The Conservatives will struggle to win a majority while ignoring renters
Joe Wright, 15 April 2015
Since the introduction of Right to Buy in the 1980s, 1.9 million households have taken up the opportunity to buy their council property. According to the Economist, Margaret Thatcher’s policy was key to driving up home-ownership from 55% in 1979 to c.70% in 2001. David Cameron yesterday announced he intends to create a second wave of ownership by extending Right to Buy to 1.3 million people renting from housing associations.
The parameters of the debate, however, are not the same as they were thirty years ago. The first instalment of the policy came before the dramatic drop in construction. Right to Buy and liberalisation of the market has not unleashed private sector supply as was hoped at the time.
Indeed, the Institute for Fiscal Studies claims the policy contributed to the drop by creating a disincentive for councils to build.
The small case that can be made for the policy is that it at least revives the idea of a property owning democracy for some. There is also the potential for some of the money the government dysfunctionally pumps into the housing market to have a longer term use. Many housing benefit payments are to those in housing association properties, the bill for which is roughly £9 billion. The mean weekly claim for the 262,000 association housing benefit claimants in London is £126. Selling off houses to those tenants who already require a large annual subsidy means taxpayer money will make a real difference.
Of course, people needing HB in these properties struggle to meet association rents (roughly 80% of market rents); it they cannot afford to buy at even discounted prices then the policy is inconsequential to them. Worse, the government compensation to associations for losses incurred by sales is estimated to be anywhere between £5 and £20 billion. Whether £11 billion (potentially) is a trade-off worth making for a new generation of owners, with perhaps more financial independence, is a decision for the parties.
More importantly, these houses are not owned by government in any form, despite associations receiving subsidies. In effect the government is forcing NGOs, charities, to sell their assets. That is an uncomfortable precedent to set and there are already warnings it will lead to legal challenges. For Conservatives intent on drawing comparisons between Miliband and 1970s Labour, it is a rather ‘statist’ proposal.
From a purely campaigning point of view it undermines the argument against better regulation of the private rented sector. On top of ‘help to buy’, the sale of association property suggests Cameron and those around him are not averse to intervention in the market on principle. In which case, should not 17% of households which rent privately partake in the ‘good life’ too? (Civitas makes the case for this here). Even with subsidised deposits, the vast majority of renters are in no position to own because of the high rent and no savings trap.
It could be because private renters, predominantly concentrated in cities and particularly squeezed in London (where a quarter of households rent), are not typical Tory voters. Renters in Germany are well catered for because they make up a huge percentage of the voting bloc.
Right to Buy II could have been part of a package that helped renters too. Along with the plans to build garden cities, it would have made a comprehensive plan. The Tories will not gain a majority because, on an issue fundamental to British aspiration, they aren’t going for one.
Because it is one of the essentials of life, government clearly has a moral responsibility to ensure, directly or indirectly, that there is sufficient housing. It also acquires responsibility because it interferes considerably with the housing market, often with the effect that new building is discouraged, for example, by overly strict planning laws.
The government sets the rules for building new homes, renovating old ones and adapting non-residential buildings for residential use. The provision of taxpayers’ money for social housing is dependent on government. The rules by which social housing is allocated are the government’s rules. Planning permission is in the gift of politicians. The terms on which property may be rented and leased are set by them.
Then there are the measures which indirectly the housing market. To a very significant degree the government still controls the economy by the use of taxation, the indirect setting of interest rates through Bank Rate (the targets for the so-called independent Bank of England to meet – at present merely the inflation rate – are set by the Chancellor), the obligations placed on employers, subsidies to industries such as farming, the size of the public sector and the acceptance or otherwise of free trade obligations. All of these things feed through into the housing market by increasing or diminishing the amount of money in the public’s pockets and their confidence or otherwise in the future. Governments also determine the level of net immigration into a country – when it is running at the level Britain is currently experiencing substantially affects the demand for housing. In short, the cost and availability of housing is to a considerable degree determined by government policy.
The ongoing and seemingly inexorable rise in British property prices is rapidly making many parts of the country a desert for first time buyers (according to a Halifax survey the average house price has risen from £62,453 in the first quarter of £1996 to £179,425 in the third quarter of 2006, a rise of 187% – Daily Telegraph 28 10 2006) ). A combination of very low interest rates, lax lending rules by mortgage providers (some are lending up to 5 times salary), the introduction of easy to obtain “buy-to-let” mortgages, rising wages for substantial parts of the population, the continuing right-to-buy policy (RTB – the right of tenants to buy their council or other social housing properties at a discount) for those in social housing and a great diminishment in the building of new housing, both public and private, has led to a shortage of housing which can be bought by someone on average earnings in a majority of counties. In some areas of the country, most notably in the SE of England, prices have been further substantially inflated by the massive and ongoing immigration into Britain, most of which ends up in the South East.
The position in the rental sector mirrors that of home ownership. Social housing is in desperately short supply in those areas with higher property prices, particularly London, while reasonably priced private rental property is effectively non-existent. Every London Council has a waiting list of thousands for social housing.
