We need to think differently about the links between housing, poverty, and economic policy
The need to build more houses must not obscure concerns about how existing housing stock is managed, and its role in the wider economy
Among the many depressing aspects of the Conservative Party leadership election is the candidates’ discussion of housing policy. Both Liz Truss and Rishi Sunak are now ‘green belt’ fanatics, telling their (largely older, rural and NIMBYist) party members what they want to hear about tightening planning restrictions on the less developed areas surrounding many cities. The green belt has curtailed the spread of cities such as London, Oxford and Cambridge.
There was of course a time when Truss – highly likely to be the next Prime Minister – argued for the opposite:
“We need to build a million homes on the London green belt near railway stations, and around other growing cities, specifically to allow the under 40s to be able to own their homes. We should allow villages to expand by four or five houses a year without having to go through the planning system, so people can afford to live locally”
This was 2019. Truss did not switch parties on this occasion, but has since remembered which one she currently belongs to. Boris Johnson’s plan to centralise planning to allow for what critics called a ‘developer’s charter’ — circumventing local opposition to new housing developments — has been on pause ever since the Lib Dems’ anti-development message allowed them to overturn a Tory majority of 16,000 in last year’s Chesham and Amersham by-election.
Both Truss and Sunak still broadly endorse ‘build more bloody houses’ (BMBH) thinking, but this is now pitched northwards as part of a rather lightweight ‘levelling up’ agenda. This would arguably be a dubious approach from an economic perspective, since housing demand is greatest in London and the South East.
But it makes a lot more sense politically: suburban growth in the North and Midlands has long been central to the Conservative Party’s electoral strategy, since it allows for the deproletarianisation of semi-rural seats traditionally held by Labour. The Cameron government’s ‘Help to Buy’ equity loan programme (allowing newbuild properties to be purchased with a small deposit) served this purpose perfectly.
The likelihood is that the next Tory leader will seek to BMBH, but not nearly enough to threaten the role that rising house prices play in the UK’s asset economy. I will return below to the question of where to BMBH, but from a macro perspective, it does not matter very much.
I have some sympathy with the view that we should BMBH to reduce the cost of getting on the housing ladder for ‘young people’ (the generic beneficiary of all UK housing policies, it seems). However, the potential impact should not be over-stated, since housing supply is not the main driver of rising prices.
More fundamentally, we need to reframe who housing policy is for. The real victims of the UK’s dysfunctional housing market are poor people, not young people (although these categories of course overlap, many young people benefit from the status quo since they are able to rely on unearned gains made by their parents and grandparents when purchasing a home). Housing policy needs to be more focused on enabling a secure and affordable home for everyone, and therefore on the groups currently furthest away from this situation.
Private poverty
Once we adopt this lens on ‘the housing crisis’, it leads us to a focus on ownership and distribution, ahead of numbers and location. This is why a recent report by Darren Baxter, Joseph Elliott and Rachelle Earwaker for the Joseph Rowntree Foundation (JRF) directs us to the UK’s private rental sector (PRS).
We know that renters are more likely to be in poverty. This applies to people in social housing on very low incomes, as we would expect, but also the PRS. A third of private renters are in poverty, with half of these pulled into poverty by their housing costs, despite the operation of Housing Benefit.
Yet as Baxter, Elliott and Earwaker show us, the growth of private renting — and its role in the economy — has far outpaced other forms of tenure since 2000, following two decades of growth in owner-occupation due in part to ‘Right to Buy’ policies turning social housing tenants into home-owners.
One of the consequences is a significant rise in the proportion of housing wealth held by people with multiple dwellings (the typical buy-to-let landlord), as well as corporate and overseas owners of private housing (note that the charts below cover England only).
The JRF report offers a series of proposals which would ultimately reduce the size of the PRS, principally through better routes into home-ownership by converting rental stock into owner-occupied housing. It rightly warns against the idea that we can simply build more bloody social housing, on the basis that this would take too long to transform the housing conditions of the millions of poor people currently trapped in the PRS.
The report suggests, for instance, that the buy-to-let business should be made a lot less lucrative via radical tax reform, and that mortgage regulations should be altered to favour first-time buyers without affecting affordability. It recommends also PRS tenants be granted the Right to Buy (almost a Labour policy in 2019), an expansion of schemes which allow for shared and discounted ownership, and a larger role for housing co-operatives.
Some of the most interesting proposals concern the possibility that local authorities, housing associations and community groups could be supported to purchase homes from buy-to-let landlords, increasing the social housing stock. Alternatively, as a short-term measure, landlords could be encouraged to lease their houses to intermediaries who would focus on providing high quality homes to people on low incomes — with landlords accepting a lower rental yield in return for greater income security.
As such, Baxter et al take seriously the question of how to transition away from an over-sized PRS quickly, with the pace of change privileged over the perfection of solutions. Moreover, while the report does not quite spell this out, if the tax regime encountered by landlords was significantly strengthened alongside the introduction of options to purchase their properties, it would mitigate the possibility that landlords might benefit substantially from the transition; they would be incentivised to sell for less.
