Encouraging home ownership is bad economics. The government should support builders, and not property developers, in producing new social housing that is available to rent and not to buy
The way in which housing is becoming the new hot ticket amongst policymakers and commentators is surely indicative of quite how few viable policy options exist for fixing a deteriorating economy and a worsening fiscal balance. I little thought, when I started work on my new report, that I would be contributing to quite such a crescendo of comment.
What I hope my report contributes is a fresh viewpoint that escapes from the national myopia about all things property. Lewis Carroll’s White Queen always made a point of believing ‘six impossible things before breakfast’. Where housing is concerned, we in Britain manage to believe a lot more than six impossible things, most of the time.
For a start, we tend to believe that high property prices are ‘a good thing’. This, assessed objectively, is simply nonsense. In economic terms, high house prices act as a sink for enormous amounts of capital that could otherwise have been put to productive purposes. Rising house prices may boost demand, but this is purely temporary, whereas the extra debt that always accompanies property bubbles is all too damagingly permanent.
Socially, of course, soaring property prices have blighted the lives of millions of young people. The older generation seems to think that the release of housing equity will fund a comfortable retirement – but who do they imagine they’re going to be selling their houses to? Martians? Well, it certainly won’t be to a younger generation that cannot afford current inflated prices. The property price correction has a long, long way further to go yet.
There has also been a long-standing British obsession with home ‘ownership’, which in the vast majority of cases isn’t really ownership at all, of course, but a long-term leveraged lease. In contrast, Germany manages perfectly well without allowing this ownership obsession to divert investment into capital sinks. Of course, German tenants benefit from protections that we have spent the last three decades stripping away.
If you think the policy bias that has long favoured private renting over social housing has worked, ask the (mostly young) tenants who are paying record rents for what many describe as the ‘limbo’ of insecurity in which they find themselves.
‘Owning’ houses, and running ourselves ever further into debt in order to inflate the purely notional value of our housing stock, is bad economics. But building houses can make a lot more sense, not least because the bulk of any such investment would be spent at home.
Some observers want to free up property developers, but that’s not my preference at all. That would simply feed the national obsession with ‘ownership’.
Rather, I put a great deal of faith in builders – but not developers – as an economic regenerative force. My report argues that government should fund the building, by housing associations and/or local authorities, of new social housing for rent.
I hope that we’ll get this, though I very much fear that we’ll be fobbed off with yet more PFI-type gimmicks – or that Nimbys will use our arthritic planning system to stymie the building of new social housing.
Dr Tim Morgan is head of global research at Tullett Prebon. This post was originally published on Tim Morgan’s Blog
I believe that the shortage of affordable housing has undoubtedly been exacerbated by the traditional tenancy for life and the government should be applauded for tackling this with their new policy. It is surely morally wrong for council tenants to enjoy subsidised housing for a lifetime, even when they start earning which takes them out of poverty levels or when their families have grown up and no longer dependent on them – why shouldn’t they be given notice and asked to free up these scarce social housing for the next generation? This way, only the most needest should be supported and not have public assets passed onto their heirs.
Sounds like a breath of fresh air.
I always have a laugh when ‘the experts’ talk about affordable housing, based I assume on the majority of housing being unaffordable, and the desperation to encourage home ownership through ever more convoluted financial gymnastics as the only true mark of attainment. Access to housing is the real problem not a market induced ‘shortage’ of houses to sell to people who cannot afford them.
Ho Hum
This is illogical.
Council tenants can live their entire lives at the tax payers expense, spending all their money on pleasure they retire on full benefits and move into free accommodation until the day they die.
Savers who buy and maintain their own home, retire and if they have savings loose part of their benefits, they also loose their home on becoming ill and needing care.
From tax payers view, owners are better, renters cost a lot more when they retire.
Money paid on buying a home, doesn’t disappear down a black hole, it moves back into the economy as bankers bonuses.
Whether owned or rented, surely it always comes back to total supply and demand for houses. Demand has risen hugely with more, smaller ‘households’ for a variety of social reasons but supply has been severely restricted. If only Mrs Thatcher had made local authorities reinvest the proceeds of Right to Buy into new build instead of into the banking sector things might now be a whole lot easier.
If the Government would stop meddling and doing whatever they could to keep house prices at the current unaffordable levels then prices could be allowed to fall in line with wages (due to tighter lending). Lower house prices will mean that lanlords won’t be able to charge such high rents and young people can enjoy the security afforded to their parents and grandparents.
Stephen and Anthony, it is people like you that have the misconception that subsidised housing should only go to those people who are unemployed and have social problems hence producing benefit ghettos which the tax payer still funds. This misconception is also the stigmatisation of people who rent in social housing.
Social or affordable housing should be going to those who can not afford to get onto the property ladder due to the low salaries that would not qualify for a mortgage. In London that is a vast majority of people. The government’s own figures for part rent part buy schemes is that the qualifying income is £60,000. How many people do you know in social housing who reach that level of income? Furthermore, the people you condemn who have rented their property from social housing have reached an age of 40 plus when their families have grown up. Are you honestly suggesting that in your 40s and 50s you should be forced to move out to unsecured tenancies at a higher rent level? There are no more secured tenancies thanks to the last goveernment eroding away tenants rights, affordable now means 80% of a market rent around £800 in London. If one moves from one property to another even within the structures of social housing, i.e. mutual exchanges or downsizing you lose your current tenancy agreement. Of course when one retires and you have not been able to save or increase payments into a private pension due to the extortianate rents you have paid it will be down to housing benefit to pay it. The policy on housing is a farce, it is short sighted and this current government has not only eroded away security of tenure but has a policy of increasing rents to an unaffordable level even in social housing.
People who talk about subsidised housing need to get a few things straight. I was shocked, that not only are my council rents not subsidised, but in actual fact are going to central government to be redistributed around the country. Government determine how much a council needs to maintain it’s housing stock, and this includes new builds, though where these are happening, I’ve no idea. If the rents they receive exceed this figure they go into negative subsidy. Any moneys in excess of this allowance have to be paid to central government, and are redistributed to councils that are in positive subsidy i.e councils whose rents don’t cover maintaining the housing stock. The subsidies they get are from other councils housing rents. In actual fact, so many councils are now in negative subsidy, the debt to individual councils is becoming unsustainable. So they are changing this system, but councils are having to pay millions to central government in one off payments. Don’t talk about subsidised housing, it appears that council tenants are subsidising the rest of the country, and if the majority of councils are in negative subsidy, where is the excess of rents going? Education, Health? Oh and by the way, the maintainence of the housing stock is of very poor quality and rents go up every year.
This may make it clearer.
How is the current system working?
Under the current system – the Housing Revenue Account Subsidy, the Government calculates the spending needs of each local authority and compares it with their rental income. If a council’s rental income falls short of its spending needs, the Government provides subsidy to make up the shortfall. If a council’s rental income exceeds its spending needs, the excess is fed back into the subsidy
system to help provide for those councils requiring subsidy. If any money is left over, it is returned to Government – this is increasingly the case with 3/4 ‘s of councils being in negative subsidy and a 1/4 in positive subsidy.This is how council houses are funded.
It’s true us British like to own our own property and a lot of people believe they are wasting money on rent. By half renting until you have bought your property you can feel like your rent is going towards something useful and you will be closer to getting on the property ladder.
Alison.
Part Rent Part Buy