A Complementary Housing Strategy

A Complementary Housing System
painting A low cost rented system is a complementary requirement of stable home ownership. By providing a viable alternative to house purchase it is a powerful control on the stability of house prices. Unlike council housing, a complementary system must be open access. The power of financial investment allows the system to mature into cost balanced low rents capable of supporting the steady expansion of a new building program. There is no reason to adopt a restrictive access policy.

The Interdependence of the Housing Market

The present structures of housing policy are based on a complete misconception of the relationships, which exist between the rented and home-ownership sectors of housing. The failure of the 1972 Act exposed the remarkable interdependency of the two major forms of housing. By promising to double rents, the Act triggered a rise in house prices. The relationship is made the more difficult to deny, because the scales of both were the largest in history. Nor should it have been a surprise that the intention to double costs in the 30% sector of council housing would create an immediate entrepreneurial expectation of increased prices in the 50% sector of home ownership.

The financial process of pooled historic cost, which established low-cost rented accommodation before 1972, was the complement to home purchase. Both took full advantage of the processes of housing investment. For this reason, the consumer service of the private rented market could not compete and was in continuous decline.

Since 1980 housing policy has dismantling the historic stocks by discounted sales and has removed the choice of a low cost rented alternative by enforcing rent rises to private rented levels. The objective was to revive the private rented market, but that policy has been rejected and the private rented sector continues to decline, with some exceptions in specialised areas. An expensive system of housing benefit-supported housing now fills the void as a restricted arm of the welfare service. A real alternative to home ownership no longer exists and the sensitised market is unacceptably volatile.

Pooled historic cost is simply a viable process of financial investment, which was originally created to build low-cost rented housing for the majority of working class families. But as affluence grew, the administration of that resource failed to adapt to the changing needs of the population. Housing policy became the subject of divided political agendas and the huge value of the resource was exploited for purely political ends. The present structures of policy are no longer capable of influencing the adequate provision of housing. Policy is now designed only to administer one of the two systems of housing, which are deeply polarised and segregated.

Most of the current debate about "low cost housing schemes" is illusionary because there is no market process to support it. Only two methods have been successful in the provision of low cost housing. Home purchase, when averaged over a lifetime, is low cost housing but the nature of the capital market imposes heavy front-end loading of the costs. The alternative of pooled historic-cost pricing is excluded by current policy. On the contrary, the growing subsidy, which supports private tenancy services, is designed to maintain a high price market.

Two million former council homes have been sold to existing households with discounts, for as little as 30% of their market price. At today’s prices, that would be over £150 billion worth of public properties sold for £50 billion to existing households in a mere change in tenure.

The path of policy to the state of private market rent levels has required a massive increase in housing benefit for low-income families. The welfare cost of housing is now tied to the ever-increasing costs of a private rented accommodation service, which currently stands at £12 billion per year (nearly half the normal defence budget).

Complementary Housing

A Complementary Housing Strategy is one, which brings the advantages of investment in housing and the power of reducing costs due to inflation to all households. It is a strategy for low cost housing, which allows real choices.

The current discussion of housing policy is not joined up. House prices, inadequate building programmes, affordability and unsociable behaviour on problem housing estates are considered in isolation, without reference to the policy structures, which shape and control them. The result is that shallow solutions, which treat only the symptoms, proliferate.

New and open structures of investment, to promote the growth of this alternative to home ownership would halt and eventually reverse the rising cost of housing subsidies. The flexibility of an open access investment based rented sector, would increase mobility and support the options available for home ownership; not least by providing a viable alternative, which would bring greater stability to the housing price market.

It is of important to recognise that over a lifetime, the cost of housing buying is not expensive. For house owners, the amount of a loan is fixed on the day of purchase and the investment advantage of ownership coupled with the effect of inflation brings a continuously falling cost of accommodation. The disadvantage is that costs are high in the early years, but they become very low in later years. Eventually with outright ownership after 25 to 30 years, this long earned wealth can be passed on to children or cashed by an equity agreement in late life.

A housing stock created by investment over many years, when offered for rent on a cost balanced basis, can offer the same advantages. Pooled historic cost financing brings the advantage of low cost spread evenly across a lifetime, but without the accruement of equity. Pooled cost funding can be applied to purely rented accommodation as it was for council housing or to a Community Land Trust as it is in the Co-operative movement’s Mutual Home Ownership schemes. Government policy should be to make all of these options available to the individual choice of households. To do that, it must abolish the compulsory discounted sales of housing stocks and lock all subsidies into the accumulation of pooled investment.

