Recent Housing Articles
Rising house prices used to make cheery headlines in the papers. It was associated with economic success. We were all getting richer. If people can afford to pay more and more for houses, then the economy must be getting bigger and bigger.
In truth, the rise in house prices had just as much to do with the easy availability of mortgages, which created an “effective demand”.
As a youngster, I remember how people’s excitement of buying their own council flat infected everyone else. Aspiration amongst the working population must be one of the most important factors to a thriving economy, and it was very much instilled in the east enders in the ‘80s. This is how Thatcher won.
Today we hear commentators speak of the “lack of animal spirits”, referring to an economy which is moribund. Few people are investing lavishly. Few new enterprises are born from a sketch on the back of a beer mat. There’s a general lack of excitement, of inspiration.
The problem is that if we want to fix the problem of over-valued houses, then we would need to supply enough new homes to cause house prices to fall. However, deflation would stop developers buying land for fear of losses through falling prices. House price deflation would effect consumer spending. If people believe they are getting poorer in their assets they will avoid splashing out. How many politicians would choose policies that would have such an effect?
George Osborne must have considered these issues, when he chose to support the buyers, rather than the builders, of new homes. Such is his largesse that his subsidy will include houses up to a value of £600,000. So much for first time buyers.
The problem for the Tories is that they will only look at one section of the housing stock. When considering the solution, it helps to see housing as two separate stocks, with two separate economies. Private housing with it’s market economy, and social housing with it’s demand economy. They are both effected by supply and demand but in different ways. A lack of supply increases prices in the private stock, and waiting lists in the social stock.
The solution is to greatly expand the social because this can increase the amount of available housing without effecting the value of private homes, as social housing doesn’t compete with owner occupation. It would likely bring down private rents but we’re not so concerned about that, because falling rent puts money directly into the pockets of tenants, so the economic effect of rent deflation is more than mitigated.
A dramatic increase in the stock of social housing is an existing policy of Labour. Ed Balls proposes to build 100,000 new homes by providing 20% deposits to Housing Associations, who would raise the rest on the capital markets, using a business plan that combines homes for sale with not-for-profit rent. However, he should probably consider a figure closer to 300,000+ if he really wants to make an impact.
He should also make it his business to sell the economic argument for a greater expansion of social housing to the wider electorate, with a particular emphasis on the likely lower rents, as this provides a benefit to those who haven’t had the good fortune to get a social home themselves.
So it’s not just units that Mr Balls must contend with. He should also turn around the sorry reputation that social housing has developed from past mistakes. That makes a whole other challenge.
Over the 20th century, the UK made a political choice that we probably never articulated as such.
That is, we decided that the huge expensive city in the lower right-hand corner of the map had to remain a proper city, rather than shipping out its working class to a concrete jungle on the M25 and giving over the centre to the role of a dead museum, sorry, an exciting retail and heritage offer for high-value tourism, and the City and the East to the banks.
At the same time we decided that the outward sprawl had to stop, halting at the green belt. The solution, up to the 80s, was to make housing in the major cities into a public service. Since the 1980s and the key decision to sell the council properties accumulated up to then, the policy changed; instead of taking housing out of the market, we would instead subsidise it. As Tory minister Sir George Young said, housing benefit would take the strain.
Now, the strain will no longer be taken. Local housing allowance – it’s housing benefit but for people in private rentals – is to be drastically cut.
If the tenants can’t pay, they will get the stick. Councils are actively planning to rehouse over 100,000 people outside London.
Of course, faced with this prospect, people will try to survive somehow. On the tenants’ side, some of them will try to disappear in the black economy and tolerate back-garden sheds, friends of friends’ sofas, or perhaps squat in repossessed property rather than be shipped away from their jobs. (Yes, their jobs; housing benefit is mostly paid to people in work. Surely I don’t need to say this.)
On the landlords’ side, they will tell themselves that of course they can find new tenants. They will juggle financing between properties, personal loans, their credit cards, etc.
But there is a solution. Under Eric Pickles’ Localism Bill, councils get to keep their income from rent rather than giving it to the Government.
So, let’s buy the houses, quick. I propose that the London Labour councils, and indeed any others who want to join, launch a jointly-owned company to buy up the BTLers’ property and to manage it as social housing. We could organise this via London Councils itself, as it is now Labour-controlled.
How much is that again?
There are 52 weeks in a year, 133,000 households claiming, so that estimates the flow of housing benefit into rents for the people involved at £2.3bn a year. That’s quite a lot of money. There’s also a £2bn “affordable housing” fund controlled by Boris Johnson we might bid for.
Councils can borrow money from the Government at a 2.8% interest rate, being the rate the Government can borrow for 10 years plus 1%. This isn’t actually all that good. There is an enormous demand for safe assets that actually pay a coupon at the moment.
Some councils, therefore, have decided to issue bonds on the open market instead. At 2.5% for 10 years, the stream of housing benefit would be enough to pay off a £22bn bond issue.
