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6. The Decline of Housing Policy

Under post-war conditions of scarcity, Bevan was building semi-detached houses that he and his fellow ministers would be happy to live in and he was not prepared to compromise. "We shall be judged for a year or two by the number of houses we build, but we shall be judged in ten years time by the type of houses we build." But the electorate, already infused with new hope, was impatient to be included. They voted for Macmillan's promises to double council house building, which he kept by reducing the size and quality of his houses. He also, began immediately to restrict their access to the role to welfare housing.

Today, UK Housing Policy is in a bad place because, in the major reforms of 1953, 1972 and 1980, Conservative governments replaced Bevan's ideal with a PRCS and because Labour governments forgot why it was an ideal. Bevan's council houses were a low rent investment stock that matured to become virtually self-sustaining by the 1970s. Proof of this lies in the fact that council building continued with balanced budgets, even after Heath abolished building subsidies in 1972.

House price inflation

At best, Conservative policy is aimed towards their ideal of a property owning democracy, but it is a policy of imperatives not choices, that are unlikely to encourage the virtues of responsible citizenry

Truth is, these architects of Conservative policy denied their own principles with massive distortions of the consumer and investment markets. And the PRCS could not exist without them. Their policy was based on the fallacy that high rents would persuade workers to buy their own homes. The practical reality is that the market draws the line of affordability. The ratio of price to income defines those who can safely afford to buy. Its prudent value is considered to be 2.5, which can be increased, but only by increasing the risk of the buyer, which is exactly what has happened due to the high-cost policy of the PRCS. This increased risk destabilised our housing market.

The Introduction Of Unacceptable Risk

The elimination of the low-cost rented alternative, caused house prices to rise and increased the risk, for emerging households, of being trapped into dependency on the rent subsidies of social housing. This was the fear that drove first time buyers to take loans of 5 to 10 times their income. The majority of children from council house backgrounds once bought their own houses, but now they are trapped into inherited poverty. Even the children of homeowners have lost the expectation of ownership that represented normality for their parents.

The Dilemma Of The Single Option

Those who cannot afford to buy cannot afford to rent. Then they are forced to accept the rent-subsidies of Housing Benefit. This not only sustains an inefficient provision of housing; it is a poverty trap for the tenants.

Resolving The Boot & Shoe Yard Problem

Investment provides huge advantages due to the effects of inflation and the growth of equity. The problem is that the financing of investment is heavily front-loaded. The initial cost of repayments is prohibitive for low-income families and the free market forces them to buy low quality accommodation with the high rents of a consumer service. It is because the free market makes this fundamental distinction between a consumer service and investment, that so often, it has the effect of making a distinction between the rich and the poor. This is the Boot and Shoe Yard problem.

However, it can be made into a temporary problem; solved by a single short period of subsidy to establish a self-sustaining RIH stock. Our history suggests that it would take about thirty years, which is very short time in the scale of managing our housing problems.

Figure 2 shows that such schemes are sustainable with very low rents. It also shows that high subsidies are constantly required to make PRCS rents affordable to low-income families; they are subsidies that we are very familiar with, because of the present policy that enforces the dominance of the PRCS. They are subsidies that we cannot afford, but already they are blamed on 'scrounger tenants' because a scapegoat reason is easier to promote than the true explanations of horrendously bad housing policy. We are all culpable, when we allow such policies to stand.

The 1972 Act ended subsidies to build council houses, but the record shows that this loss had little effect on the capacity of most local authorities to continue building. It served very clearly to show that most council housing had achieved the maturity of a low cost and self-sustaining rented stock after only 27 years of post-war investment.

It is relevant to note that 64% of the population live in small towns and rural counties, which makes Colchester a more typical case for study than any of our larger cities. Yet at that time in this small rural town, a large increase in building of 600 houses/year was sustained for three years on a balanced budget with no subsidies.

