Any Questions

Over the period of its lifetime, housing is very cheap; but in practical terms this is only recognised through the power of investment. Old people, who are home owners, recognise this.

The 1972 HA abolished our low cost rented system, which was based on investment. It has been replaced by a high cost private rented consumer service, heavily subsidised by Housing Benefit payments, which now threatens to trap most new housholds within the ranks of the propertyless poor.

Does anyone actually think, that ending the credit crisis will bring relief to first time buyers? And if not by using investment, how can affordable housing be achieved for those unable to buy?

The State of UK Housing:

1. Prices are not affordable on average income.
   High mortgages loans at 5 x Income are considered to be normal
2. The UK has no sensible alternative to ownership.
   In effect, our low-cost rented housing was abolished in 1971.
3. Government investment in council houses sold off at one third of market value.
   And replaced by Housing Benefit supported private rents (£12 Billion/yr).
4. Building rates are low. In effect the overall housing stock has contracted.
   Housing standards have fallen, smaller houses and shared housing has increased.
5. The UK Housing market has been in recession for 35 years!!!

The Causes of UK housing crisis:

6. Rents just as expensive as mortgages, make 'saving to buy' almost impossible.
   40% of 1^st time buyers depend on support from property owning parents.
7. If you can't afford to buy; Then you can't afford to rent;
   Then you are forced to depend on Housing Benefit.
8. Housing Benefit is a trap; because it is reduced by 69p for every £ increase in earnings.
   It is a trap that makes the UK one of the least socially mobile countries in Europe.
   And a trap that frustrates huge efforts in recent years to banish child poverty.

The Bottom Line:

9. Frenzied efforts, to escape the Trap of Housing Benefit, drive buyers to accept Higher Risk.
10. A High Risk house price market = High Sensitivity to market change = Unstable house prices..
11. Unstable UK House prices have cycled in the 50% Inflation band for 35 years

How Does UK Housing Compare with European and American Housing?

European countries have retained the very large resources of low cost rented housing, built in response to the great needs of the post war populations. Consequently house prices in Europe have remained much lower than in the UK and, especially in Germany and France, have been much more stable. Like council housing in the UK, the investment in low cost rented housing was cumulative; increasing in value, but falling in cost. It was sold off cheaply in the UK and replaced by private rented services at a cost to the taxpayer of £12 Billion pounds per year and rising.

In America, the profile of national wealth and the history of housing policy are entirely different to Europe. In the US, housing has been relatively cheap (low population density, large resources of building materials) and well within the range of significantly higher average incomes. Average American house prices have been 10% less than UK prices, in spite of the fact that the average house is twice as large as its UK counterpart, (so equivalent housing in America is 40% of its UK cost). The poverty sinks of the 2% public housing sector have significant problems, but they appear to raises little electoral concern. Until the current banking failures, American house prices had been very stable for more than forty years.

The life defining risk in the decision to buy is the long-term result of UK housing policy. It will not be resolved by the ending of the current economic banking crisis. More pertinently, the UK government will face a new housing crisis. The imperative to increase the instruments of banking regulation would logically limit mortgage loans to the historically prudent level of 2.5 x Income, but this will threaten the current structures of housing policy with total collapse. Having been careless in the past, I am going to date this prediction (16 September 2009).

An Unconsidered Crisis Looms

It is an interesting dilemma for UK economists. The cause of the credit crunch has been clearly identified. It was due to excessive lending in the American sub prime market (mainly in the US housing market) and regulation will be introduced to prevent it happening in the future. Quite right too!
But the financial structures of UK housing policy, over the last 35 years, have developed a widespread dependence on high-risk loans. How are we going to escape from that? With great difficulty Yes! But impossible until we acknowledge the vital importance of a low cost rented housing sector.

There is no easy solution. The greed that brought an economic and banking crisis to the world has been acknowledged and its effects have mortgaged our children into debt. But the 35 year long UK housing recession has not been acknowledged. It was a mistake to abolish the low cost rented sector in 1971. It was and is a mistake to fritter away huge national investment by the discounted sales of council houses since 1980. It was a mistake to replace it with a high cost private rented consumer service.

Sanity in banking demands that loans of 5 times income are totally unacceptable. But in UK housing, young people, even on well above national average incomes, have taken such risk and more because the UK market offers no alternative. How can economists fail to acknowledge these circumstances? A sensible banking decision to limit loans to the historically prudent level of 2.5 times income, will more than decimate the UK housing market. The measures to solve the world banking crisis conflict with the current financial structures of UK housing policy. This new unconsidered crisis looms and mayhem will decsend on the government that flinches from its solution.

The following pages will develop the vision of a Complementary Housing Policy. They will explain the complementary relationships and interactions between home ownership and rented accommodation. They will show the financial structures that are necessary to allow these complementary relationships to flourish and to provide the powerful stabilisation of house prices. They will show the potential to end long-term housing benefit subsidies, which would result in public savings of tens of billions of pounds/year.

The Largest House Price Rise in History

In the years following World War II, both Labour and Conservative governments competed, to provide low cost rented housing and fulfil the popular demand to build 'Homes fit for Heroes'.

In 1945 Nye Bevin chose to use the instruments of local government to build houses, which became known as council houses. They were houses of the highest quality that raised the standards for all other housing.

Most other governments in war damaged Europe created large stocks of low cost rented housing, but they employed a much wider variety of agencies (churches, charities, trade unions and local government) to carry out the task. They remain as a very large and important alternative to home ownership in Western Europe.

Unlike anything in Europe, a huge change took place in the UK housing market in 1971.

• Mr Heath announced his intention to double all council rents (about 30% of UK housing).
• In a radical change of housing policy, he removed the right of local council's to set low cost-balanced rents. In effect he abolished the UK's low cost rented sector.
• The announcement triggered the largest house price rise in UK history. Within three years the average price of houses doubled.

Why is that?

Economic experts in the UK have not acknowledged, dismissed, or even investigated the cause and effect relationship between the doubling of council rent announcement and the first great peak of UK housing inflation.

UK Housing is Fundamentally Unstable

In the post-war period, until 1971, UK house prices fluctuated within the 10% price inflation band and they followed the trends of general inflation very closely.

Since 1971, unlike most other countries, UK house prices have been wildly and persistently unstable. Fluctuating in the 50% inflation band, they have clearly led the trends of general inflation for nearly 40 years.

The issues that merit discussion in this period of persistent instability are many; but throughout the period, new policy has consolidated the financial structures, which have abolished the previously low cost rented sector and have attempted to encouraged its replacement by the private rented sector.

• A typical rent is now equal to or greater than the first year loan costs on a private mortgage.
• The whole rented sector has dramatically diminished and new buildings for rent have failed to respond to the need or to replace losses due to the sales of council houses.

Because the UK buyers risk is always high, the market responds hypersensitively to the slightest changes. It is because there is no cheaper alternative to the perceived ideal of home ownership that the UK House Price Market has remained wildly and persistently unstable since 1971.

Rented Housing Subsidies

The graph shows the public cost of subsidies for two models of housing provision for low income households.
a) A none profit investment stock.
b) A modest profit rented consumer service.
Both models are calculated for two cases of tenant income:
1. National Average Wage (NAW)
2. Half the National Average Wage (HNAW)
The actual rent of model a) is 30% of income, but the actual rent of model b) is 30% of income plus the Housing Benefit subsidy.

The record shows that many councils achieved 'model a' surplus after only 27yrs; sufficient to support significant building programmes, without further subsidy. (see: Colchester.)

Prize Winning Council Houses