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Housing: a modest proposal

Green plastic monopoly houses, by 123rf.comIn launching Labour’s local election campaign last week Ed Miliband decided to emphasise the need for reform of private renting and tackling the cost of living crisis. In raising this issue he has triggered a welcome debate on housing in Britain.

House prices in England are rising fast and in London faster than ever — so much so that those lucky enough to own a property in the capital have seen house values rise by an average of £63,000 — about three times the earnings of the average Londoner. By definition, this is economic madness.

Outside London most areas are seeing much smaller increases in prices. The problem with this is that for too long British economic development has been based on ever rising property prices and thus an ever greater access to credit by those who own property, rather than lending being used to invest in sustainable manufacturing industry or real economic development.

There are two big problems with this dysfunctional model. Firstly, a static asset such as a building doesn’t actually produce anything, and secondly the disproportionate price of buying a property, alongside the rapidly increasing private sector rent levels and the shortage of social housing via councils and housing associations, means that many people simply have nowhere to live.

This crisis is at its most acute in London for those in receipt of housing benefit, pegged at an artificial level by the Department for Work and Pensions, making the private sector out of reach and thus forcing councils to fulfil their obligations to homeless people by moving them out of communities where they live.

What is happening in London is nothing short of social cleansing of working-class communities in the private rented sector. They are being replaced by either wealthier tenants, or in some cases, very rich people who can afford to buy million-pound houses to live in.

Since Margaret Thatcher’s 1980 abolition of most rent controls, the private rented sector has been a bonanza for letting agents and landlords to make huge profits out of often inadequate accommodation.

Letting agents require large deposits, rent in advance, and spurious payments such as search fees for providing the property for rent.

In return, the tenant gets a six-month assured shorthold tenancy with no guarantee of continuation beyond that. At the end of the six months the landlord can increase the rent with impunity, and if the tenant has had the temerity to exercise their right to complain to environmental health office about conditions, they’ll almost certainly find their tenancy is not renewed.

Many agents openly advertised that they will not accept any claimants on “DSS” and there is research evidence from BBC’s Panorama of racial profiling of potential tenants.

Clearly housing is in crisis and must be addressed. I think we should approach housing from the fundamental point of a state that provides adequate housing for all. The reality is that local authorities will only house families or vulnerable people, typically elderly or ill people in council accommodation, while excluding single people from this. Talking to homeless people and rough sleepers on the streets of London and other cities, it is very obvious that the welfare state safety net has enormous holes in it.

The way forward, to solve the housing crisis is obviously to provide more properties by a combination of ending the scandal of “land banking” where owners deliberately keep a place vacant in order to benefit from its increasing value, but also to build council housing and regulate the private rented sector.

Local authorities that are undertaking building programmes can only do so by jumping enormous hurdles and using income from Right to Buy as well as their own land. To access government support they must raise rents to 80 per cent of market value which would, of course, make council housing as unaffordable as the private rented sector.

What we need in the next election campaign is a clear commitment from Labour that there will be a massive programme of council house building in order to provide working-class communities with the security and stability of a secure and affordable rent.

The government’s Help to Buy scheme — which encourages people to buy houses by offering guarantees to the lenders but does nothing to increase supply — has now been criticised by the OECD for making the housing crisis worse.

The money for the scheme would be much better spent on increasing the supply of affordable housing to those in desperate need.

Ed Miliband’s proposals are interesting and welcome in so far as they go. He points out that the whole country is building less than half of the number of new homes that are necessary to keep up with rising population and an even faster rise in the number of households, as so many people choose to live as a single-person household rather than a larger family unit.

Also, the number of new houses being built is less than at any time since 1920. Because of the lack of public housing available, the buy-to-let sector has grown rapidly with 9 million people now renting privately, including 1.3m families with children. This is no longer the preserve of young people finding a place between leaving home and getting a council flat.

More than half of these people are over 35 years of age. Rent levels have gone up by more than £1000 a year since 2010, with letting agents’ fees rocketing to around £500 per let. However, for Londoners the average rent increase is more than double the English and Welsh average.

Generation Rent did some surveys and found that two thirds of private renters wanted longer tenancies and nearly 80 per cent were concerned about the unpredictability of the rent level.

Miliband is proposing that tenancies should be a minimum of three years, starting with a six-month probation period, and that letting agents would not be allowed to charge fees to tenants. Renters back him – a CAB survey shows that 73 per cent of tenants are dissatisfied with the performance of letting agencies and supported regulation of their operations.

In so far as they go, Miliband’s proposals  do at least provide some degree of security and a step in the right direction regarding the behaviour of the letting agents.

However, the problems of the cost of housing are only partially addressed by his plans. The real issues are housing supply and the cost of the private rented sector.

There is an overwhelming case for restricting the levels of rent charged in the private sector, which many countries including Germany and some cities in the USA already do, and that in turn will help to stabilise communities in the expensive parts of inner-city Britain.

When governments complain about the cost of the housing benefit system they should recognise that the system is largely a big subsidy for private landlords, and that having a reasonable form of regulated rent would actually benefit everyone, apart from those who are making excessive profits from (sometimes) very inadequate private rented accommodation.

This post first appeared at the Morning Star

Image Copyright: seewhatmitchsee / 123RF Stock Photo

One Comment

  1. Peter Rowlands says:

    I’m somewhat bemused by this article, as it takes no account of the section on housing in the Policy Commission document of early March. That included powers to combat land hoarding, the regulation of letting agents, a commitment to build 200,000 houses a year including council housing and new towns, and encouragement of tenant security and rent regulation which have now become commitments.
    I am also surprised that there is no mention of suspending the right to buy and ending tax relief on buy to let.

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