The provision of housing, whether rented or purchased, that most people can afford is necessary for the simplest of practical reasons: every community, no matter how wealthy, requires large numbers of people who are not well paid. They must of necessity live fairly close to their jobs because, apart from considerations such as travelling time, those on small wages will not be able to afford the fares if they have to travel a long way. That means there must be reasonably priced homes for them to buy or rent not too far from their work.
There is also the moral and political case. There will always be housing segregation of people by price, but there is a big difference between not being able to afford to live in the most expensive parts of a town or city and not being able to live there at all. That is the point which is being rapidly approached for people on even above average incomes in a surprising number of English counties. In such circumstances free movement – one of the defining practices of a free society – becomes practically a dead letter. It is also very socially divisive, which is poison to the democratic process.
What can and should a government do to ease the problem in those areas where houses are in dangerously short supply? The first and most obvious move would be to stop mass immigration and restrict social housing to British citizens. Whether that could be done either legally or in practice if it could be done legally, while Britain remains within the EU is extremely dubious. However, other things could be done.
A Labour government of old (indeed, a Tory government of the fifties and sixties) would have turned to fiscal and practical measures to relieve the problem. They would have put controls on the amount of money mortgage providers can lend, used compulsory purchase to acquire land in the property hotspots and engaged in an extensive programme of council house building. Instead, we have the Blair government tortuously twisting and turning within the limits of the free market ideology with ill-thought plans to provide an inadequate number of “affordable homes” in the South East, without any mechanism to ensure that they remain available to the people they are supposed to cater for, that is, the likes of teachers and nurses. But even if the scheme for these “key workers” was successful, it would not address the general problem of house prices being out of the reach for the large majority of people working in the South East and it cannot be morally sustainable to say that only those with vital functions should be subsidised, a subsidy which would in effect subsidise those wealthy enough to live in the area who can afford to buy or rent a property at market rates because the services they received would only exist because of the public subsidy of “key workers” homes.
In areas with a shortage of housing, the Government should begin a massive programme of social house building with truly affordable rents, It should use compulsory purchase to acquire land being hoarded by private builders. If a builder has not built on land within a given period, it should become available for public housing or for another private builder who is willing to build on it. The Government should limit the amount of money a mortgage lender may advance to a level whereby a borrower can continue to pay if interest rates rise considerably. It should relax the planning controls for private developments. It should give priority in social housing to those local to the area and to workers with scarce and needed skills.
The question of RTB is a difficult one. I do not criticise anyone for exercising RTB because once such a scheme is in operation, for an individual not to exercise RTB is to place themselves at a massive disadvantage. It is also a fact that in a council tenant in a large block of flats may have a very real fear that if they do not buy, at some point in the future control of the block in which they live may be transferred to a less sympathetic and politically responsible landlord such as a housing association or a private developer, and they as a tenant would have absolutely no control over the landlord.
In areas where there is substantially more social housing than can be let, it makes sense to sell them and give purchasing priority to their tenants to maintain a community. But the selling off of council houses is self-defeating in areas where demand exceeds supply, which is now much of the country after twenty years of RTB and much diminished building of homes both publicly and privately owned. If council properties were sold at their full price it would be damaging enough, but the discount given pours oil onto the flames.
The Blair Government has (since January 2003) restricted the value of the RTB in areas of high demand such as London by reducing the maximum discount available to tenants. Such reductions are arguably open to legal challenge by existing tenants with a RTB. The RTB is a form of property in the same way that an option-to-buy can be considered a property. The question is whether the Government is entitled to arbitrarily reduce the value of the property. It has not been tested in the courts to date.
Similar considerations would arise if the RTB was simply abolished. The Government could certainly remove the RTB from future tenants, but if they were to try to remove the right from those who already have it, they could leave themselves open to legal challenge on the grounds that they were being dispossessed of property. If the courts upheld such a challenge, the Government would then be left with a choice of depriving only new tenants of the RTB or compensating those from whom they take an existing RTB. In the first case, this would greatly distort the effect of abolishing RTB – its full effect might not be felt for 40 years – or would result in a truly horrendous bill for the taxpayer as all those with the RTB would have to be compensated, not merely those who were actively seeking to exercise the right.
The desperation of the Blair Government is epitomised by their announcement on 6 January 2003 that it was considering taking to itself the power to compulsorily seize empty residential properties and let them. It is still kicking this idea around. This would probably be illegal because of the protection provided for private property under the Human Rights Act. Even if it is not, it is highly questionable whether property owned by private individuals should be compulsorily taken by the state in such an arbitrary manner. It is true that compulsory purchase has existed for many years, but this is different. It appears that the Government is thinking not of purchasing the properties for letting, but merely taking them for an unspecified period and letting them.
But even if these properties were to be compulsorily purchased before letting, it would go against the normal principle of compulsory purchase, namely that it should only be used where it is impossible to achieve a clearly defined general public good such as a new road or railway line which cannot otherwise be achieved. That is not the case with housing. To be a meaningful public exercise the forced seizures would have to be very substantial and thus not exceptional, and the increase of housing could be achieved by other means such as I have described previously.