This isn’t a new idea. In the 1970s, a lot of rental property was bought up by London Labour councils’ housing departments and they’ve still got more of it than you might think.
A longer version of this piece is at Alex Harrowell’s blog.
At the Autumn Statement we were told that the Chancellor is increasing spending on infrastructure whilst cutting spending on welfare. Such statements are confusing “infrastructure” for “lumps of rock”.
There are two reasons that you would increase spending on infrastructure. The first is that you believe that the spending itself will be good for the economy: the money will create jobs, the newly employed people will buy new things, shops will employ more people, etc.
The second reason might be that you believe that the underlying framework of your system could be more efficient. The classic example would be that late trains cost people time working, so you invest in better train lines.
However, in practice, I see very little notable difference between what Osborne sees as ‘welfare’ and what he sees as ‘infrastructure’ – other than who it is for. What the Chancellor calls infrastructure, I could call corporate welfare.
Let’s take a specific example: the Treasury is going to pay to upgrade our broadband network. They are doing it so that businesses can have access to faster internet. If the state didn’t pay for this, then these companies, if they really need it, would eventually arrange it themselves. So this is just a whacking great subsidy to them.
And you say “welfare”, I say “social infrastructure”.
The basic underlying framework of our society is not just roads, railways and wires. More important than any of these are the institutions which make our civilisation. And the welfare state is key to this.
If the public sector spends less time caring for old people, then this often means that relatives (almost always female relatives) end up taking on those caring responsibilities. Now, what costs the economy more hours of labour – a late train, or the need to care for a sick elderly relative? Social care is as much a piece of economic infrastructure as are train lines or high speed broadband.
Likewise, if we cut social services for young people, then we see a huge financial cost to society – both in the short term in increased crime rates, and in the long term in a less well educated, less well adjusted generation growing up.
There is no particular economic reason to cut spending on social infrastructure and increase it on physical infrastructure – other than an ideological opposition to the welfare state.
A longer version is at Bright Green Scotland.
Proposed changes by the Mayor of London to the ‘London Plan’ signal the death of social rented and family housing in London, says a key Labour Assembly Member.
The Plan is the overarching planning document for London, which amongst other things, sets guidelines that determine how much social and family housing will be built in London.
Under the current funding regime social housing is not currently delivered by the Mayor, it is delivered by the 32 London Boroughs.
Labour’s London Assembly Planning spokesperson Nicky Gavron says that under the proposals being debated today, Boris is trying to stop developers and housing providers from building social rented housing.
He is attempting to do this by preventing social rented housing from being included in each of the 32 London Borough’s plans.
This runs counter to giving local communities more power over what happens in their area.
Nicky Gavron released a statement today saying: “Boris has already said he will give no money to build new social rented housing. It is disgraceful that he is trying to use the planning system to block local councils from finding ways of funding future social housing building.”
“This is a direct attack on localism and giving local communities the power to decide what happens in their area. The Mayor’s policies will hit low income families hard and dismantle mixed communities. He is exacerbating the runaway housing crisis that is driving up the cost of living in the capital.”
Myth one: housing benefit claimants are all lazy scroungers
Ministers from both the previous and current government have argued for housing benefit caps by saying we shouldn’t help people to live in houses “that working families could never afford”. In fact, 39% of housing benefit claimants in London have jobs, and many others are retired, caring for children, sick or disabled. In the last two years an extra 52,000 working people have started to claim housing benefit in London, probably connected to the fact that private rents have risen far faster than the minimum wage, which has only crept up by 5%.
Myth two: the rising housing benefit bill was caused by greedy tenants
In the lead-up to the 2010 Comprehensive Spending Review the papers were full of stories about benefit claimants living out of mansions in expensive parts of London. But even then there were only 139 families in London receiving over £50,000 in rent a year out of over 800,000 benefit claimants. Only 4% received more than £20,000 a year, according to the DWP. There were another 243,000 households estimated to be hit by the cuts who were receiving less than £20,000.
Myth three: the rising housing benefit bill was caused by greedy landlords
Analysis by the Department for Work and Pensions found that 70% of the rise was due to more claimants, while only 13% of the rise could be attributed to landlords increasing rents to get more out of the system. Figures used by the Government to suggest that housing benefit has driven up rents turn out to be extremely shaky, based on unrepresentative samples. Since the caps and cuts to housing benefits were introduced, rents have risen far above inflation in London. The causes are complicated – high demand, low supply, short term rental contracts stoking up a volatile market, and many other factors. But benefits aren’t the primary cause.
Myth four: low paid workers could move to cheaper parts of London
It sounds fair, but there isn’t a single borough in London where a cheaper (lower quartile) shared room in a flat would be affordable for a minimum wage worker. Private rents are simply too high for low wage workers. Even on the London Living Wage of £8.30/hour, renting in a flatshare in most of inner London would take up more than the standard definition of an affordable rent – 35% of take-home pay, leaving the rest for council tax, bills, travel, food and leisure.
