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The Tory “Right to Buy” plan will deepen the housing crisis

Green plastic monopoly houses, by 123rf.comThe Tory manifesto election pledge to make housing associations sell their homes at a discount and force local authorities to sell off some of their best stock has been widely condemned by the associations themselves and by housing experts. The government has set aside £1 billion to fund the discount available to the new ‘right-to-buy’ owners and will demand that the housing associations build replacement homes, which do not have to meet affordability criteria. The net new money available for homebuilding is therefore just £1 billion.

Using average construction cost estimates from the National Association of Home Builders of £150,000 per home, this equates to just 6,600 homes. Very few or none may be affordable. The idea of bribing a tiny number of housing association tenants (and some of the few remaining local authority ones) with public money to become owner-occupiers is part of the policy of privilege to bolster the Tory election campaign. But since the majority of these homes tend rapidly to become part of the private rented sector it will also exacerbate the growing inequality and unaffordability of housing.

It does nothing to address the housing shortage in Britain, which is both chronic and in many parts of the country acute. Fig.1 below shows the level of both new ‘social rent’ housing and total affordable homes from 1991 to 2014. It is necessary to include at least these two categories in order to indicate some general trends as the government has changed the definitions of many categories of housing with the effect of obscuring to wider picture.

Fig.1 Social Rent and Total Affordable new homes
To give an indication of how grossly inadequate this is, the number of (loosely-defined) new affordable homes of all types was just under 43,000 last year and compares to 1.368 million households on local authority housing waiting lists in England alone.

The recent peak level for annual new affordable homes was just over 60,000 and was inherited by this government from the previous Labour government. The official projection of new household formation over the next 25 years is an average 210,000 per year (pdf). While not all of these households will want or need social or affordable housing, the majority will. Therefore the current pace of home building is completely inadequate to meet the additional projected demand. It will do nothing to address the backlog on waiting lists and the housing crisis will deepen.

There are many addition costs to the housing crisis simply beyond the extremes of unaffordability. These include the miseries of overcrowded and substandard housing, the increasing transfers of household incomes to landlords and the distortions to wider society, including the workforce. The much-discussed ‘productivity puzzle’ (pdf) is much less baffling when it is noted that under this government the rise in real estate jobs has far outstripped the rise in construction jobs, as shown in Fig. 2 below.

Fig. 2 Change construction and real estate jobs under the current government
 

Solutions to the housing crisis

Labour has adopted a policy of aiming for 200,000 new homes per year by the end of the next parliament. This would come close to meeting the projected rate of new household formation. This would also have the effect of moderating the rise in house prices. But it would be unlikely to reverse it, especially as the housing shortfall as indicated by local authority waiting lists would have increase to beyond 1.75 million for Britain as a whole in the meantime.

One of the many myths surrounding government policy is that the state is not intervening in the economy. The reality is the opposite. There are innumerable ways in which this government and its predecessors intervene in ‘the markets’, with costs running into the hundreds of billions of pounds. The bank bailout was only the most spectacular example.

In the housing sector this government has intervened repeatedly in order to boost prices without ever boosting the construction of new affordable homes, which has decreased. Perhaps the most notorious of these schemes is the £40 billion ‘Help to Buy’ policy which uses public funds to boost private property prices which were already excessive.

A radical step that the next Labour government could take is to use this same £40 billion guarantee and offer it to local authorities to build new homes. The first 20% of (unlikely) local authorities’ losses on construction of affordable homes could be guaranteed using these funds. At the same time, government could borrow to increase the funds available for construction.

The arithmetic of borrowing to invest in new public affordable housing is simple and compelling. A 5% rental income on a £150,000 home amounts to £625 per month. A 3% yield requires just £375 per month. Yet the government can now borrow at well below even 3%. It would make money on its housing investment, which could be used for investment in other areas, all of which would see the deficit fall as a consequence. Housing affordability (and quality) would improve and job-creation switch from estate agency towards building.

The big losers from a radical policy would be private landlords who no longer benefit from the upward spiral of house prices and the large ‘house builders’, the companies who do not build homes but sit on undeveloped land banks and count the paper profits of the increasing land and home values.

This article first appeared at Socialist Economic Bulletin

6 Comments

  1. Robert says:

    Wales councils are now saying enough we are struggling, Carmarthenshire have now stated the right to buy has ended, so have many others, and the Assembly have said they will end it. Scotland all New tenants cannot buy and in 2017 it’s ended.

    So this is an English issue but none of the parties know this or they do but it’s better to pretend it’s not.

    England needs to have it’s own Assembly.

    1. John.P reid says:

      We’ve got one in London ,the rest of England was offered me, in referendums, they voted them down, but that may have been more due to Prezza, not presenting it well

  2. Dave says:

    When this country started to fall into recession under labour, the banks began withdrawing the finance packages they had agreed with many small to medium house builders, therefore forcing builders to put up for quick sale their housing developments of affordable houses. The housing associations stepped in and purchased whole estates of first time buyer houses for massively discounted prices i.e. £80,000 for a £125,000 2 bedroom semi.
    Instead of Labour criticising the Tories for effectively taking rented properties off the market by reintroducing right to buy, why don’t they applaud the suggestion and say Labour will make the housing associations sell them to sitting tenants for what the associations paid for them off the developers under duress.
    If housing associations were forced to sell right to buy properties at cost we would have many thousands of young first time buyers on the housing ladder at no cost to the taxpayer.

  3. John.P reid says:

    Dave, havent you heard, a Marxist equality view is, if we all live in social housing, it shows the state treating us equal,
    And the working man can be as important as the bosses

    1. James Martin says:

      Not quite. But if you look at the issue historically social housing was a key demand of the labour movement (and indeed of what could be termed the right-wing moderate ‘municipal socialism’ wing a century ago) because of the poor state of private rented slum accommodation and a shortage of places to live in the cities (of course we still have large amounts of poor quality slum accommodation now for the poor). The huge expansion of council housing from the 30’s to the 50’s (more council houses were actually built by Tory councils at the time) was a progressive and effective reaction to the housing crisis. A more modern example is the 5,000 quality council homes with gardens built in the 1980s in Liverpool by the Labour council at the same time as fighting rate-capping and using hundreds of new local building apprentices on proper pay.A similar approach today on a national scale is essential.

      Home ownership is not particularly common in many parts of Europe, even under right-wing conservative governments, but we have been conned into thinking it is the be all and end all by our own ruling class. In fact what is necessary is good quality affordable housing with secure tenancies for the rented sector and genuine democratic control for the social housing areas so I would abolish the housing associations set up under the last Labour government to part-privatise council housing stocks for a start and bring these homes back into LA control.

  4. swatantra says:

    Excellent article that hits the nail on the head Right to Buy will deepen the Housing crisis.; and the facts and figures are there. The evidence of the last 20 years is there for all to see. Even under Labour there was little incentive for developers to build affordable housing. The Housing Assns Charities at least made an effort to build decent homes but were often constrained by a policy of Brownfield Sites only.
    What we need are more New Towns and Garden Cities, and a different approach to Housing with more co-operative housing being promoted by Govts. Its a step up to giving ‘tenants’ more involvement in the running of their housing communities.

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