A new housing economy
It is necessary however to zoom out a little further to understand how integral the PRS has become to economies like the UK in recent decades. I cannot read anything about housing policy anymore without thinking instantly of Susanne Soederberg’s 2020 book Urban Displacements: Governing Surplus and Survival in Global Capitalism.
Urban Displacements is a story of how poor housing contributes to the creation of exploitable surplus populations. It is based on research in Berlin, Vienna and Dublin rather than UK cities, and helps us to see that even in parts of Europe where rents are low and tenancies fairly secure, the PRS has grown in tandem with the rise of low-paid services industries, and the acute problems of precarity and underemployment which have accompanied this process.
The role of the PRS in dislocating people from community links and access to public support has been central to maintaining this dynamic, which is of course underpinned by class and racial inequality. Housing conditions make it difficult for labour to reproduce itself, but capital accumulation has become less reliant on labour being reproduced.
In the Dublin case, which most closely resembles the UK experience, a lack of affordable housing does characterise recent PRS growth. But rather than simply strengthening the compulsion to work in poor quality jobs, work essentially becomes impossible for many of the dislocated — especially women — as they are forced to live at too great a distance from employment opportunities, without access to decent public transport.
Poor housing is bound up therefore with the rentierisation of the economy, as tenants become more valuable as debtors than they are as workers.
The point here is that even if we accept that challenging the ownership and management of the existing housing stock is seen as preferable to BMBH, it is not a shift that will be brought about straightforwardly, since there are few immediate economic imperatives to act (and of course powerful groups which benefit from allowing current conditions to persist).
This is in fact hinted at in the JRF report, when it advocates
“creating positive alternative options for sustainable investment, which challenge a culture of property speculation, and incentivise other ways of investing that could lead to a fairer distribution of wealth and stronger economic growth.”
But this might be easier said than done! It is rather ironic that the housing market is essential to the UK economy — with house price rises funding consumption — and has been treated as such by generations of policy makers. Yet is only ever discussed publicly in micro terms, that is, the aspiration of people to get on and move up the housing ladder – or indeed the limits placed on this aspiration insofar as it might affect the value of other properties.
Those of us on the progressive side of politics are right to challenge this, but we must avoid falling into a version of the same trap. Thinking about housing in terms of whether there are available and affordable homes for those most in need must coincide with thinking more about the role of housing in the wider economy. If different housing requires a different economy, and vice versa, then housing policy must be part of a more comprehensive economic strategy.
Re:building
I think we should BMBH. And I am even relaxed about the Truss/Sunak position that building should be focused on the North and Midlands, even though demand for newbuilds is far greater in London and the South East. After all, the UK does need a less centralised economy. Moreover, there is plenty of scope for new housing within cities, not only on their outskirts – but this would require us to challenge problematic land banking, the bias in favour of commercial property development, and many years of under-investment in public transport and public services in urban areas.
Yet we do need to start thinking differently about housing policy. We can have privately-owned homes: home-ownership is a very good thing. But we should nevertheless treat the housing stock as a public good requiring collective management. And we need to think about the groups for whom home-ownership would have the greatest benefit, that is, those in precarious and unaffordable accommodation. Both roads lead to the PRS.
The Conservative government clearly wants to increase owner-occupation, as both an electoral strategy and in service of an economic model centred on finance and real estate. But it is not prepared to challenge the structure of the PRS in order to do so. Its preferred solution is generally deregulation of planning, to allow more houses to be built. However, this effort consistently runs into resistance from the Conservative Party’s traditional electoral base and, as the leadership contest testifies, its myopic party members. (This impasse leads to madcap ideas like allowing Housing Benefit to be used to cover mortgage payments.)
Unfortunately, for the worst off, conditions in the PRS are likely to get worse before they get better. Rising interest rates will transform the macroeconomic conditions in which the buy-to-let business has expanded over the last 20 years. Yet if more expensive mortgages make housing investment more difficult for landlords, they will make things even more difficult for first-time buyers.
I suspect we are likely to see a growing role for institutional or corporate landlords (including banks as direct owners of rental properties), more insulated from interest rate risks. We may see these companies purchasing existing housing as well as continuing to build-to-rent. Without wanting to defend the small-scale landlord, the risk that more concentrated ownership within the PRS poses to the cost of rent is probably no less than the risk of a rate-rent spiral if landlords pass on the increased cost of borrowing to their tenants.
(It is worth noting that the rise of build-to-rent in London is one of the best illustrations that building more houses does not automatically lead to lower housing costs; it may simply have allowed a new breed of rentiers — with an interest ultimately in high rental costs — to gain a foothold in the PRS more generally.)
Rent controls — advocated by London mayor Sadiq Khan — are a necessary, short term solution. But the work by JRF discussed above sets out a strategy whereby the PRS would shrink, in favour of affordable home-ownership as well as social housing. There is of course already some evidence of PRS shrinkage as buying to let becomes less attractive in the wake of the pandemic. Recent Financial Times reporting on the impact of this on housing costs shows this process needs to be managed collectively and carefully rather than left to the market.