down a deposit on a new home. More than a quarter paid over £60,000 for their current home.
About the study
The study was based on a representative sample of properties sold under the RTB in a group of 11 local authority districts chosen to represent the country as a whole. The heart of the study involved linked social surveys of resale purchasers and vendors, together with an analysis of market transactions involving a sample of resold properties in 3 areas based on data drawn from the Register of Sasines.
"Right to Buy Resales in Scotland", the research report which is summarised in this Research Findings, is available priced £7.50.
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