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Nick Raynsford on housing investment: 'How did we get into this absurd situation?'

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Nick Raynsford on housing investment: 'How did we get into this absurd situation?'

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Published by Jon Land for 24dash.com in Central Government and also in Finance, Housing

Nick Raynsford appointed chair of Athlete's Village housing company Nick Raynsford appointed chair of Athlete's Village housing company

When they are (rightly) criticised for the hopelessly inadequate level of investment in new social and affordable housing, coalition government ministers usually resort to two defences.

The first is to pretend that their programme will deliver an increase in the number of “affordable” homes before the end of the parliament. These “jam tomorrow” promises, much beloved by Grant Shapps, and still parroted by his successors, have always looked unconvincing, and in any case they have depended on steep rent increases on both re-lets and new so-called affordable homes to offset the savage 60% cut in affordable housing grant imposed in the coalition’s first few months in power. The use of the word “affordable” to describe a letting at 80% of market rent further undermines their credibility.

So ministers have tended to fall back on the “there’s no money in the kitty” defence. This has gained a certain amount of traction. Even prominent housing commentators, such as David Orr, give credence to the case by referring to the inadequate levels of public money going into housing.

In an interesting recent article ‘Where will we live? The Housing Disaster’ by James Meek in the London Review of Books, David is quoted as saying: “Right now we spend £10.5 billion on housing and transport - £9.5 billion on transport and £1 billion on housing”, before going on to advocate a transfer of £1 billion from transport to housing to fund an expanded housebuilding programme.

Now I am wholly with David in advocating the need for increased housing investment. But we have to recognise the hard truth that we are as a country spending massively more than £1 billion a year on housing. The actual spend is around £25 billion a year. The problem is that the vast majority of this – more than £23bn – goes on housing benefit (HB) rather than on investment.

How did we get into this absurd situation where we are simultaneously spending record levels of public money on housing, but failing woefully to deliver an adequate supply of new and improved homes? The history of post-war housing in Britain is instructive. For the first 25 years, there was a broad political consensus on the need for public investment in new housebuilding with rents significantly below market levels. This was delivered overwhelmingly by local councils receiving generous levels of subsidy from central government, and involved a huge slum clearance programme.

The pendulum began to swing away from this approach in the 1970s for two reasons. The first, on which there remained a good measure of political consensus, was the need for more focus on renovating older properties instead of wholesale clearance which inevitably had damaging and disruptive impacts on local communities.

The second was and remains a source of intense political division. From the introduction of the Housing Finance Act by the 1970-74 Heath government, the Conservative party has advocated a shift away from general (bricks and mortar) subsidies to means-tested benefits accompanied by a deliberate increase in social housing rent levels. The policy was taken further by the Thatcher and Major governments which effectively halted new investment in low-rent housing by councils, leaving those looking for affordable accommodation increasingly dependent on means-tested benefits. Sir George Young, the most respected housing minister of that period, famously remarked “let housing benefit take the strain”.

While the 1997-2010 Labour government substantially increased bricks and mortar investment, (from £2bn in 1997/8 to £8bn in 2009/10) much of this, particularly in the government’s early years, went into the Decent Homes Programme to improve the condition of the existing social housing stock which had deteriorated alarmingly over the previous 20 years as a consequence of underinvestment.

With the residual council housing stock much reduced as a result of the other key policy of the Thatcher era, the right to buy, an increasing proportion of middle to low income households depended on housing associations and private landlords for a home – with the former generally charging slightly higher and the latter very much higher rents. Hence the inevitable increase in HB.

The current coalition government’s approach differs from its Tory predecessors of the 1970s, 1980s and 1990s in only one key respect. That is a commitment to reducing the costs of means-tested benefits. However, while they have made savage cuts in benefit entitlement, causing widespread hardship, they have spectacularly failed to reduce the overall level of HB expenditure, which remains stubbornly above £23bn a year.

No one should be in the least surprised at this failure, as their parallel commitment to increased rents for council and housing association homes together with continued dependence on private lettings to meet social housing need has a powerful inflationary effect. It is simple economic illiteracy to argue that you can simultaneously force up rents and reduce benefit expenditure.

Pursuing current housing policies is quite simply a dead-end. A new approach will be required if we are to have any hope of meeting the country’s housing needs and avoiding a huge increase in problems of homelessness, overcrowding and poverty.

The core objective must be to rebalance the proportion of public expenditure going into investment as against benefit. It is not possible to do this overnight; however attractive the proposition of shifting resources immediately from housing benefit subsidies to capital investment may sound, that would simply result in even more acute poverty and homelessness. Over a period of time, a significantly increased output of new social housing at genuinely affordable rents will permit HB expenditure to be scaled back, particularly if the new investment programme helps, as it should, stimulate wider economic growth and therefore higher employment.

But without a sustained expansion of the social housing programme this will not be achievable. Against this background, the work currently being undertaken by Sir Michael Lyons for the Labour Party to show how a substantial expansion of housebuilding can be achieved is clearly of paramount importance.

This article appears in the 'Politics' edition of 24housing magazine out today. Other contributors include Kris Hopkins, Lord Freud, Emma Reynolds, Clive Betts, Stephen Williams, Dame Anne Begg and Lord Matthew Taylor.

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