In 1922, Baldwin abandoned the Addison Act and discarded the World War I promise of 'Homes for Heroes'. Since then, Conservative policy has continued to ignore the lesson of Boot and Shoe Yard and has always tried to maintain or restore the dominance of the private rented sector. Their plans were fundamentally challenged by Labour's post-war housing policy, which recognised that investment in a rented stock could provide high quality accommodation very cheaply. Labour promised to clear slums and to construct affordable houses built to the latest modern standards.
Clement Atlee appointed Aneurin Bevan to be minister of Health and Housing and in six short years, from 1945 to 1951, he successfully established both the NHS and Council Housing. He began to provide the temporary seeding subsidies to establish the rented stock and he charged affordable rents that anticipated the falling costs of investment. The NHS has survived more or less intact for seventy years, because the electorate understood and protected it. The slow implementation of housing policy and the concept of investment in rented housing is less easily understood. The intervention of policy is mostly concerned with housing schemes to provide rented accommodation, while homeownership is provided for those who can afford to buy in the normal market. However, the seeding subsidies required to establish the rented stock were exaggerated and ruthlessly exploited as welfare subsidies. They were actually implemented by capping the interest rates on council building loans. But this was soon matched and later exceeded by tax relief on mortgage loans for homeowners. It was a level of political wrangling that totally ignored the vision of Bevan's housing policy, which was based on two important concepts: Investment and Open Access.
The first concept is about affordability. For those who believe that there is 'such a thing as society' 1. , then housing is its basic component and our policy must enable its adequate, affordable and high quality provision. Private tenants buy accommodation, like any other commodity, as a consumer service; but a house is more expensive than any other commodity, so private rents are expensive. Homeownership is an investment; the cost of a loan to buy provides both accommodation and the ownership of an increasingly valuable asset. In graph 3, we showed that the cost of a loan to buy is much cheaper than the cost of a private rent. Typically, it takes 25 years to buy a house that can last for 200 years. So, the provision of housing by investment is very cheap, when measured over the period of its consumption.
Ownership takes time to buy and however low this cost may be when assessed in the long term, it is heavily front-loaded and this presents a starting barrier, which low-income families cannot surmount. The true cause of housing poverty is that the advantages of investment are limited to those on higher incomes - to those who can afford to buy. It is the problem of 'Boot and Shoe Yard'. Bevan provided an investment solution that was almost mature by 1970, but we failed to recognise and protect it. Now in the 21st century, the problem has returned to haunt us.
Lynsey Hanley in her book. 'Estates - An Intimate History' said "The long decline of the council house was triggered by nothing more than a change of perspective, from one that saw public housing as providing the nation with a collective legacy to one that saw it as a brief stop on the path towards acquiring an individual legacy". But it was more! To this day, the fate of UK housing policy has been fought over the choice between these two paths and it is of critical importance that we understand them.
Conservative policies took little account of the problem posed by 'Boot and Shoe Yard'. They and their traditional supporters thought they were unlikely to be affected, but their children now face barriers of (House Price to Income ratios) that are more than twice the level their parents ever faced. The policies of desperation that cap or make ineligible the rising costs of rent subsidies are proof that we have returned to a path that leads to Boot & Shoe Yard. The credit crunch overlies our problems, but it was not the cause and we must reject such confusions.
The market costs of establishing the stock are disproportionately high in the early years; the temporary seeding subsidies spread this cost across later generations and by doing this, RIH allows tenants to share the advantages of investment that homeowners have always enjoyed. Bevan's council houses were not houses for the poor, thay were never designed to be 'welfare houses', they used the accumulative power of investment to provide high quality homes at rents that were genuinely affordable. Bevan used the equity of investment to provide low rents. He invested in a rented stock that was affordable and available to everyone. They were Bevan council houses and they provided a new environment for working families that was empowering. It is a significant story of UK housing history that Bevan's investment stock survived more than thirty years of Conservative attempts 'to restore the dominance of the private rented sector'.
