Opinion: Don’t sell social housing

A Conservative housing policy is likely to exacerbate London’s housing crisis because it proposes to sell more social housing.

If we can sell homes at a discount of 70 – 80% of the ‘market value’, then what does that say about the market?  Simply put: London’s housing market is over priced – most likely by similar amounts.

At the University College of London’s seminar: “How Should we Respond to Rising Inequality” last month, political economist Will Hutton, David Goodhart and Sir John Gieve discussed reasons behind rising housing costs.

They talked about the impact of unmanaged markets, lack of supply, cartels in house building, land values underpinned by dysfunctional finance markets etc and unmanaged banking and finance systems. This is compounded by a lack of political will and vision.  Essentially, our government lacks the ability to ensure low costs housing remains in an ‘open market economy’. If these opposing forces can come together and agree, it is time housing policies do too.

When we exclude the City of London, I suggest London’s housing market bears little relationship to what we produce in GDP and has more in common with our six banks printing more and more mortgages.

The ‘bank driven mortgage economy’ surrounds our social housing and permeates our thinking.  The term ‘affordable housing’ is straight out of the private market lingo – made fashionable by Mayor Boris Johnson’s Question Time Borough visits. Social housing, be definition, is affordable.

Hutton explained that in London the impact of selling council homes, along with failing to build for future generations of low earners has led to rents rising through the roof in the private sector and house prices accelerating beyond average salaries (£25.000) (English Housing Survey 2012-13).  Even social rents are creeping up to over half the people’s income!

Buying one’s council home allowed many to move out of areas where they no longer wanted to live. But many of these same families are now heavily critical of the lack of housing available to their children – clearly failing to appreciate this shortage is precisely because they took some of those homes out of circulation.

As we cannot rely on individuals not to exercise personal interest when offered the Conservatives discount for housing association properties, we must challenge the policy.  An alternative is the German Housing model. This model would meet many of our needs, from social renting to private home ownership. It supports open markets to flourish for those that can afford to buy etc and protects those on low incomes – workers in our city. In summary, the model ensures rents have a correlation to GDP – so they rise as production rises.

As the elections approach, it is important our housing policies demonstrate how we aim to deliver homes and manage the banks that distort our markets. In contrast, the Conservatives want to sell more social homes into the same overpriced market.

It is important we challenge housing policies that add to the crisis by demonstrating the links between our homes and dysfunctional banking systems. We must then show sustainable alternatives. If we achieve this, we become part of the long-term solution to London’s housing crisis.

* Teena Lashmore is the Vice Chair London Region Liberal Democrats and writes in a personal capacity.

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31 Comments

  • Simon McGrath 19th Feb '15 - 3:12pm

    Prices and rents in London are going up because London has a booming economy which is attracting many more people ( around a million a decade). Unless we build more homes they will continue to go up.
    To think we can simply adopt the ‘German model’ ( you cunningly avoid saying which elements) is absurd as it is rooted in german history and culture ( there is a good intro here) http://qz.com/167887/germany-has-one-of-the-worlds-lowest-homeownership-rates/

  • Not sure the London economy is booming as such, although it’s done better than the rest of the country of late. I’m very worried that much of the price rises are driven by irrational exuberance of international investors. Many Londoners do not earn that much and making credit easily available is arguably just kicking the can down the road.

    Housing really is an area of UK politics where radical thinking is needed and the coalition has failed.

  • Sadie Smith 19th Feb '15 - 3:34pm

    House prices in most cities are mad. London is just more mad. Tories like giving away assets.

