Visions of Housing Policy III

Housing Benefit supported high rents and the discounted sale of rented stocks is a policy of tenure, which has failed to provide affordable housing in spite of its huge and rising cost to the taxpayer. Instead, it has created a poverty trap for the property-less poor and conditions of risk for first-time buyers, which has made the house price market unstable. The evidence for the advantages of using investment to provide a rented stock, rather than a consumer service is stunning. A Complementary Housing policy exploits the different timing of investment structures with a policy of open access to bring these advantages to everyone, with the further advantage of stabilising the housing market and eventually removing the burden of subsidies.

The Need for Radical Reform

The loss of the low-cost rented sector marked a watershed change in the stability of the UK housing market because it created the conditions of risk, for first time buyers, that drive the instability. From the success of the "bricks and mortar" policy of investment in housing, which achieved parity between houses and households for the first time in 1969, the policy since 1971 has resulted in continuous decline of the housing supply required to meet the demand. The rising cost of this policy is now six times greater, in real terms, than the falling investment costs that supported social housing in 1968.

The policy of support for the private rented market is not compatible with homeownership or with the balanced choices required to achieve affordable housing in the UK. It was always madness to expect that "the market would provide" a retail profit from renting, when the majority of the population were buying into the investment of home ownership. The fundamental importance of decent housing requires government intervention. It is impossible to be fair to tenants and to private landlords at the same time.

The high cost rented consumer service, supported by housing benefit, has caused even more significant changes in our social structures. The poor are distinguished more clearly than ever before, now trapped by the disadvantages of the "property-less poor". While the policies of residualisation burdened the poor in the past, the tenants of council houses were never so separated from the opportunities and aspirations of the majority population. The property-less poor observe, as people once their peers, exploit cheap foreign markets with undreamed of adventures offered by transferring their equity abroad. We are a wealthier nation than ever before, but we are divided more starkly on the basis of property ownership.

A Policy of Investment

Homeownership is based on investment, which yields low cost over the period of a life time for those who can afford the initial high cost. Paradoxically, council housing was the complement of home ownership, because it too was based on investment. The public investment matured to yield low cost-balanced rents.

It is time that we put aside the political rivalry of tenancy and ownership, seeds sown when we allowed the brilliant idea of council housing to decline into welfare housing. The key idea was that investment would yield affordable rents that would become cost-balanced rents with no need for further subsidy.

Fig.5 Evolution of subsidy to build 20,000 houses at 400/yr.
Real values at 2004. Performance shown for two rent levels.

  1. Red: Private rented Consumer Service (7% capital return)
    supported by Housing Benefit
  2. Blue: Subsidy required to establish cost-balanced stock.
    Matures to a Surplus available to support new building.

The investment model of Fig.1, while very simplified, is true in principle and as previously shown is conservative compared with the record of 27 years after the war. Fig.5 Shows the subsidies and the surpluses of that model against the Housing Benefit subsidies for a very low-profit private rented consumer service.

After ten years the public cost of subsidy is transformed by the benefits of investment. Long before the stock fully matures, these benefits produce a surplus. In contrast, the taxpayers burden of housing benefit required to support the private rented consumer service is just depressing.

In 1971, the vision of post-war housing was 26 years into the benefits of this investment process and they were very visible. Why did we, as a nation, fail to see and hold on to them?

There is a fear that another government will come along and burn up the invested resources, but the will of the electorate has protected the health service. Labour must draw courage from that. Everyone has had problems under the present policy and a strong case can be made. We can also look to the logistics of using more diverse providers, which would make disinvestments more difficult.

Investment in rented houses leveraged by initial subsidies and the powers of the Housing Corporation to achieve cost-balance, with low rents and independence from further subsidies, is at the core of a new solution. Let the not-for-profit provider management schemes come from any quarter, be it council, private, HA, co-operative society, charity or Union.

Away with Social Housing

'Public housing', 'council housing', 'private not-for-profit rented housing', 'social housing' and 'welfare housing' are varied names used to describe the provision of a housing safety net for the poor. But they are used by our prejudices to label people, who we have to support with our taxes. Social housing is a bad idea and it is so unnecessary. Unlike the Conservative policy of private tenure, public subsidy for rented stock is backed by the market power of investment; it is cumulative and not dissipated as a consumer service. We should do away with the restrictive and exclusive concepts of social housing.

The evidence of Figs. 1 and 5 for the advantages of using investment, rather than a consumer service is stunning. The public costs to provide homes for low-income households, initially the same, quickly becomes many times less expensive and progresses to become self-funding. The low rents no longer entrap the poor, nor prevent them from earning more and moving on. Indeed, how can we justify the idea of employing high-rent consumer services to house those least able to afford them?

Govermnment research in 1998 on "Rent levels, affordability and housing benefit" recognised the conflict, but its struggle to make recommendations for modifying the system only give strength to the call for more radical reform.

"There is a general consensus amongst housing commentators that for the Government's Welfare to Work initiative to succeed policies will need to address the work disincentive effects of high social sector rent levels and the current housing benefit system."

