Good housing policy should be designed to provide:
Ultimately, the ratio of Price/Income is a measure of risk that determines the feasibility of ownership and the quality of housing provision.
First, we should understand the financial difference between a consumer and an investment market and we must be aware of the effect this has on costs for the three main types of housing provision, shown in Graph 3.
A Private Rented Consumer Service, is financially equivalent to selling tomatoes. In order to run a successful business, landlords charge at least 10% of their capital outlay. For a £150000 house, a moderate rent = 15000/12 = £1250/month, which they must partially use to pay their own loans and maintenance fees. Not a lot from a business point of view! but impossible!!! for a family on the national average wage (£26000: 15000/26000 = 58% of income). It is easy to verify these moderate examples with any estate agent.
Homeownership and Rented Investment Housing Stock, both benefit from the growth of equity by investment, but they use it to serve the needs of different circumstances. It is a cashable investment for the HO but also, it is used to provide RIHS with widely affordable low-cost rents. Between these two, there is an Equity Spectrum of ways that investment can be used to meet the circumstances of different households (RIHS - Mutual Cooperative housing - Part Ownership Schemes - HO). Homeowners benefit, when they sell on their property, but the tenants of RIHS benefit every day, from low rents that are calculated to anticipate the accumulation of equity over the entire lifetime of the stock.
RIHS rents can be managed to little more than the maintenance costs of the stock: 1-2% of the stock value, or 5-10 times less than the cost of moderate PRCS rents.
The durability of houses make them a natural investment, because they increase in value with time. For each new owner, this ongoing increase is called equity and the owner is free to use it in any way. It makes the provision of houses by investment very cheap, which is why home ownership is popular.
But, investment in a rented stock, RIHS, is even more efficient. The equity is not dispersed to individuals. Instead, it is used to reduce rents and it is the most efficient use of investment, because the equity of the stock is allowed to grow for forever, from the moment that the house is first built. Our history shows that these stocks can provide affordable rents as low as 30% of half the national average wage and yet become financially self-sustaining in a relatively short period of time.
The costs of provision were reduced almost to maintenance level in a single generation. By comparison, homeownership changes hands every 20 years on average and this periodic renewal of high loan charges significantly reduces the cost efficiency. In 1945, Bevan recognised the exceptional efficiency of RIHS and deemed it churlish, at least, to deny these benefits to the less critical but important rental needs of the whole population. He removed the pre-war statutory restriction that limited public housing to the 'working classes'. He also recognised that the homeless are best served by the larger rented stock that serves the general need. A policy of open access offered many other advantages and avoided the unnecessary isolation of subsidised ghettos.
The Labour policy of investment in low-cost rented stock was very popular, but Conservatives feared that it would discourage workers from buying their own homes and they were determined to "restore the dominance of the private rented sector as it was before the war". Conservatives served three times longer in government during the second half of the last century and they used their good fortune to mount three major attacks on Bevan's low-cost rented policy.
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.
The Right-to-buy Law has effected a fundamental change in the driving force of housing provision. The equity lost in discounts prevents it from being used to reduce rents and has established high rents across both the public and private rented sectors. Less than a half of the population can afford them and this is the cause of £23 billion/year in Housing Benefit subsidies.
The Right-to-buy Law must be rescinded and the equity of rented stock protected. These measures will allow the growth of genuinely affordable accommodation, without the need for long-term public subsidies.
There is a widespread need for open access to a low-cost rented sector, which would also stabilised house prices.
The growth of equity is capable of sustaining good quality affordable rented stock. The amount of subsidy required to establish a critical mass of rented stock is both small and temporary. We can eliminate the high cost of housing benefit subsidies that exist only to ensure the dominance of the PRCS. These are savings that could fund 25% of the NHS budget.