Investment is the complementary link between home ownership, pooled cost rented stocks and Mutual Home Ownership. A Complementary Housing Strategy is one, which makes these choices available, by open access to the whole population. Unlike current policy it is financially sound and rejects the existing structures of social division. By providing an immediate and viable rented alternative to home ownership, a complementary housing strategy would stabilise the housing price market. It would reverse the growing need and dependence on housing benefit. It would encourage a more stable process in the growth of home ownership and for the first time would combine the inclusive interests of both tenants and homeowners.


1948 Council built houses at Worsley, near Manchester, their only cost now would have been maintenance. Sold in 1987 for £12,000 when the market value was £36,000. Equity values now (2004) around £100,000.

Home ownership and rented stock based on pooled historic-cost are alike, because they uniquely harness the power of housing investment to the primary objective of accommodation. It is only the timing of their investment advantage that is different. But it is precisely this difference, which provides the natural propensity for them to interact in a way that encourages market stability.

Financially these two forms of housing have similarities but their differences provide advantages, which can be used by policy to encourage the strengths of both to flourish. In the past, these complementary roles have never been exploited. On the contrary, political agendas have sort to separate and isolate them. The short-term role of rented property has the capacity to supply widespread needs in every section of the community. Young couples saving for a deposit, the needs of a mobile workforce, transitional periods in people’s lives due to job change, marital break-up or even a prolonged period between house sale and purchase.

The record shows stable house prices in the period when low cost rented accommodation was available. Since government policy removed the influence of that option from the market, there has been a record of price instability. The case is further reinforced by consideration of stability in the continental markets, where low cost rented sectors remain large.

Investment in the housing market has special characteristics, which provide it with strengths, which go beyond the normal investment market. Home ownership is the largest and often the only significant investment of many people’s lives. For this reason, homeowners will hang on to their investment and ride out market fluctuations, more than any other kind of investor. People delay moves, don’t change jobs, they do whatever is necessary, but they simply will not sell their homes for less than they bought it for. Yet, even in this market, housing policy has actively destabilised prices in the UK, compared with Europe or with our own post war history. Unlike Europe, we have suffered from the rapidly increasing costs of a new profit based rented market and also the flooding of the market with highly discounted housing sales. It is surprising, that only once, at the peak of this madness, have we suffered from the phenomena of negative equity.

Housing stock based on pooled historic cost also has unusual strengths. Because its costs relate to a single historic point of purchase, it is financially the most efficient means of providing accommodation.

A Complementary Housing strategy would focus on the natural requirement for both rented and purchased accommodation. It would re-employ the pooled historic cost system of financing to establish an open access low-cost rented system to meet the needs of all sections of the population. The main failures of council housing can be traced back to the restrictive policies, which accompanied a transition to the narrow concepts of social housing. The key requirement of a Complementary Housing Strategy is open access to the widespread provision of good quality low-cost rented accommodation. The key means to achieve these requirements is the leverage of subsidy to establish pooled historic cost pricing and a steady progress towards unsubsidised cost-balanced rents.

With larger rented stocks designed for open access, the balance of choice between ownership and rented housing would have considerable effect in stabilising housing prices. House price fluctuations would be reduced by the competition of an effective and complementary alternative. With larger rented stocks, homelessness and the degradation of bed and breakfast existence could be eliminated.

Subsidies would be needed to recover the stock, halved under present policies, but no more than the subsidies currently being poured into high cost private rents and much less in the long term. The remaining Council and Housing Association stock in urban areas can be put to work again, they are capable of sustaining significant building programmes.

In place of the current prospect of ever increasing subsidies, the Strategy of Complementary Housing offers permanent solutions. A policy of transition to open access would add enormous benefits to the complementary opportunities of home renting and ownership. The development of open access and the natural interchange of market sales would diminish many of the disadvantages of stock, which is restricted to social housing. The capability of response to special need would increase with the size of stock. In line with the home ownership market, there would be good reason to develop a stock surplus to meet the needs of choice, immediate access and population mobility.

A government policy of subsidy to create a complementary rented housing stock would serve the needs of low-income families without the trap of housing benefit and by a gradual process of open access would gain the support of the wider public and reverse the divisive effects of residualisation.

