Staring you in the face

There’s a very good answer – staring you in the face, writes Martin Wheatley

How often, in life, have we found ourselves struggling with a difficult problem – an exam question, an issue at work, how to manage competing pressures on our time?  We can (sort of) see where we want to get to, we think of this solution or that, none of it quite seems to work, or it brings with it a further set of problems and the cure begins to look worse than the disease.   Then all of a sudden: “ping.” We have a brainwave, or someone close to us makes a suggestion.  Suddenly it all seems a lot easier, the fog clears and the way ahead is clear.  It may take some patience and trouble, but at least we can get going with confidence we will come out the other end in a good place.

The current government, like any other which might have been in its place if the electoral dice had rolled differently, undoubtedly faces a lot of real challenges: keeping public spending under control (and, in particular, tackling long term dynamics, notably population ageing, which make that more difficult); welfare spending which seems to keep on growing, despite reductions in entitlement; and the spiralling cost of homes to buy or rent, driven by a long term failure in the British economy, its inability to react to rising demand and price signals by producing more housing.   They have SHOUT’s sympathy and support as they look for ways to untangle these various knots.

Nor could we disagree with the underlying sense of a lot of what Ministers have been saying in the run-up to today’s Budget: the PM and Chancellor’s evident frustration at the impact of high house prices on less well off people; the “welfare merry go round” in which people with low earnings pay tax and then have to have their income topped up by benefits; and some out-of-work households receiving welfare payments considerably greater than many in work.  In a well-functioning economy and society, none of these things should be happening.  That they are looking for a set of policies which address these issues is therefore entirely commendable.

Unfortunately, it seems to us that in moving from what they want to achieve to specific policies, in many cases, something has gone quite seriously wrong.  There has already been a lot of debate about the housing association right to buy, the benefit cap, and now the plan to require relatively high income social tenants to pay market rents, as well as Help to Buy, Starter Homes, encouraging self-build, and yet another round of trying to make planning faster.   The Budget has reversed the 2013 decision to allow social rents to rise in real terms for at least 10 years.  Others will comment much more fully than we, on all sides of the debate, on these specific points.

 However, what these policies have in common is that they cannot do nearly enough to address the fundamental problem, which is the high cost of market housing, driven by some 40 years of the economy as a whole, public and private, only building roughly half the new homes we need, year after year after year. 

In some cases, depending on how exactly they end up being implemented, they look as if they may be administratively complex, carry a significant risk of reducing the amount of housing affordable for people on low incomes, or leave vulnerable households unfairly paying the price for something beyond their control – the very high cost of private renting, especially in high cost parts of the country, or the new “Affordable Rents” linked to those spiralling private rents.  The proposal on market rents for higher earners rests on a basic misconception that social housing is “subsidised.” At the same time as two sets of tenants (taking up new leases at affordable rents, and relatively high earners moving to market rents) will be paying rents which are higher, and likely to increase in real terms, a third group will be paying much less, and will see it decreasing (because of the planned 1% annual cut in social rents). How is this coherent and defensible?

 

If only there were a policy answer which could put into reverse the escalation of private sector housing benefit (up by more than half in real terms since 2008), add large numbers of homes to the housing stock at rents which neither add to pressure on the welfare budget for low-income households or which don’t take a completely unreasonable chunk out of the earnings of people who are working hard, but without the income or capital to access home ownership, for now. An answer too, which would provide a pathway to home ownership, through being able to save enough from a modest income to exercise right to buy or buy in the open market.  Not least, one which for 30 years after WWII, was a major part of the UK economy successfully producing up to 300,000 new homes a year, at a time when national income per head was much lower.

City consultancy Capital Economics “Build to Save” report, commissioned by SHOUT and the National Federation of ALMOs, makes an “unanswerable” case for just such a policy: government investing in a new large scale programme of home building.   Of course this policy would require some short term increase in public spending, but adding just £1 to every £769 the Government is intending to borrow anyway. Capital Economics tell us this would not worry the City: quite the reverse, since they share everyone else’s concerns about the massive risk to the economy posed by the housing crisis.  Once built, the new homes would start bearing down on the welfare bill, year after year after year.  By the mid century, the investment would be paying off handsomely, with national debt being a staggering £0.9 trillion lower than it would be if the state were still shovelling money into the private rented sector through the welfare system.

 "The economic and fiscal case for building new social rent housing is unanswerable"

From the Capital Economics report

The argument is building on the Government’s side of the political spectrum, including the incoming Conservative chair of the Local Government Association, The Good Right, and the Reform and Centre for Social Justice think tanks.   SHOUT will try to work with them and all people of sense in the coming months to try to persuade the Government that the answer has been staring them in the face all along.  Let’s hope, by the time of the next Budget, we will have persuaded Government that it can go a long way to cut the deficit, cut welfare, and solve the housing crisis through one bold and simple policy, which its 1950s forebears adopted to the benefit of the country and their political success.


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    UPDATED October 2016 Capital Economics report: Building Social Rent homes
    SHOUT Supports ending the Housing Crisis in a Generation