  • Jenny Barnes 19th Feb '15 - 3:38pm

    The uk housing market is one of several examples of market failure. The neo-liberal ideology that everything can be left to the market clearly doesn’t work for a very large fraction of society. State and council built housing for rent, which would simultaneously provide work for many of the unemployed, looks like a sensible way to go, but I somehow doubt it’s in the Orange book,

  • Buying one’s council home allowed many to move out of areas where they no longer wanted to live. But many of these same families are now heavily critical of the lack of housing available to their children – clearly failing to appreciate this shortage is precisely because they took some of those homes out of circulation

    How is a bought council house ‘out of circulation’? It’s not demolished, is it? It still exists, someone is living in it, presumably at some point they will want to move and will sell it — so it’s still ‘in circulation’, isn’t it?

  • Jenny Barnes

    The UK property market is many things but a neo-liberal is certainly not one.

    It is a disaster that no one is happy with.

  • I’m not sure this makes any sense – “If we can sell homes at a discount of 70 – 80% of the ‘market value’, then what does that say about the market? ” – I challenge the author to find an example of where you can’t sell something at a large discount versus the market value. It doesn’t mean the market is overpriced, it just means you’re selling at a discount.

    I’m also very skeptical of the idea that the solution to a completely artificial supply of housing is to eliminate the remaining open components of the market. No amount of government micro-managing can sustainably force down prices where government restrictions have created a massive imbalance between supply and demand.

  • Little Jackie Paper 19th Feb '15 - 9:35pm

    It is a great oddity. For 30+ years politicians on the right have told us that inflation is the great economic evil, just that doesn’t seem to apply to house price inflation.

    There are almost certainly things that could be done to reduce house prices but none will ever fly electorally with those on the sweet end of the deal. Indeed it is hard to shake the suspicion that those who come to the internet to say how wonderful BTL is are people who would never dream of living on a shorthold tenancy themselves.

    The young, priced out can go and swivel basically as far as our politics is concerned.

    I have to admit that it’s not at all clear to me what is liberal about the present situation where the rental market gives the young the freedom to hand over half their take-home to fund other people’s asset purchases, and be made homeless on short notice.

  • Stephen Hesketh 19th Feb '15 - 10:41pm

    Jenny Barnes 19th Feb ’15 – 3:38pm

    I agree with everything you say Jenny – except describing this neo-Con/Thatcherite policy as being neo-Liberal. Allowing the right to get away with such a misappropriation, unintentionally grants them an undeserved moral legitimacy.

    I also find myself in a moment of infrequent agreement with Little Jackie Paper.

  • Teena Lashmore 20th Feb '15 - 1:10am

    Fantastic debate! I accept supply and demand is a part but finance is bigger driver in London. SeeMortgages/ debt created New Economic Foundation etc. See BoE quotes. Too much credit printed by banks and thrown at Housing. The debate has moved forward from supply demand narrative. Rather than tinkering, I’m suggesting a policy overhaul to one that takes us forward- all of us forward. This is already ecoed when politicians demand ‘quota’ on banks to lend to small business as these are the drivers of our economy. I’ve yet to see any political party suggest banks create more debt via mortgages which create money for our economy and debt. People feel pasionate which is great but lets have housing for all our futures not just a few. I think that is worth working together for, don’t you?

  • Eddie Sammon 20th Feb '15 - 1:13am

    Teena, I agree that the Bank of England is subsidising the mortgage market. It seems to be a vested interest that few are willing to challenge.

    I also agree that social housing should not be sold on at subsidised rates, but with sufficient regulation there should actually be no problem with selling at market rates. All options should be on the table.

    Regards

  • Matthew Huntbach 20th Feb '15 - 6:13am

    Dav

    How is a bought council house ‘out of circulation’? It’s not demolished, is it? It still exists, someone is living in it, presumably at some point they will want to move and will sell it — so it’s still ‘in circulation’, isn’t it?

    Yes, and allocated on the basis of who can pay the most for it rather than who needs it most.

  • Little Jackie Paper 20th Feb '15 - 7:42am

    Jedibeeftrix. I think that Labour were a disaster in this regard. I make no political partizan point. Am I to assume from your comment that you’re happy with planning objections being overruled and strong control on foreign ownership of housing?