Although the growth of Housing Associations has been tiny compared with need and the loss of council houses, the need has already created diversity. Housing Associations have been set up as companies, trusts, charities and societies, under five different Acts and a Royal Charter. Tenants of the charitable variations are already excluded from the RTB. The Housing Association Grant, which later became the Social Housing Grant, was typically in excess of 80%, reduced to 75% in 1989 and 54% in 1998. But the leverage of the funding was finely tuned to enforce the policy of raising rents above regulated fair rents and closer to the market rents of private tenancies. All of these subsidies and complexity of funding have been established on the basis of a policy designed to revive the private rented sector. But people have rejected that policy and the ordinary private rented sector continues to decline.

The discounted sales, which prevent the accumulation of investment advantage, must go. The financial regimes of Housing Associations should be converged in a system of subsidies with the leverage of subsidy to ensure a gradual progress towards open access and cost-balanced rents. A complementary policy would allow and even encourage the sale of rented stock, but at market prices. This would allow the purchase of replacement stock and increase the dispersal of tenure location. It would also provide an appropriate flow of stock between tenure types to meet the changing needs of local demand.

By providing an immediate and viable rented alternative to the need for housing, a complementary housing strategy would stabilise the housing price market. It would reverse the growing need and dependence on housing benefit. It would encourage a more stable process in the growth of home ownership and for the first time would combine the inclusive interests of both tenants and homeowners.

The Myths of Housing Policy

Popular myths and prejudice can have strong effects in an electoral democracy. Politicians can use them to pursue their own agendas or fear them more than is good for better judgement. They are shackles from which we must break free by confronting them with the truth.

The 1972 “Fair Rent Act” destroyed the financial basis of the low cost rented sector by removing the right of Local Authorities to set cost-balanced rents. It transformed the investment based rented system in to a consumer service in a bid to merge rents with the private market and to revive the declining private rented system. The Act was not 'fair' but it exploited the myth that council house scroungers should pay "economic" rents.

The 1982 “Right to Buy Act" began to dismantle the resource that had allowed low cost-balanced rents by selling them at 30% of their market value. It was a very clever political slogan. It suggested freedom and more importantly, it raised a rallying call within the walls of the opposition's heartland. Cost balanced rents allowed no justification for giving away huge discounts to council house buyers, but neither was it forbidden to the powers of parliamentary government. Political campaigners would be prosecuted for buying a round of drinks in the pub, but it is an anachronism that parliament was allowed to distribute billions "to persuade thousands of people to vote Conservative for the first time". The public misconception of the right to buy, which escalates the public cost for housing benefit support of the private rented market, remains as a barrier to our solution of the housing crisis.

A Complementary Housing System

The financial structures of housing policy lie at the heart of our current problems. Historically, they are uniquely British structures, which we need to understand in order to replace them with effective and radical new policies. Several key principles have emerged:

The popular scepticism, which grew with the residualisation of council housing needs to be confronted, because it has already allowed us to lose a solution that was within our grasp in the 1960s. The evidence for radical reform is now irrefutable. Viable policy cannot escape the realities of the capital housing market, nor can it ignore the criteria of affordability. We need a Complementary Housing Strategy, a radical policy that is recognised to be essential to the stabilisation of the market and capable of providing a resource, which is needed by the majority of us at some time in our lives.

A significant stock of former council houses and Housing Association houses still exists. They are insufficient and their building programmes are minimal. The 1989 Housing Act remorselessly tweaked their subsidy to support the task of raising rents to the level of the private market. They need the support for much larger building programmes, while allowing them to reduce rent with longer term progression to cost-balanced levels. Their remit should be to build for the demands of open access and this policy should be made an issue in parliamentary elections.

The government should make the right to buy into an honest policy. The aspiration to buy the family home, while retaining the familiarity and connections of their existing community should not be denied. The financial circumstances of a family change and such aspirations are legitimate. Socially, it is only good for the variety of the local community. The damage of the current right to buy policy is the unjustified discount, which prevents the replacement of the rented stock. Keep a genuine right to buy policy but abolish the damaging discounts.

A real solution to the housing crisis is something that the public will recognise, after the widespread experience of instability and confusion for so many years. Policy makers should cease to cower from the wounds of past battles and have the faith to present those solutions to the electorate.

A Complemenary Housing Policy is a strategy to provide affordable housing in both the home ownership and rented housing sectors. It would reverse the growing need and dependence on housing benefit. It would encourage a more stable process in the growth of home ownership and for the first time would combine the inclusive interests of both tenants and homeowners.