Have Low-Income Households Been Failed by the Sale of Social Housing?

In 2018, the approval in France of the so-called “ELAN law” [1], aimed at reforming property legislation, revived debates on the sale of social housing. While social housing organizations in France have had the option of selling housing units to individuals since 1965, they have only done so in a very moderate way. This law, which encourages and facilitates sales, invites us to evaluate their effects, in particular with regard to access to housing for low-income households. This article proposes to put French debates on this issue into perspective in the light of experiences in Germany, the United Kingdom and the Netherlands, based on an examination of the state of knowledge on this subject conducted by the authors (Gimat, Marot and Le Bon-Vuylsteke 2020). [2]

In Germany and England, where sales are still possible, local authorities have recently sought to reverse their effects by buying back housing sold in the past. While the French government’s desire to develop this practice seems to run counter to certain trends observed in our European neighbors, the experiences of the latter may provide food for thought in France (Figure 1).

In this article, we present social housing disposal policies and their effects by focusing on the German and British cases, which have the particularity of having experienced very large numbers of sales, having profoundly transformed their social housing sectors. We will also look at the Dutch case, which appears closer to the French situation.

Figure 1. Key characteristics of policies concerning the sale of social housing

Germany: bulk sales put strain on the supply of affordable housing

While Germany has long set an example in the field of social housing, public housing companies, as well as some private companies, disposed of more than a million units, both subsidized and unsubsidized, [3] between the 1990s and the 2010s (Aalbers 2016). Based on the lessors’ right to sell, this policy of selling en bloc to institutional investors—venture capital firms and hedge funds at first, who then resold to listed companies [4]—was then mainly motivated by budgetary imperatives (Wijburg et al. 2018). Faced with the challenge of reunification, the disposal of this rental property becomes a powerful lever for deleveraging the state and local governments and, more generally, for consolidating public finances (Uffer 2011). Thus, the municipality of Dresden succeeded, as early as 2006, in reducing its debt completely by selling almost all of its rental housing stock (47,600 units) for a total sim of approximately €1.8 billion (approximately $2.25 billion at the time). With this massive privatization, social housing fell from 45% to 0.3% of all housing stock (Glätter 2013).

Combined with a decrease in new subsidies, this policy of transfer by traditional landlords feeds a movement of residualization of social housing [5] and contributes to a strong reduction in the stock of affordable housing, for two main reasons. First, the new institutional landlords are abandoning the policy of maintaining low rents that many deconventional units enjoyed. Their goal is to maximize operating revenues, and thus returns on what they consider "financial assets" (Aalbers and Holm 2008). In the same vein, these landlords seek to decrease maintenance expenses for rental stock in neighborhoods deemed unprofitable (Wijburg et al. 2018). These strategic and managerial reorientations lead to a polarization of the rental stock sold: on the one hand, the projects located in the city center, which now offer housing at intermediate or market prices, and on the other hand, rundown peripheral projects in which housing is rented at below-market prices. The effects of this contraction of the social housing stock, whether subsidized or not, are being felt all the more as prices on the real estate market and rents on the residential rental market are rising sharply in the main German cities.

The bulk sale of social housing has thus contributed significantly to the shortage of affordable housing in Germany. Since the end of the 2010s, some communities have been trying to reverse the effects of policies implemented since the 1990s. [This is the case in Berlin, where the municipality is implementing a policy of rent freezes in the private rental housing stock, setting quotas for real estate developers to provide subsidized housing, and attempting to buy back housing formerly owned by public landlords.

United Kingdom: massive sales to occupants and outsourcing of the social sector

The sale of social housing has been systematized since 1980 in the United Kingdom, with the introduction of the “right to buy.” This scheme gave almost all households renting social housing the possibility of buying the housing they occupied, at market price but with a discount [6] (Murie 2016). In 1979, local governments, the largest owners of public housing, held 29% of the stock, or 5 million units. Some 35 years later, 2.6 million units had been purchased by their occupants; communities now own only 7% of primary residences (Murie 2016). This success of the right to buy can be explained by the characteristics of the occupants of the social housing stock in the 1980s (modest but wage-earning households, whose purchasing power grew during the Trente Glorieuses), by the characteristics of this stock (largely terraced single-family homes), as well as by adjustments to the terms of purchase (level of discount, minimum length of occupancy) according to the economic climate (Whitehead and Scanlon 2007).

For the majority of the households that bought the property, the scheme was a good deal. They bought properties at low prices and were thus able to reduce the housing costs in their budget (the loan taken out was often lower than the old rent), and then to make significant capital gains on resale, which was generally at prices close to or slightly below market levels (Williams and Twine 1993; Forrest et al. 1996). [7] Most of the public housing sold, meanwhile, has not been a long-term supply of social homeownership housing: upon first resale, it is rarely the cheapest housing on the market and thus is rarely repurchased by first-time buyers (Forrest and Murie 1995; Pawson and Watkins 1998). The right to buy has thus contributed above all to improving the housing conditions of a specific group, occupying the social housing stock "at the right time". The scheme has been the main driver of the increase in the share of British owner-occupiers. However, this growth needs to be qualified: 30% to 40% of the social housing sold would have been put on the private rental market by their buyers, at higher rents than when they were social [8] (Murie 2016).

