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COLCHESTER Has Proof of a Policy That Works.

People Must Deliver the Message For Change

THE TIME IS NOW



Debate and Comment

The Whole Story

HOW we got to here. WHERE we need to go

  1. The Need for a Housing Policy
  2. The Costs of Housing Provision
  3.     Advantages of Investment
  4. The Carpetbaggers
  5. A Fundamental Misconception
  6. Post-War Policies
  7. The Cost of Subsidies
  8. The Descent of Housing    
        Confronting Our Prejudices
  9. The Equity Spectrum
  10. Complementary Housing
  11.     Affordable Housing

"EVERYONE DESERVES TO
LIVE IN A DECENT HOME"

TODAY

  • 42% of the UK population can't afford to buy a home
  • 40% of first time buyers depend on significant financial support from their parents.
  • People earning the national average wage can never afford to buy a house.

IN THE NEXT 10 YEARS

Less than 50% of people will be able to buy their own home, putting a tremendous strain on social and family structures.

THE CRISIS HAS ALREADY SPREAD FROM THE POOR TO THE MIDDLE CLASS.   IT WILL BECOME MORE EXTREME FOR BOTH.

TO HALT THIS SPIRAL OF CHAOS, WE MUST INVEST NOW IN LOW COST RENTED HOUSES WITH OPEN ACCESS TO ALL.

THE DOGMA THAT TOTALLY FAILED

The implementation of housing policy is slow and cumbersome and it became dominated by Conservatives policies, because they served three times longer in government during the second half of the last century. They espouse the belief that a "property owning democracy" encourages more responsible workers. It is a befuddled idea, which concludes that low rents must be eliminated because they are a disincentive to buy. They pursued this dogma relentlessly and eventually, they eliminated our low-cost rented sector.

Cabinet minutes reveal that Macmillan aimed "to restore the dominance of the Private Rented Sector (PRCS) as it was before the war". He reduced the size and quality of Labour's post-war council houses and restricted their access to a welfare role. But, even with these diminished standards, the demand for low cost council houses grew along with the demand for ownership and the private rented sector rapidly declined.

House price inflation

Heath introduced a new strategy, but with the same objectives. He attempted to equalise the rents of "social housing" with the rents of the private sector. In 1972 he doubled council rents as a first step to raise them to the level of private rents and he introduced rent subsidies that enabled tenants to afford the higher rents in both the private and public sectors. Clearly, he assumed that the high costs of the new subsidies would be funded by the large rise in rents. However, the market reacted against him by doubling house prices and the PRCS continued to fall from 60% in 1940 to 9% by 1980.

Nevertheless, Conservatives continued to search for a strategy that would restore the dominance of the private rented sector and in 1980 Thatcher discovered the formula to eliminate low cost rents. She compelled council and social housing associations to sell their houses to sitting tenants with sale discounts of up to 70%. Cleverly, she named her Act, the Right-To-Buy (RTB) Law and she intimidated the Labour Party in a 1979 Commons debate with the claim that the Right-to-Buy policy alone was sufficient to persuade thousands of people to vote Conservative for the first time.

The decline of the PRCS was halted and it rose slowly to 14% by 2008. However, it is not the size of the private rented sector that is important, but rather that:

  • It eliminates low rent options.
  • The RTB Law is about discounts; they drain equity from the stock and prevent it from being used to reduce rents
  • The RTB Law enforces a HIGH RENT POLICY.
  • The supply of council building halted because even new houses were not exempt from discounts.

PROVISIONS OF ACCOMMODATION

A consumer service usually applies to perishable goods. A viable grocery business would expect a 10% return on its capital outlay. The private rented sector provides accommodation on a similar basis. So, rent on a 150,000 house would be 15,000/year or 288/week. We have grown used to hearing these shocking rent levels from our children, who struggle to gain their independence. It is a private rented consumer service (PRCS). It is affordable (at 30% of income) only to those on 15000*100/30 = 50,000/year or more.

Three Types Of Housing Provision

  1. BUYING is investment, with equity at the disposal of owners. The low average cost is heavily front-loaded; too high a barrier for half the population and higher due to the high rent policy.
  2. ESTABLISHING A RENTED STOCK is also an investment with equity used entirely to reduce rents.
  3. PRIVATE RENT is a consumer service, a very different beast. Equity has no benefit for tenants and rents rise with inflation

Our history proves that private rented accommodation of a decent standard cannot survive without large rent subsidies (24 billion in 2010). Even then it could not compete with the rented stock, which Conservative policy began to eliminate by discounted sales. Without solving a single problem of housing need we gave away hundreds of billions in pursuit of a dogma, that has been constantly rejected by the market. These rent subsidies and sales discounts are the gross distortions that cause the high cost and instability of UK house prices.

It is also a policy that fails to supply the natural demands of the market. The sales of social houses, mostly to aged tenants have diminished the social housing stock with no resources to replace them. The same houses artificially bloat the size of the ownership market and were probably responsible for the negative equity of the 1990s, about ten years after the sales and 70% discounts began. Cameron recently boosted the same process by raising maximum discounts to 75,000 per sale; beware the 2020s!

INVESTMENT IN A RENTED STOCK

The durability of houses and the permanent necessity for homes make good deals for homeowners. The cost of a loan DECREASES with inflation, while rents INCREASE with inflation. Even better, the growth of equity matures into the ownership of an increasingly valuable asset.

Less well known is the fact that a rented stock can use these advantages of investment even more efficiently. A mature stock can provide affordable rents without subsidies for almost every working houshold in the UK. The accumulative effect of equity is amazing and it deserves your attention.

But this option is specifically excluded by the financial provisions of UK housing policy. It is excluded by the RTB law, which systematically removes the equity that could provide low rents.

While the equity of ownership is at the disposal of the owner, the equity of a rented stock can be used entirely to reduce rents and it rapidly eliminates the need for subsidies.

Stock costs

The choice of parameters is arbitrary, but relative values are clear. The blue line is the weekly rent required to balance all costs. The costs for mature stock are 6 to 10 times less than private rents. Affordability is indicated by the purple and yellow lines. They show that unsubsidised rents could be set to less than 30% of half the national average wage.

Everyone deserves to live in a decent home and they deserve to make their own choice of whether to buy or to rent. Whether to use the equity of investment to secure our old age or to enhance our lives with decent low-cost accommodation. Rather than dictate our choice, we need a housing policy that enhances it. For the many who cannot afford to buy, who need a low cost refuge while saving to buy, who need easy mobility or for any other reason, we need a market that offers the advantages of investment to both owners and tenants alike.

Unlike our peers in Europe, we have lost the low-cost rented housing that was built to replace the damages of war and the slums of history.

Colchester

Investment in the post-war housing stock achieved maturity in Colchester by the 1970s. From 1972-1975, we completed a three year building program of 1,800 houses on a balanced budget with no subsidies. The seeding subsidies that established our stock and many like us, achieved cost-balance after only 27 years of post war investment!

Small towns and rural counties, such as Colchester, house more people than all of our great cities and therefore, the success of our policies is very significant. The mature stock that was already producing surpluses, could have continued to fund low cost rented homes, available to everyone without any need for further subsidies.

But those resources were wasted on rent subsidies designed to support the dogma of a high rent policy. Now they cut and slash at escalating costs and by failing to deal with the real causes, they drive us more deeply into crisis.


Please send your comments to: Bernard Ready

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