  • The only solution is to ban the sales of social housing and build more until the housing market is rationally priced again.

    Just keep building and building until councils can house anyone who needs it.

    However, the problem with this is that BTL landlord and those with property would lose out if the government did this and no mainstream party in government would be willing to put the needs of those at the bottom of the ladder before the wants of wealthy property owners, therefore the situation won’t change I’m afraid. Any debate about what to do about the housing crisis is hot air and tinkering with the status quo.

  • Yes, and allocated on the basis of who can pay the most for it rather than who needs it most

    Well, allocated on the basis of who is willing to pay the most for it, which is not unconnected to who needs it most (if I really, really need something then I am likely to be willing to pay more for something than somebody who can take or leave it).

  • I live in a council flat and the right to buy is an absolute lifeline for me. It’s a hope that I’m clinging onto. It can be an important driver of social mobility if used effectively. The problem is not the right to buy but the fact that we don’t build council houses.

    Anyway the flat when I moved in was in a right state and I must have spent about 1.5 thousand pounds on it. I think some people who have never lived in a council house, don’t realise what state some of these properties are in and how reluctant some councils are to clean them up.

    I’m not completely against reforming the right to buy but the proposals I’ve seen like putting a covenant on the property are completely unworkable because they’d lower the sale value of the property by quite a a lot, maybe even as much as the discount.

    A better idea would be to stop people using the discount as a deposit toward a mortgage. Believe me, that would stop a lot of right to buy sales and would focus on personal responsibility. For example on the estate where I live 1 in 4 people have defaulted on a loan and are seen as a ‘high risk’ by lenders yet 45% of the properties here are in private ownership (mainly owner occupiers though which is good).

  • David Evans 20th Feb '15 - 1:29pm

    Sadly Dav you may well really, really need something, and you may well be willing to pay more for something than somebody who can take or leave it, but if you don’t have and in all likelihood never will have enough to pay for it, you’re stuffed. Aren’t you?

  • Sadly Dav you may well really, really need something, and you may well be willing to pay more for something than somebody who can take or leave it, but if you don’t have and in all likelihood never will have enough to pay for it, you’re stuffed. Aren’t you?

    Well, yes. If there are more people who need something than there is stock of that thing (like, ‘houses in London’ — more people need to live in London, for jobs etc, than there are houses there) then some of them are going to lose out.

    That’s life.

  • Moreover, rarely do you hear it mentioned that leaseholders are responsible for any upgrades to their block + maintenance and even improvements to estates like landscaping.

    In some cases leaseholders can be hit with bills of 15 thousand pounds. The size of the discount should reflect this somewhat.

  • Whilst there was a logic to breaking up council estates, creating a more mixed ownership environment, I never really got the logic of “the right to buy”, probably because Margaret Thatcher’s logic was to simply stuff the taxpayer.

    I’m surprised just how quiet Libdems have been on this matter, given how much they have gone on about: banker’s bonus’es, the perceived discrepancy between companies earnings and the tax they pay, the need to raise taxes on the ‘wealthy’. The right to buy is basically an unearned windfall for a lucky tenant (at least the bankers ‘earned’ their bonus’es), who has since the introduction of the right to buy, has probably hung on to their council house, just so that they can qualify and cash-in, at the taxpayers expense (something we can’t totally blame them for doing, because who would give up the opportunity to get their hands on tens or even hundreds of thousands of pounds through simply paying a social rate of rent for a few years?).

    Personally, we should be borrowing against the money locked up in the nations council housing asset to fund long-term investment projects. Hence I would like to think (but I’m not holding my breathe) the LibDems would impose a retrospective windfall tax on all profits ex-tenants made out of the sale of their council house.