35. Council housing
Nowhere is the hostility to direct provision seen more clearly than in the provision of council (municipal and state funded) housing. This type of housing was created to provide secure tenancies for decent accommodation at a rent the poorer members of society could afford. In the years after 1945 both Labour and Tory governments were committed to building a great number of such properties and ironically in view of their later Thatcherite policy it was a Tory Housing Minister, Harold Macmillan, who boasted in the mid 1950s that the Tory Government intended to build 300,000 council houses and flats in a year.
The rot for council housing set in under Margaret Thatcher. Many council properties (unsurprisingly disproportionately the more desirable ones) were transferred to private hands through Right To Buy (RTB). Most of the money from these sales was not used to build new council properties because central government forbad councils from doing so.
RTB had two consequences. It reduced the social housing stock and complicated the ownership and running of council properties. Councils were left with a housing stock which was gradually honeycombed with the private purchases of freeholds and leaseholds. This meant that a council had to establish a new relationship with their new leaseholders – a particularly fraught business in large blocks of flats where disputes over service charges, ground rents and external repair charges have been legion – which increased the costs of managing the properties.
More importantly RTB blurred the relationship, both legally and in the public’s mind, between what was public and what was private. There is a good deal of difference between saying here is a public asset and here is a part public part private asset. To move the entire housing stock of a council out of council control when it is just council housing is politically difficult because it is seen simply as the transfer of a public asset. That was particularly true in the 1980s when the public at large still had imprinted in them the idea that the state owning public goods for the public good was natural. But let that housing stock be sold off to private buyers bit by bit until, say, a quarter is privately owned, and the public no longer sees the council housing stock simply as a public asset. Indeed, with RTB much of the public sees possession of a council house as not a social good but something akin to a lottery win because of the substantial discount it brings – RTB has created a great deal of envy from those who have not been able to get a property. (This envy is misplaced in the majority of cases because, as many tenants who have bought properties in less desirable locations – especially on large council estates and in large blocks of flats – have found to their cost, the charges made by councils for service charges, grounds rents and most particularly external repairs – these are capped only for the first few years after purchase – are extortionate and the properties often next to impossible to sell at a reasonable price or even at all).
This blurring of the relationship between councils and council housing and the change in public attitude towards council housing has fitted neatly into the strategy of all governments since 1979 which has been to diminish the direct control of council housing by councils. The primary tactic used apart from RTB and a diminution of state funding for low rent housing, has been the transfer of government funding of most new build social housing from councils to Housing Associations which are non-profit self managing corporations. These, unlike council housing, are not subject to any degree of democratic control.
There has also been a push by governments to get existing council housing transferred to Housing Associations. This is somewhat tricky because tenants have by law to vote for such a transfer. To get round this awkward and annoying piece of democracy the Blair Government has been attempting transfer control of council housing stock into Arms Length Management Organisations (ALMOs). These are limited companies (limited by guarantee not by shares). The council housing stock is still owned by the council but the management of the housing stock is transferred to the ALMO board which is bound by company law. Thus the relationship between tenant and the council is completely changed because (1) local councillors no longer have any responsible for the management of the housing stock and (2) the ALMO board, being bound by company law, have to operate according to that law not a political agenda. Again, democratic control is broken.
A third tactic is to allow PFI companies into the management of part of a council’s housing stock. This again ties the hands of politicians because the contract with company means the council cannot act of its own volition.
The experience of tenants in Housing Associations and ALMOs has been mixed but there have been too many instances where rents and service charges have been raised to levels higher than those in directly owned council properties and where management of the property has left much to be desired. Worst, some Housing Associations and ALMOs have got into financial trouble. The only ways out of such a mess, after rents have been raised as high as they can, is for either a council to rescue the properties by taking them into direct control or for the properties to be placed in the hands of a private company, either through some form of PFI or outright sale of the property. The private option is the one almost all councils go for in such circumstances.
Whatever tactic is used – ALMOs, transfer to a Housing Association or PFI – it is always sold to tenants by councils insisting that remaining in direct council control is effectively a non-starter because central government money for renovations will not be available if that happens.
But even where council housing stock remains within council control there are an ongoing problems. The “affordable” rents plan of the Blair government will raise rents to considerably over the next ten years. In addition, council are increasingly seeking to charge additionally for services such security, cleaning and caretaking.
Service charges have the advantage for politicians of allowing them to say they have kept rents down to a lower level whilst effectively raising the rents. In addition, there are probably fewer legal restrictions attached to levying and raising service charges than there are attached to raising rents.
Council housing was never intended to make a profit for central Government or even local councils. It was social provision for the poor. This appears to have been lost sight of by Government, viz: “Your average council home generates roughly £2,500 a year in rent, £1,000 of this goes on management costs, £500 for repairs, leaving £1,000 being siphoned off by Government. Why can’t councils keep this sum?”. (Labour MP Austin Mitchell “Defend council housing” Camden New Journal 30 Jan 2003).
If nothing is done to prevent the privatisation/commercialisation of council housing, I sincerely wonder how long it will be before the poor are unable to afford council housing in London.
Read more at
https://livinginamadhouse.wordpress.com/2012/07/22/public-and-private-confusion-and-yes-there-is-an-alternative/