'Neo-classical theory assumes that the economy is entirely dominated by negative feedback. The dying away tendency is implicit in the theory of diminishing returns but what happens if you have increasing returns? – the instability of positive feedback - To them that hath shall be given.'
"Complexity" – Mitchell Waldrop 1992 p.34-46.
'Predictions are nice if you can make them, but the essence of science lives in explanation. There’s something about the edge-of-chaos principle that feels right.'
– Mitchell Waldrop
The Watershed change in UK Housing Policy began in 1971. Since then, policy has progressively increased the cost of all alternatives to ownership, while decreasing their status and quality. In addition, available rented properties have been reduced by a quarter in actual numbers and by half as a percentage of stock.
Residualisation
The failure to develop the success of post war investment by introducing diversity and open access in order to meet the changing aspirations of a more affluent and mobile population, were failures of vision in the 1960s. More seriously, the watershed change of policy in 1971 consolidated residualisation into the financial structures of policy.
Social housing is a patronising term, but it has become an accepted term of housing policy, a confirmation that policy creates a separated system of housing for the poor. Social division is written into the financial structures of housing and it cannot be changed by treating the symptoms.
But also, there is a dawning recognition that housing poverty is the defining measure of disadvantage. The process of residualisation is associated with the wider processes of social exclusion. Low-income families are forced in to dependency on housing benefit. This trap ensures their rising cost of accommodation as a consumer service, compared with the buyers diminishing investment costs. It restricts their choice of housing placement to the increasingly stigmatised area of social housing. Unemployment, special needs, the least desirable dwellings and areas, poorly served by other services, makes these households less able to build satisfactory homes or to avail themselves of opportunities, which could increase their income and bargaining power and enable them to move on.
When James Hole called for a change in the treatment of the poor by Baldwin’s free market, a supporting incentive for his case was a fear of the brutalised masses that had real credence in the years that followed the French Revolution. Today the poor cannot be described as the masses and their voice is weak, but our acceptance of social exclusion will exact its own high price. The Treasury is not the only ministry, whose costs depend on the mysteries of housing policy.
The Inequality of Housing Policy
Associated with the 1972 "Fair Rent Act" was the idea that high rents from tennants who could afford them without Housing Benefit could be used to fund the subsidies to others. This concept is a fundamental injustice, but in effect it is now applied to Housing Associations where high rents are funding the early investment costs of new buildings. The benefits of investment in housing have been made exclusive to ownership.
In spite of the instability caused by foolish policies, housing is consistently the most reliable type of investment. The cyclic regeneration of loan costs in home buying (The Power of Investment – Graph 1) makes investment in rented stock even more efficient. The subsidised support of a private rental consumer services to low-income households, is the least efficient financial means of providing accommodation.
Housing benefit subsidy is an amount equal to the difference between what a tenant is asked to pay and what it is considered they can afford to pay. Table 1 in the discussion on Housing Benefit shows that the levels of rent and income, which would escape the poverty trap of housing benefit, are similar or above the levels of mortgage payment. So who would choose to rent under the current system, if they could afford to buy? This is the positive feedback, "to them that hath shall be given", that destabilises the housing market. This choice of risk is the edge-of-chaos for the parameters of classical economics and the instability, which they now persistently produce.
Affordability
The whole structure of rented accommodation has been stripped of its investment value by discounted sales and converted into a market based rented consumer service. In the long term, this market is inherently more expensive than the investment based market for the majority of the population in home ownership. The nonsense of policy is that this more expensive process is enforced on the provision of housing for low-income families. With this restriction, the question of "Affordability", which is much discussed in government and academic circles, has no credibility.
Indeed, this reality is recognised by the failure of government to define affordability and in the subtle asides of the discussions themselves:
The deregulation of rents in 1988 and the move towards privatisation prompted concern that policy was being implemented with little concern for basic principles behind the concepts of need and affordability. [1]
Malpass & Murie argue that the lack of a concrete definition of affordability is due to
'the governments commitment to the market mechanism and its reluctance to interfere in the relationship between associations and their private financiers'. [2]
‘Moving to a fairer system of affordable rents’, of the Housing Green paper (DETR 2000a) emphasises affordability but again fails to provide a definition, leaving it for RSLs to maintain affordability without a solid framework in which to achieve it. [3]
Yet the discussion remains academic, it avoids direct confrontation on the fundamental issue of reform, without which there is no possibility of achieving affordability for low-income households. Instead, the detail of legislation is examined exhaustively.
Paragraphs 11.4 to 11.52 of the Housing Green paper (DETR 2000a) show the governments concern on the alleviation of the worst aspects of the Housing Benefit poverty trap, on fraud and the exploitation of Housing Benefit by landlords and the exploitation of elderly tenants Right-to-Buy by incentive companies and unscrupulous relatives.
'It is these weaknesses, which we need to tackle in order to modernise welfare and housing.'
The present government has introduced many worthwhile measures to alleviate poverty such as the national minimum wage and the Working Families Tax Credit.
'We estimate that the introduction of Working Families Tax Credit will move about 90,000 claimants off Housing Benefit in 2000/2001'.
But the distorted structures of housing policy create the conditions that require much of the alleviation complexity. The "Housing Benefit taper" is the rate of withdrawal of Housing Benefit as income rises and it is 65p in the pound, which means a low-income household will gain only 35p from each pound increase in its income. In this complex system, the true question of affordability is the willingness of government to pay for the alleviation of the poverty due to a market rent policy. In the words of the Green paper itself:
'Housing Benefit takes away responsibility from claimants. Housing Benefit gives tenants little interest in the rent - provided it does not exceed local limits it can be reimbursed in full, often directly to the landlord. This means that some tenants are not even aware of how much rent is being paid.'
Housing policy is now a persistent cause of poverty in the UK and the most direct solution is a root and branch reform. Current legislation enforces the status of rented accommodation as a consumer service with constantly rising costs. A Complementary Housing Strategy would provide the falling costs of an investment-based system, which is currently enjoyed by the majority of the population in home ownership. A key reason for the need to reform is the creation of genuine affordability, which will reopen opportunities for low-income families.