An Unintended Consequence of Right to Buy

Housing Associations, charities that provide social housing in the UK, have had a bumpy ride over the last few months. The Government has decided to impose a 1% annual rent reduction in the social rented sector for 4 years from April 2016. This is forcing Associations to cut costs wherever possible and reduce capital expenditure. A second policy is to give tenants the right to buy the properties they are living in at a discount (extending the right that currently exists for council house tenants). While this will benefit the tenants themselves, some, including the Office For Budget Responsibility worry that these policies will reduce the supply of social housing. Another potential casualty is energy efficiency.

While the right to buy proposals include some contribution for recent expenditure on a property, Associations could potentially recoup less than half their investment. With pressure on expenditure budgets, this amounts to a major disincentive to spend money on improving existing properties, particularly energy saving projects such as installation of efficient air source heat pumps or solar panels. Compared to fixing a leaking roof, energy efficiency projects are non-essential, but have the potential to offer significant benefit to those in fuel poverty.

One Association I was speaking to has a programme to install air source heat pumps in tenant properties, where they expect to recover approximately 70% of the difference in cost between the air source heat pump and renewing an existing storage heating system from the Renewable Heat Incentive (over 7 years). This marginally loss-making policy in order to save tenants’ energy costs seemed remarkably altruistic to me, but will almost certainly not continue. In theory, tenants could be asked to sign a contract to reimburse the Association for the investment if they subsequently purchase the property, but this adds complexity and risk to what is already a marginal programme.

In the long run, energy efficiency saves money and improves quality of life. More could be done to promote it, especially where the benefits go to those in fuel poverty.