Britain’s housing addiction – time for rehab?

Posted on March 6, 2014

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This article was written in Portuguese for the Observatório das Metrópoles, Universidade Federal do Rio de Janeiro.

British addiction

Politics in Britain starts and ends with housing. Issues like economic performance, immigration, public spending, and Britain’s relationship with the EU (and with itself) tend to grab the headlines. However, it is housing more than anything else that undergirds Britain’s economic structure and, by extension, its political status quo. The worrying thing is that it does so in a highly inequitable, unstable and unsustainable way.

A nation of homeowners?

Britain is often seen – and likes to see itself – as a ‘nation of homeowners’. This is not entirely true. According to the 2011 census, 64% of British households are owner-occupied (either owned outright, or with a mortgage). The other 36%, meanwhile, is split equally between social housing (housing rented directly from the state or from a not-for-profit ‘social landlord’) and the private rental sector. The homeownership rate grew steadily during the post-War era, as the country grew wealthier and suburbanisation made affordable housing available to a growing middle class. However, the large-scale construction of social housing during this period also meant that local councils became the country’s primary landlords. At the same time, private renting plummeted.

However, this picture has changed dramatically in the last three decades due to two changes initiated by the Government of Margaret Thatcher (1979-1990). First social housing began to decline. Margaret Thatcher’s first government, elected in 1979, held a shaky mandate. (It was only after a landslide re-election in 1983 – in the context of an outburst of patriotism in the wake of the Falklands War and a disastrous split on the left – that she could aggressively pursue her radical neoliberal agenda). In these early years her most popular measure, enshrined in the 1980 Housing Act, was the policy ‘Right to Buy’, which allowed social housing tenants to buy and eventually sell on their homes at a favourable price. The impact has been profound. After peaking at 31% of households in 1981, social housing has steadily declined to 18% today (and with a growing share occupied by social landlords, rather than the state). Although designed to increase homeownership, a large proportion of apartments bought under ‘Right to Buy’ were eventually bought up by private landlords who now rent them out – for considerably more than social housing rents.

The second crucial change, which started under Thatcher but was enthusiastically taken up by subsequent governments, is the extreme financialisation of housing and the related rise in house prices. In 1986 the ‘big bang’ deregulation of the City of London precipitated a progressive financialisation of Britain’s economy, with banks and other financial institutions targeting housing as a secure and profitable destination for speculation through the provision of household mortgages. This profitability has been undergirded by a failure of successive governments over 30 years to foster levels of housing construction commensurate to population growth. More money flowed into a static supply of housing causing prices to rise inexorably.

This problem became more acute in the new millennium as real wages began to stagnate. The average house price rose from £100k in 2000 to £250k in 2010, while the ratio of house prices to wages grew from six-to-one to ten-to-one. As a result homeownership fell – from 69% in 2001 to 64% in 2011 – while private renting began to rise, reversing their historic trends throughout the 20th century. The social consequences have been subtle, but profound. Young people of all backgrounds became effectively locked out of the property market, with the average age of a first-time homebuyer rising from 28 to 35 in just a decade. Meanwhile many on low incomes unable to access social housing were forced into more expensive and poorly regulated private renting.

The response of the New Labour governments of Tony Blair (1997-2007) and Gordon Brown (2007-2010) was, in hindsight, a perverse one. As they ‘got tough’ on other parts of the benefits system, they created and expanded benefits to assist working people on very low incomes. ‘Tax credits’ became available for households with one low-income earner, while ‘housing benefit’ was introduced to assist people living in rented accommodation whose incomes were not sufficient to meet their rent payments. Seen as tools to simultaneously encourage employment and reduce poverty, these measures seemed to make sense. However, in Britain’s highly liberalised labour market and weakly regulated private rental sector what they amount to is a subsidy for exploitative employers and abusive landlords.

As house (and thus rental) prices have risen, these payments have also grown to become by far the largest segments of the welfare bill (except for state pensions). Britain’s dominant right-wing media and the Conservative party dishonestly claim the welfare bill shows that long-term unemployment is out of control. What it in fact shows that the gap between Britain’s low-pay economy and its financialised housing market can only now be bridged by the state.