The second concept is about the social structures of housing policy. These must allow homes and communities to be built out of houses and they cannot be built within segregated or temporary structures of accommodation 2. Pride in our homes and communities, is a large part of our identity; pride is resentful of handouts and especially those, which preserve injustice by masquerading as relief to its victims. Housing Benefit supported high rents are an extreme perversion of the free market and political propaganda crosses the line by portraying tenants as the cause of its excessive costs rather than as its victims.
The advantages of a policy of open access are enormous. They replace the socially destructive policy of segregated welfare housing with genuinely affordable choices available in mixed community developments. It is a policy to serve the needs of low-income households by providing affordable rents. It eliminates the need for excessive rent subsidies, imposed by high rent policies that were designed to restore the private rented sector, but which trap poor tenants into dependence on subsidies and exposes them to the wroth of taxpayers who have to foot the bill. Open access serves the general need by providing the alternative choice to homeownership of a low cost rented sector. It would provide the need for temporary accommodation when changing jobs or for whatever reason, when families split-up and it would provide an economic refuge, while saving to buy. A low cost rented alternative to ownership lowers and stabilises house prices. These choices should be available to everyone; there is no cost penalty, so, the exclusion of high-income tenants cannot be justified. They should pay rent, like anyone else, that is sufficient to sustain and expand the rented investment stock. It should be a free choice.
Finally, there is a complementary interaction between rented investment housing and homeownership. They both deliver the advantages of investment, but with different timings, which allows them to serve different needs. They are mutually supportive and complementary choices that, in the past, have flourish together.
Macmillan's 'Grand Design' for housing, presented an alternative vision; of a property owning democracy that would somehow cement the involvement of everyone into the fabric and responsibilities of democracy. It was a vision to inspire Conservative voters that implied a discipline 'suitable for the working classes' and it was designed by ministers, who never shared the lives of those that they affected. It was implemented, as a careless policy of temporary welfare housing that was necessary to restore the dominance of the private rented sector. Unfortunately, it was easy for Conservatives to reverse the policy of open access and they did so, in order to reduce the supply of council houses to serve only a welfare need. It was an unsympathetic policy of patronage that expected tenants to accept poor services gratefully. Long waiting lists on large segregated council estates were the norm. They housed high proportions of old people and single parent families with services that were inadequate for their needs. The houses he built were 200 square feet smaller and more cheaply fabricated than the 900 square feet semidetached houses that Bevan built.
In cult history Macmillan is quoted as a champion of council houses, because he built a record number of them in 1954; but he had warned Cabinet that it would be political suicide to build less houses than Bevan; he pursued an image that masked a hidden agenda.
Cabinet minutes reveal Macmillan's intention to restore the PRCS as it was before the war, "a commodity whose price was regulated by the market and to limit the state's housing obligation only to those in need. The limitation of price that has been applied to this one commodity and not to other commodities (nor to wages) must be ended". 3.
Macmillan was wrong, a house is not a commodity like any other; it is an investment with an increasing value more like gold, that housing policy must harness for the advantage of rented accommodation; a policy that echoes and complements the advantages of investment for homeowners. The majority of us buy our accommodation in the investment market because, if we can afford it in the short term, it is very much cheaper in the long term.
Macmillan was never in favour of building council houses because he believed that the low rents promoted by Labour's policy of investment would discourage workers from buying their own homes. In 1953 he wrote a paper for the Conservative Cabinet and his 'Grand Design for Housing' has been the bible for Conservative policy ever since 4 . It is the dogma that prevailed because, in the second half of the last century, Conservatives served in government three times longer than Labour. But their policies have been a catalogue of disaster.
Macmillan ignored the long term cost distinctions between the investment and consumer markets. But he could not ignore the housing need that followed the war, nor the clear demands of the electorate. He skilfully manipulated the popularity of Bevan's council houses, "You never had it so good" and the desire of those who were eager to be included. He promised to build more and faster and it was a promise he kept by reducing both the size and quality of his council houses. He gave incentives to build cheaply fabricated tower block flats, but he and his successors failed to restore the dominance of the private rented sector, which continued to dwindled from 60% at the end of the war to 9% in 1980.