The right to buy has also reorganized the British housing market, again contributing to the residualization of the social housing stock: the size of the stock has been considerably reduced, while the impoverishment of its occupants has increased (Pearce and Vine 2014). Moreover, since the 1980s, communities have not had the means to produce new housing, with proceeds from sales only being reinvested in the social sector since the mid-2010s. As a result, the annual production of social and non-social housing has been declining for a long time, [9] in a context where real estate prices have continued to rise. In this context, some communities lack housing to meet their social missions and choose to buy back social housing units sold years before, and at prices much higher than those at which they were sold (Copley 2019).

The right to buy may also have contributed, within "tight" housing markets, to the accentuation of housing difficulties for lower-income households. A massive gentrification of social housing sold in the 1980s is not observed, except in the most sought-after areas of London (Forrest and Murie 1995). However, households that have benefited from the right to buy tend to be replaced on resale by younger, slightly better-off households with shorter-term residential mobility prospects. This is consistent with an acceleration in the pace of resales from the 1990s onward, likely to be the cause of more rapid and significant social change (Murie 2016). In the end, the sale seems to contribute above all to accentuating pre-existing dynamics: the deterioration of the least maintained and most segregated social housing complexes accelerated, while social housing complexes in better condition, which sold better, gradually integrated into adjacent real estate markets (Murie 2016).

Although the objectives and methods of social housing sales policies differ in Germany and the United Kingdom, they nevertheless contribute to a reduction in the size of the social housing stock, which is further reinforced by a contraction in new production. This reduction in stock, combined with rising property prices, makes it more difficult for low-income households to access affordable housing. However, the sales policies of these two countries differ greatly from those implemented to date in France. The situation in the Netherlands may seem more instructive.

Netherlands: a right to sell social housing with uncertain consequences

In the Netherlands, the sale of social housing is based on a right of sale granted to housing corporations (woning corporaties, or wocos). The sale is part of a reform of the social housing sector which, since the 1990s, has sought to refocus from a universalist model (accessible to all households) to a generalist model (accessible on a means test). The reform also aims to promote greater financial independence for lessors. In the context of the end of direct financial support from the State and an injunction to regroup landlords, this "regulated deregulation" (Aalbers 2016) makes the management of housing more entrepreneurial, as it is now considered an "asset" whose proceeds from disposal, like operating revenues, must finance rehabilitation and urban renewal operations, as well as the construction of new housing (Gruis et al. 2004, 2007; Priemus 2003). This entrepreneurial logic also goes hand in hand with a diversification of the operators’ activities. The wocos are now involved in land portage, urban development and real estate development for profit, but also in risky financial investments that have led the public authorities to regain control of the sector. While the sale schemes appear to be strengthening the financial strength of many wocos, their contribution to strengthening the financial independence of the sector is still under debate (Van Overmeeren and Gruis 2011). This uncertainty has not prevented the Dutch government from increasing the number of levies on landlords’ finances in recent years, thereby indirectly recovering a share of the proceeds from sales.

The consequences of social housing sales on access to housing for low-income households are also uncertain. The literature suggests that they contribute to broader changes in the Dutch social housing stock, such as the refocusing on vulnerable households, the lengthening of waiting lines, or the standardization of the stock of certain landlords. However, sales have not led to a significant decrease in the stock of social housing for two main reasons. First, sales have remained below the targets set by the state (about 0.5% of the public housing stock is sold each year, according to Elsinga et al. 2014, at an annual rate of 15,000 units) and have been declining since 2015. Second, the sales figures also include newly constructed social housing, which would be considered, in France, as social homeownership.

A comparison of the experiences of the sale of social housing in Germany, the Netherlands and the United Kingdom reveals the diversity of the policies implemented. However, it emerges that the consequences of these policies on access to housing for low-income households are very real and depend mainly on two factors: the volume of sales and the proportion of the proceeds reallocated to financing the construction of new social housing. If sales are numerous and their proceeds are not reinvested in the social sector, they unequivocally lead to a marked residualization. Social housing then no longer contributes to mitigating the effects of rising property prices and access to housing for the most vulnerable becomes increasingly complicated.

Another observation is that the sale of social housing appears to be a “one-off measure”: in the short term, it certainly allows households to become homeowners or to reduce the debt of local authorities, but the benefits for the social housing stock in the long term are quickly lost. European experience shows that, when resold, old social housing rarely constitutes a low-cost offer accessible to first-time buyers. Moreover, if they are put on the private rental market, the rents of old social housing gradually increase. Finally, although in the three countries studied social housing is a prime target for public expenditure reduction policies, the benefits achieved are limited by the need to compensate for the disappearance of the service. This is evident from the takeover of social housing by local authorities currently observed in Germany and England.

In conclusion, while it is difficult to draw general conclusions about the impact of social housing sales on local real-estate markets, it is clear that in both the United Kingdom and Germany they have led to an increased polarization of the housing stock sold. The most highly valued assets prior to the sales continue to integrate into the surrounding real-estate markets, while the least valued ones experience an accelerated depreciation. Management difficulties, which are not discussed here, also seem to be numerous in partially or totally sold-off multi-family buildings. The European experiences studied here thus call for greater vigilance regarding the negative consequences that an increase in the sale of low-cost housing could have in France for access to housing for low-income households.

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