Blair backs down on right-to-buy plan

Prescott wins cabinet battle - but housing association tenants can reap some benefits from property price rises

A relentless rise in the number of homeless families has forced Tony Blair to abandon an idea that he had hoped would be a symbol of New Labour as the party of home ownership.

A relentless rise in the number of homeless families has forced Tony Blair to abandon an idea that he had hoped would be a symbol of New Labour as the party of home ownership.

The compromise, which will frustrate thousands of housing association tenants who had hoped to buy their homes off their landlords, is being hailed as a victory for the Deputy Prime Minister, John Prescott. Tomorrow Mr Prescott will unveil his department's five-year plan, including what the Government proposes to do to help those who are struggling to become first-time homeowners.

He will announce that hundreds of thousands of housing association tenants are to be given their first chance to reap some of the benefits of rising property prices. But they will not be given the right to buy their homes and resell them on the open market, as council tenants can.

Giving council tenants the right to buy was one of the most lasting reforms introduced under Margaret Thatcher, more than 20 years ago. The Conservative leader, Michael Howard, has now promised to extend the same favourable terms to all housing association tenants.

That opens up a small but significant difference between Labour and the Conservatives. Blairite modernisers would have liked to close the gap, fearful that they will fall into the same trap as Labour did in the 1980s, when they were seen as the enemies of property ownership.

Research published by the Halifax, Britain's largest mortgage lender, shows that the number of successful first-time buyers was only 361,000 last year, compared with 532,000 in 2002. The average age of a first-time buyer has risen to 34.

Speaking at a Labour Party meeting in London yesterday, Mr Blair reasserted Labour's commitment to helping first-time buyers. He praised his Government's record of keeping mortgage interest rates low and presiding over an increase in home ownership. "One and a half million more homeowners is welcome, but ... young couples and first-time buyers find it hard to get their feet on the rungs of the housing ladder and we have got to help them do so," he said.

Mr Blair's election co-ordinator, Alan Milburn, insisted in a speech to the Fabian Society last weekend that increasing home ownership should be "an explicit objective of government policy".

More than four million people live in housing association houses or flats. Some already have a right to buy because they live on former council estates. Instead of giving them all the right to buy, the Government will offer the others a chance to buy a stake in their home, up to 50 per cent of its estimated market value, at a discount. If they decide to move, or sell their stake, the housing association will buy it back at its market value. In this way, the tenant can cash in on the rise in average property values.

The Blairites had to accept the argument that with more than 100,000 families officially classified as homeless, reducing the stock of cheap rented accommodation would make the crisis worse.

Jim Coulter, chief executive of the National Housing Federation, representing 1,400 housing associations in England, said: "Simply extending the right to buy is the wrong choice. It would ... result in losing stock from the social sector at a time when there is an acute shortage of affordable homes."