He reduced the quality of council houses to more clearly match the role of segregated welfare housing. Among the dire consequences of these policies were the collapse of shoddy high-rise buildings and the emergence of corruption in the1960s. Conservative policies became widely associated with profiteering and homelessness. The Rachman scandal of 1963 forced them to retreat from what were widely seen as the unacceptable consequences of an unrestrained market in housing and land' 6. .
In 1971, Heath announced that his Housing Finance Act of 1972 would double council rents. He abolished the council building subsidies and removed the right of Local Authorities to set their own cost-balanced rents. He believed that his rent increases would cover the cost of rent subsidies that he needed to restore the PRCS and for subsidies to encourage the growth of private housing associations that would replace council houses. But it was an inept bill. House prices quickly doubled, in what still remains the largest inflationary peak in our house price history. Yet it should have been a predictable reaction in the 50% private sector, when costs in the 30% rented sector were summarily doubled. Nevertheless, it was a significant demonstration of the powerful link between council housing and homeownership.
The 1972 Act unleashed a watershed change in the level and stability of house prices (from the moment of its announcement in 1971). It effectively abolished council housing. Yet the entrepreneurial cause of the first peak and the watershed change in the stability of house prices that followed, seem never to have been investigated. Yet house prices since 1971, have had an unusually serious influence on the economy. Housing inflation has been wildly unstable and it has always led general inflation, a cause rather than an effect.
Macmillan's aim to restore the dominance of the private rented sector had to wait for the more extreme policies of Thatcher. She recognised that despite rent subsidies, the PRCS could not compete with the low costs of rented investment housing. She decided to sell off the rented stock at 30% of its market value. Cleverly, she called her legislation the Right-to-Buy Law but it was a law that removed the option of RIH. The sales diminished the stock directly; but more important, the discounts drained the equity of the stock and prevented it from being used to reduce rents.
At last! She achieved the Conservative goal to restore the PRCS, but it has been at a terrible cost that can only increase in the future. The private sector rose slowly to 14% by 2008. However, the dominance of the PRCS is not determined by its size, but rather by it's effect on all other rents. It is the effect of stripping equity from the welfare stock. The post-war policy of low cost rented investment houses has been replaced by a high cost rented consumer service. The discounts that drain the equity of the stock, eliminate the choice of a low cost rented investment sector. It is a policy that raises all rents to the level of private rents. It is a policy of welfare housing that low-income households cannot afford and therefore, a policy that needs high rent subsidies.
Deregulation, rent increases and rent subsidies failed to restore the dominance of the private rented sector. But the policy of huge sale discounts succeeded. Council building stopped because it was untenable to build houses that could be sold at a loss, the next day. The Right-to-buy Law has effected a fundamental change in the driving force of housing provision. The equity given away by discounts prevents it from being used to reduce rents and has established high rents across both the public and private rented sectors. The Right-to-Buy Law enforces a high rent policy that has restored the dominance of a PRCS by isolating tenants from the advantages of investment.
We are discussing housing policies that belong in cloud cuckoo land, yet they were implemented over thirty years ago and in spite of their bizarre consequences, they have still not been reformed. The RTB policy must be abolished and the equity of the rented stock must be allowed to grow again from the ashes of current policy. The repeal of these high rent policies will save billions of pounds in rent subsidies and fund a building boost that present policy will never achieve.
The gross distortions of rent subsidies and sale discounts are out of control. Nonsense solutions arise every day from the misunderstanding of how we got to here. Tenants are blamed because they receive the excessive subsidies caused by high rents, but they are the victims of subsidy. They are subjected to the minute examination of tenant 'luxuriance', the bedroom tax and their wholesale transportation to distant 'cheaper housing estates'. They are being squeezed to death, yet still they are supposed to smile bravely as this chancellor, who enforces high rents, tells them that EVEN IF he solves these problems he will squeeze them yet again. Osborne engages with reality as if it were a bun fight at the Bullingdon club.