In Visions For Social Housing (2008), Professor Duncan Maclennan and his co-authors go much further

"Public housing, in all its forms, was at the heart of the post-war welfare revolution and was instrumental in providing for social mobility. In today’s property-owning societies this is no longer the case. Indeed, as this publication demonstrates, social housing has all too often become part of the multiple-deprivation problem. Rather than providing a hand-up, public housing (especially in mono-tenure estates) has all too often condemned families to the poverty trap and entrenched intergenerational housing inequalities."
"The housing crisis in the wake of the credit crunch has shown us that the welfare approach to non-market housing is too narrow and has re-emphasised the need to link affordable housing policies and provision firmly with broader social and economic development."


A policy of Open Access

But why should we be so exclusive in our definition of the poor, others are entrapped by high rents. Those with incomes, even substantially above the national average are trapped by the lengthy time that it takes to save a deposit, when paying high rents. Why should we not expect such a rented system to provide the level of vacancies normal to the private sector, which allow choice and the needs of mobility? These issues involve a broadening of our vision of housing policy, which begins to do away with narrow concepts of welfare housing with the advantage of being no more expensive in the short term and infinitely less expensive in the long term. We are approaching an integrated vision of housing policy that is capable of meeting all needs, without the disadvantage of being labelled social housing.

A policy of open access would require a larger stock, but it would open the way to a more integrated housing policy. The larger stock would be more responsive to the urgent needs of the homeless, which has always been a problem for the restricted building of welfare housing. Why should we be so exclusive? We have seen that a policy of open access to the low cost rented sector would ease the access to homeownership for first time buyers. It would also increase the options for second-time buyers; the problems of broken chains and of promptly completing both a sale and a purchase could be solved by inexpensive and temporary accommodation.

The ideas, which changed our lives in 1946, brought the fruits of an industrial economy to the majority of the population for the first time; an economy that had existed here for 200 years. Complementary Housing is not such a big idea; it's even questionable that something similar doesn't already exist in Germany and France. But for us it would be a big step forward; for the first time it would combine the interests of tenant and homeowner alike.

Complementary Housing

The concept of Complementary Housing is becoming clear. It is a spectrum of housing, which spans all incomes by using the market advantage of investment in different ways to buy into the high valued, but durable housing market. These different schemes are the structures of a Complementary Housing Policy.

Mostly we have been discussing Complementary Rented Housing, the low end of the spectrum, which needs subsidy to get the power of investment working. It is designed to minimise rent at a level that is fixed in real terms, by anticipating both falling loan costs and rising equity values. The model of Figs.4 & 5 and the record of council housing finance show that it is so successful in making investment work also for the poor that it rapidly becomes self-sustaining. Open access extends this power to middle incomes and facilitates their choices.

The advantages of reduced cost and increased equity, naturally yielded by investment with time, can be modified by policy structures to change the timing and the purpose of equity in a way that allows the whole spectrum of household incomes to take advantage of them. This can be done, precisely because; housing is cheap when measured over the period of its lifetime.

For low-incomes households: cost (rent) is fixed in real terms at an affordable level by means of subsidy for a time and then by means of equity, which may even be capable of repaying the original subsidy. For home ownership, cost is fixed high at purchase, falls with inflation and yields equity. In between are a huge variety of shared cost/equity schemes. The right to buy policy cannot coexist with this concept because discounts destroy its use of equity.

Because the schemes create differences in timing of the same investment advantages, they are complementary in a way that allows these different types of housing provision to work in a more supportive way. We have already outlined some of the ways in which open access would do that.

An Authority such as the Housing Corporation could control the investment and standards of a Complementary Housing Policy. It would be designed to meet demand and to fully use the advantages of investment and equity in order to achieve these objectives. A true right to buy, at the market price, would serve the principles of diversity important to the concept of a Complementary Housing Policy and recognise the changing choices or aspirations of a tenant, but discount could not be justified by the financial basis of its provision, which they would threaten to destroy.

Key Principles For a New Vision of Housing Policy

Government cannot escape the realities of the capital housing market; but nor can it ignore the criteria of affordability, either in its use or its cost of provision. The evidence for the advantages of using investment to provide a rented stock, rather than a consumer service is stunning. A Complementary Housing policy exploits the different timing of investment structures with a policy of open access to bring these advantages to everyone, with the further advantage of stabilising the housing market and eventually removing the burden of subsidies.

Our history is an assurance, that public investment in a Complementary Housing Policy to regain a low-cost rented sector would be financially successful. From the experience of council housing finances, low cost-balanced rents could be achieved in 25 to 30 years and we could see an end to the crippling costs of housing benefit and to the miserable trap that it has come to represent. Open access is the imperative, not only to supply the more widespread need, but also to command the recognition and support of the whole population. Council Housing is dead, but so too is the Conservative dream for the private rented sector; we need a new solution.

No better project exists than to meet this need of every section of the community. The public expenditure required to lift us out of the current economic crisis could also begin to solve our long-term housing problems and provide labour intensive work to counter rising unemployment.