  • “The right to buy is basically an unearned windfall for a lucky tenant (at least the bankers ‘earned’ their bonus’es), ”

    To an extent yes but again, the properties are in my opinion not very well looked after and the councils try and avoid repair. They then get valued at the market rate for a property in much better condition. Anyway I will have to spend about 1.5 thousand pounds on this place once bought, the whole bathroom needs to be retiled, a shower put and there’s still at least four walls of re-plastering require which the council refuses to do. I’ve already had to pay about to re-plaster the whole bedroom because again the council shirked their responsibility.

    On top of that as I said, it’s likely I’ll be hit with a bill for estate improvements and improvements to the building whether I like it or not. This may raise the value of the property a little but these are financial commitments that people who buy on the open market don’t have.

    As you said, you have to pay the rent for 5 years to get the right to buy + live in the property for 5 years before you can sell it without losing the discount. So again when bringing up the size of the discount, people shouldn’t compare it to the open market in the absence of this. It’s not the same.

    As for taxpayers paying for the property, this place was built in 1959, it’s been paid for several times over, including in part by me.

  • Lastly, as said the problem isn’t right to buy but the fact we haven’t been building council houses.

    The broader problem is how the government have encouraged house price inflation and buy to let. If we didn’t have such a vicious buy to let industry, with awful security of tenure for private tenants then council housing wouldn’t be seen as such a safe bet.

    Housing policy should address all of these things, they are a much bigger problem than the right to buy and the fact is, predatory landlords who buy up former council housing and charge ridiculous rents are often cited as the main reason why the right to buy has been problematic. Thus I think the focus on the right to buy as being a big problem is somewhat disingenuous.

  • One last thing, why is there so little focus on how much council housing was bought up by housing associations at a very knock down price, much moreso than the right to buy?

    These houses were done up by housing associations but iirc the rents they charge are much in excess of council rents.

  • Apologies to spam but the article also makes a false claim. The discount is between 35-50% not 70-80%..

  • Roland

    A point often missed when discussing tenants who brought their council houses is how many of them have not reviewed a “windfall” as there are a significant number who have found themselves with serious arrears and unable to maintain their properties causing them to live in substandard housing. There are many examples of those who did very well bit there are also many (often unreported) stories of people who the “great opportunity” is really an albatross.

  • LJP

    Your comment about assured shotrhold tendencies I think paints an unduly negative picture. I can’t comment on whether a BTL landlord would living in a shorthold tenancy, but I have lived in them and found them usefully at the times I rented them. The problem is the lack of choice and diversity in the market. If the choice is multiple unknown small land lords or owning the market lacks diversity which liberalising planning would help with but more would still be needed.

  • Paul Reynolds 22nd Feb '15 - 9:13am

    In LibDems …and in the Labour Party… housing policy is one area of policy where people get very hot under the collar, it has seemed to me.. I find it frustrating that so many folks look at the issues from an ideological point of view. The idea that home ownership is good, all else bad, leads to distorted policy. Similarly the idea that there are two types of human…evil folk who bought (and maybe sold) their council house and the morally superior but asset-poor folk who stayed their whole lives in the local authority rented sector…is just making a cartoon version of reality. The reality is that these are the same folks. Teena should be praised for raising these vital issues. It is hard to avoid the impression from this very good debate that it is too ideological …. I am struck by one result of this; the worrying implication that expressed public demand should be secondary to what ideologically-orientated policy makers say people SHOULD want.

  • Paul Reynolds

    I often have problems with predictive text and the Spill-Chucker as it mangles my comments for LDV.
    Can I assume you have had a similar problem with your last sentence ? –
    “…. I am struck by one result of this; the worrying implication that expressed public demand should be secondary to what ideologically-orientated policy makers say people SHOULD want.”

    I have read through it several times now and am struggling to understand what you might have been saying before your words were mangled by the machine into something indecipherable.
    Any chance you could put it into English?

  • Philip Thomas 22nd Feb '15 - 10:04am

    I think he’s saying we should go with what people say they want rather than trying to work out what they actually need and persuade them that they need it…so presumably (to take a non-housing example) we would cut taxes and raise spending.

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