Old problems, new crisis

This brings us to 2008, and more specifically to the coalition government that took power after an inconclusive election in 2010. The Conservative and Liberal Democrat parties both stood on relatively moderate manifestoes, but upon forming a coalition committed themselves to a programme of public spending cuts that is dismantling much of what Thatcher and New Labour left of the welfare state. The impact has disproportionately been borne by poor and vulnerable populations, and it has been devastating. Most benefit payments have fallen significantly or been withdrawn, while key public services have been decimated. One particularly controversial measure, known as the ‘bedroom tax’, deducts a penalty from residents with unoccupied bedrooms in their homes if they are in receipt of any benefit payments, leaving many vulnerable people effectively homeless.

But while it has chipped away at the state supports that allow poorer people to meet their housing costs, they have simultaneously done all they can to increase house prices. The current government has overseen construction of the smallest number of new properties of any government since the Second World War. Much of this shortfall is the result of land hoarding by house builders, who fear losing capital they invested in buying land based on over-optimistic pre-2008 forecasts of the eventual property sale prices. Despite these constraints on supply, the government has bolstered demand with ‘Help to Buy’ – a programme that provides a government guarantee for loans to first-time buyers on mid-range properties. Since the policy was introduced last October house prices have shot up in the overheated South East of England – leading many observers to detect an unsustainable bubble.

Like Thatcher’s original ‘Right to Buy’ scheme the motives for ‘Help to Buy’ are largely political. The Conservative party, courting unpopularity in the polls, calculates that it must win the support of ‘aspirational’ middle-class households that have been locked out of the housing market if it is to have a chance of winning the next election in 2015. But if the current government has some concern for younger middle-class households, its primary constituency remains established middle-aged homeowners. Preserving the support this group depends on preserving the value of their properties. This is not purely a matter of indulgence, but also of necessity – this group have found their incomes stagnating, pensions eaten away and a growing need to support their children with their own education and housing costs. Politics has essentially been trapped by the growing dependence of key political constituencies on their houses, due to asset-stripping neoliberal policies elsewhere in the system.

The impacts of the current policy mix have significant regional variations. The traditionally wealthier South is affected more by property rises, and the poorer North is suffering more from welfare cuts. But everywhere is feeling the squeeze. In London, which has the country’s richest communities, but also some of its poorest, the contradictions reach their greatest extremes. And it is in London that another bizarre consequence of the post-2008 settlement and the government’s desperate defence of property prices can be seen. In the context of financial uncertainty, and given the low tax burden on foreign homebuyers, desirable London housing has become something like a global reserve currency and wealthy individuals from the Eurozone, China, the Middle East, Russia and elsewhere have identified her elite neighbourhoods as a safe place to park their capital until global markets recover to something like normality. The result is that London’s property market has come to operate like no other city’s in the world. Entire neighbourhoods have been depopulated as prime properties are bought up and left empty for most of the year. Meanwhile the ripple effect is helping to push middle-class residents into poor areas long considered ‘ungentrifiable’ as well as into private renting. The poor are being pushed into over-priced, over-crowded rented units, or out of the city altogether. In the ‘nation of homeowners’ extremes of housing inequality that would not look out of place in a Charles Dickens novel have returned.

Kicking the addiction?

Britain’s current housing problems are a 35-year disaster in the making. Its contradictions have tied diverse strands into a hopeless knot, encompassing everyone on the political centre ground. The only possible solution now is a radical one. The opposition Labour Party has begun to talk about large-scale house building, taxing wealthy properties and foreign homebuyers, compelling developers to build on vacant land, and withdrawing destructive policies like the Bedroom Tax that are aggravating problems of homelessness and overcrowding. Whether these different proposals are viable or sufficient only time will tell. But at least the issue seems to be moving up the political agenda. Unless we want to end up with even more expensive and poor quality housing and even more unequal and segregated cities, more of the same is not an option.

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