The tragedy is that the 'Housing Finance Act 1972' was the watershed moment of our housing history and it followed a post-war milestone in 1969, when dwellings exceeded households for the first time. This period offered the opportunities of a new dawn, but the Act led us back to the 1930s. Yet I can find no academic studies that span the watershed event of 1971. We need an advanced modelling of the policy changes that may prove to have caused the persistent instability of house prices since 1971.

The Return to a PRCS

A PRCS leads inevitably to diminished standards. Tenants are blamed for claiming high subsidies to justify arbitrary capping. They are disqualified from access to social housing because they have failed to get a job, or have held a tenancy too long, they have been labelled for myriad reasons as intentionally homeless, or they have refused to transfer to an estate 100 miles away, where tenancies are cheaper.

Housing Benefits are rent-subsidies that sustain the PRCS and distort the housing market. In this distorted market, the subsidies have spiralled out of control, but it is wicked to blame their policy failure on a tenant 'culture of dependency'. Tenants suffer from 'financial structures of dependency' that are deliberately imposed on social housing and we cannot pretend that this very real dependency arose from some lazy culture of entitlement.

With the policy of access restricted to poor and vulnerable households, council housing became segregated into large areas of welfare housing, which suffered a 'grudging culture' of paternalism with few choices and long waiting lists due to politically determined building rates that ignored real levels of demand.

The transfer of 2,000,000 council houses to the private ownership sector solve no problems of housing need, but they created negative equity in the 1990s and ten years down the line, it will again if Cameron's sale incentives take effect. We can no longer afford the cost of bad policies, or the consequences, which every day are reported about the state of housing.

The discounted sales artificially boosted homeownership to 70%, but it left us with a severe shortage of rented houses. As these houses move on, their value is not used for housing need. Either the former tenant withdraws equity to enjoy in their retirement or their children do the same, since it becomes available when they already have established homes and families. The house returns to the pool of houses for sale, where it's effect of bloating the ownership sector now causes negative equity. The homeownership sector is falling and 46% of young people now believe that they will never own their own homes.

Mrs Thatcher established the Conservative ideal of a PRCS in 1980. The effect of housing policies, take at least 10 years to show, but after 30 years, where is the evidence of a property owning democracy? On the contrary, the PRCS has proved to be the antithesis of homeownership. Why would it be anything else? Huge rent-subsidies force the PRCS into tense competition with homeownership, but low-income households are allowed no other choice.

The Foundations of Prejudice

The free market is undoubtedly efficient, but it has no natural tendency towards the equitable distribution of the wealth that it generates and for that, we must rely on the wisdom of governments. The principle task of housing policy must be to solve the problem of Boot and Shoe Yard, which is a problem of timing created by the operation of the free market. The madness of current policy is that, for political reasons, we have chosen to use perpetually expensive rent subsidies rather the temporary seeding subsidies required to establish an investment stock.

Compare_USA

For the same house, a private rent and a mortgage begin at the same level, but they diverge rapidly with time, which makes one cheap and the other expensive. The free market draws a line, which in the UK excludes at least 30% of the population from buying their own homes. It is how the market works and it is a key fact that a policy to provide affordable housing must deal with. It is not the same in all countries, because it depends on house price to income ratios. In the USA the proportion of excluded households is smaller because land and resources are more abundant. Average house prices are 10% less, but the size of both houses and incomes are twice as large.

PRCS Subsidies

Conservatives accept, if only in public, that the provision of decent housing must, if necessary, be subsidised. Yet their policies have consistently sought to restore the dominance of the private rented sector and this means a PRCS that is supported by huge rent-subsidies. At £23 billion per year in 2010, they are more than we can afford. But indiscriminate cuts are even more difficult for low-income tenants to manage. These policies are leading us back towards 'Boot and Shoe Yard', which is not an exaggeration as tenants are being shipped to cheaper estates and oppressed by warnings that tenancies are no longer secure for anyone and that failure to find work could be grounds for eviction.