Myth five: there are plenty of cheaper homes about
In theory the cheaper 30% of homes in a “broad market rental area” should be available to claimants. But in July the Hackney Citizens Advice Bureau did a snapshot survey of 1,585 properties to let in their borough. They found that there were only 142 homes that fell within the new benefit caps, 9% of the total. To make things worse, most of the landlords they spoke to wouldn’t let their properties to benefit claimants, leaving people chasing only 14 homes in the entire borough, less than 1% of those on the market. Research by the Chartered Institute of Housing published in January predicted a similar situation this year across London as cuts bite. For example, they calculated that 17,000 people would be chasing 10,000 properties in Croydon.
Myth six: this is the only fair way to reduce the benefit bill (part one)
Rather than cutting benefit payments, we could reduce the housing benefit bill by reducing rents. Unfortunately the Mayor has ruled out even looking at private rented regulation of the sort used in most other European countries. Another option is to build more social housing, which the Mayor’s housing advisor has said would “clearly help reduce the housing benefit bill”. If we could move every private tenant on housing benefit across the UK into council housing overnight, the lower rents alone would save the Exchequer £2.7bn in housing benefit payments.
Myth seven: this is the only fair way to reduce the benefit bill (part two)
Another way to reduce the benefit bill would be to help more people find work, and to ensure that they are actually paid enough to cover the rent. Using my interactive London Rents Map, you can see that a worker on the National Minimum Wage of £6.08/hour cannot afford a cheaper (lower quartile) room in a shared flat in any borough in London. But if they were paid the London Living Wage of £8.30/hour then fifteen boroughs would become affordable.
Myth eight: social tenants enjoy expensive subsidies as well
The recently departed housing minister suggested that social housing should be rebranded as “taxpayer subsidised housing”. But in recent years council housing has actually been in surplus, making a net contribution of £113m to the Treasury in 2009/10. The main subsidy is the grant used to cover part of the cost of building the homes, but that is more than made up by rent payments and the reduced benefit bill. If all those social tenants receiving benefits were to rent privately it would cost an extra £5.3bn a year in housing benefit payments.
Myth nine: the cuts are helping
When this Government came to power they vowed to cut the benefit bill by nearly £2bn by 2015. But since announcing their cuts and caps the bill has actually gone up by £2.5bn, largely because of the growing number of working households who need to claim the benefit to keep a roof over their head.
Myth ten: the Government’s housing agenda will save money
Instead of building lots of social housing or raising the minimum wage, the Government has actually cut investment in housing and decided to raise rents. The new London affordable housing budget for 2011-15 represented a 66% cut in the annual grant compared to the 2008-11 funding. But the Mayor still hopes to build a similar number of homes each year as he did with the previous, much larger grant. Rents will rise to square the circle, meaning that more tenants will be dependent on more housing benefit payments to keep up. Even the Prime Minister had to admit that this contradiction could increase the benefit bill.
contribution by Nicola Hughes
I watched David Cameron’s major speech on welfare reform yesterday. In case you missed it, he is proposing that housing benefit should no longer be available to under 25s.
It’s already kicked off a wealth of comment, with Conservative Home asking whether this a bold way to cut down a burgeoning benefits bill, or a political gamble that could ‘re-toxify’ the Conservative brand.
Here are five good reasons why cutting off this support could hold back young people who are trying hard to do the right thing:
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contribution by Nathaniel Mathews
Paulie was born in Jamaica, but he has been living here since 1970. He came when he was a teenager to joing his parents, aunts and uncles, who had arrived in the UK in the early 50′s.
They were of the generation that came here on the good ship Windrush from the West Indies , to work as porters, clean toilets, do the work that we native born Britons did not wish to do.
Now he is in danger of losing his home.
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contribution by Lorna Gledhill
Last month, a young female asylum seeker and her twelve week old baby received an eviction letter demanding that they leave their current house in Bradford and relocate to Doncaster.
With barely a week’s notice, she was forcibly evicted and transported 40 miles to a tiny flat in the South Yorkshire town. Her new ‘home’ had no cooker, no table and chairs, and only a tiny sink to wash all kitchen equipment and clothes.
The UK Border Agency’s own standards clearly state ‘self-contained accommodation’ must include a cooker, a sufficient number of chairs for all tenants and acceptable laundry facilities.
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contribution by Jack Hewson
In 1975 Steve Bassam – now Baron Bassam – provided legal assistance for three of his fellow squatters in a Crown Court case following their eviction from a property in Brighton.
As his then friend Tony Greenstein recalls Bassam had “stood shoulder to shoulder” with him as “heavies” smashed their way in assisted by an Alsatian attack dog.
During their eviction one of the landlord’s men was injured as the occupiers defended themselves.
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contribution by Geoff Hinkley
The Business Secretary, Vince Cable, has been making a renewed push for his Mansion Tax and more generally to “shift from high marginal rates of tax on income… to taxation of wealth.” And now the Labour front bench has also come out in support of a Mansion Tax.
There is stiff opposition from the usual voices in the Conservative backbenches.
Much of it is nakedly political but there is a more practical objection too: you need to assess the value of the wealth being taxed.
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