RIH Subsidies

The cost of Rented Investment Housing (RIH) falls with time due to inflation, just as it does for Home Owners (HO). Both of these types of investment housing generate equity, but they use it in different ways. Homeowners withdraw the equity when they move and use it to buy another house or for any other purpose. The equity of a RIH stock is used to reduce the loan costs of the stock. It is dedicated to the task of creating affordable cost-balanced rents. The subsidy required to provide affordable rents during the initial high cost period is a temporary seeding subsidy. It establishes a low-rent housing stock that generates sufficient revenue surpluses to maintain a continuous building programme without further subsidies.

Confronting Our Prejudices

The RTB law drains the growth of equity from the public stock, renews borrowing to replace the stock and drives rent increases that keep pace with the private rented sector. It is a high rent policy that supports the PRCS and without which, it could not survive. It is a policy that necessitates extremely high rent subsidies, but it is not in the interest of tenants, whose efforts to increase their income is diminished by the withdrawal of rent subsidies. It is not a morally acceptable choice, because smaller, temporary subsidies can establish the genuinely affordable rents of an investment stock. Few taxpayers would choose to support these permanently high subsidies, if only they could see beyond the propaganda that is used to drive a wedge between homeowners and council tenants.

Indian_Satellite

Bevan saw this danger as long ago as 1949, which is why he opened the access to his Rented Investment Housing to everyone. It is the cheapest and most efficient provision of accommodation, with affordable rents that (after a short time) don't need subsidies. Why should they not be available to everyone? Ignorance chooses to segregate people we identify as 'social tenants'. We are suspicious that they sponge off us. But the truth is that policies we sanction, trap them into the high-cost rents of a consumer market, while many of us exploit the advantages of investment by downsizing and using our equity to buy a second house in the cheaper European housing markets. Because as taxpayers we pay for rent subsidies, we support restrictive conditions on tenants that we would never accept for ourselves. We would be better engaged in supporting more affordable housing policies. The Right-to-buy policy and huge rent subsidies support a PRCS that is inefficient and unnecessary.

  1. Many claim that tenants who can afford motorcars and television sets should not have their rents subsidised out of public funds. We should not allow the comparisons and excesses of the PRCS to place television sets and cars on the same radar as houses and the suggestion of such parallels are ridiculous.
  2. A lottery winner was pilloried as heartless on Channel 5 TV 1 because he retained the tenancy of his council house. We have been brainwashed in to accepting horrendously bad housing policies. Would we take the same attitude towards a neighbour in our street of homeowners, or would we praise them for not being changed by their newfound wealth? The malfunctions of the PRCS cost us far more than was ever spent on establishing council estates.

Why do we accept and even collude in the implementation of the PRCS?

These attacks on the status and security of tenants are just as serious as attacks on race and sexuality. In the past, seeding subsidies required to establish affordable low-cost rented stock were vehemently attacked and Council tenants were portrayed as a continuous burden on the taxpayer even when in fact, the reverse had become the reality. Post-war policies to encourage housing provision also subsidised homebuyers and that subsidy continued for 30 years after the end of council building subsidies 2 . In 1968, a subsidy of £157 million supported 5 million council houses, while £300 million in tax subsidies supported the owner-occupied sector of 7 million households 3 (i.e. £28.50 per council house and £33.30 per private house).

We didn't explain it. We still don't explain it.

"It clearly is not 'fair' that people ... should ... be entitled to housing at below-market rents for the rest of their lives." Which market Chris? I'm a homeowner and I benefit from low costs in the investment market. We force tenants into the six times more expensive consumer market. Then we give them a subsidy and we expect them to say thank you. They too should be allowed to benefit from a rented investment market, which could so cheaply be established.

We are steeped in 50 years of this kind of language, which undermines a large section of the population, whose homes are no longer their castles. We are conditioned by distorted subsidies and the apartheid policy of welfare housing.

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