Who, what, and why?
A recent note from the House of Commons Library suggests that there is really no argument about the need for affordable housing. It states: “The provision of affordable housing is viewed as a fundamental component of sustainable development.”
But what precisely is ‘affordable housing’? The note quotes the Cambridge scholar Alan Holmans, who defines it as: “renting at below-market rents from a public body or a housing association?; shared ownership sponsored by a housing association; or renting from a private landlord with all or part of the rent paid from public funds, currently Housing Benefit.”
In other words, what has come to be called ‘affordable housing’ is in fact social housing or subsidised housing. A new name to make an old political policy more difficult to object to.
And why do we need social or ‘affordable’ housing? The House of Commons note suggests that it is simply because the cost of housing has outstripped the financial means of many people: “The cost of house building and the level and distribution of incomes and assets means that large numbers of households lack the resources to make a demand for decent housing effective in the market.”
Scale of the problem
Since the market is assumed to have failed, political debate in housing circles has become heavily focused on disputes over how many new ‘affordable’ housing units the government should be providing to meet future demand.
In 1995, the Conservative government estimated a need for 60,000 to 100,000 units per year throughout the 1990s. Subsequent studies tend to support a figure in the same region, although towards the upper end: in 2001, Alan Holmans’ estimate was about 80,000 to 85,000 p.a.
But provision in recent years (at about 40,000 p.a.) has fallen well short of this figure, with the result that estimates of the accumulated shortage (or ‘backlog’) have risen. Holmans’ 1995 estimate of 500,000 units needed to clear the backlog had become 650,000 by March 2001. In March 2002, Lord Best estimated that the “difference between housing demand and supply will have widened to a yawning gap of 1.1 million homes in England alone by 2022, most of it in London and the South-East.”
The total amount of ‘affordable housing’ needed in each future year is therefore the sum of projected annual demand and the build required over time to clear the ‘backlog’. Given that governments have consistently failed to meet the targets for new ‘affordable housing’ set for them by housing experts, the calculation of future demand is constantly rising, since the backlog, far from being reduced, is always getting bigger.
Importance of the debate
This debate has real consequences. Reluctant to liberalise the planning rules and allow more building, governments have presided over a market where demand has well outstripped supply. The people who are most clearly excluded as a result of this imbalance are of course those who are least well off. So now, politicians are under constant pressure to meet the needs of this group by providing more ‘affordable’ or social housing.
Some politicians relish the situation that this ‘market failure’ (or more properly, government failure) has brought about. The electoral consequences of such things have never been lost on politicians: Herbert Morrison triumphantly declared his determination to “build the Tories out of London”. And today, the Mayor of London’s draft Spatial Development Strategy (the ‘London Plan’) is predicated on massive new provision of social housing.
The ‘key workers’ justification
Another stimulus to the ‘affordable housing’ debate is the difficulty that public-sector workers (in particular) find in affording starter homes in London and other places. So the question is how homes might be found for ‘key workers’.
It is not precisely clear who qualifies as a ‘key worker’, though police, nurses, and teachers are commonly cited as examples. And since it is assumed that people in such professions will demand more flexible tenure arrangements than traditional public-sector renting, it is not obvious what ‘key worker housing’ would look like.
Nonetheless, it is taken as a fact of life that these ‘key workers’ cannot decently house themselves without the public sector providing homes for them, or at least without the government intervening significantly in the housing market.
Soft-selling social housing
Semantically, the substitution in recent years of the phrase ‘affordable housing’ for ‘social housing’ has made the policy easier to sell. The new language has led many ordinary people into thinking that it means that houses on sale in the private market will somehow be made more affordable. But of course it means nothing of the sort: it means a return to the policy of the state providing social housing and subsidised housing. And the terms in which the proponents of this approach have framed the debate mean that the only legitimate area for dispute is about how fast the demand for ‘affordable housing’ is projected to rise.
The promise of lower house prices must be a cheering prospect for purchasers, particularly those just entering the housing market. Unfortunately, in believing this implication they are the victims of pure spin.
2. Unravelling the assumptions
Dependency and dysfunction
The reality of the housing market is not only quite different from that which the language of the ‘affordable housing’ debate implies: it is also racked with perverse incentives that do nothing to help solve the underlying problems.
For example, many of those living in ‘affordable’ housing are drawing Housing Benefit and Council Tax Benefit: they therefore have little incentive to leave the ‘affordable’ housing sector, even if they are in work.
And there are many other spanners in the works of the housing market. In some cases, tenancies are inherited. Council house sales have been resisted by most local authorities and further discouraged by recent lowering of the discounts. Housing associations are not subject to the Right to Buy legislation. In London especially, larger units are in very short supply; but there is no incentive (as there would be in the private sector) for those whose families have grown up and gone away to trade down to a smaller (rented) unit, thus releasing it for a new family.
It is a sector from which practically all market mechanisms have been removed. It is not dysfunctional because the market is incapable of working in the housing sector, even though it works quietly and efficiently in so many others. It is dysfunctional precisely because the market is not being permitted to work.
Just what has failed?
But the consensus position is that large numbers of households lack enough money to make their demand for decent housing effective in the market. In other words, in the housing sector, markets are assumed to have failed ex hypothesi.
And the consensus conclusion is that, because of this market failure, the need for the state to house people has grown. That is indeed a remarkable conclusion, in a country where incomes have been rising steadily for decades.
Historically, it might have been understandable that we should have wished to make subsidised provision for the landless labourer or the unskilled industrial worker. But today, astonishingly, we are being asked to provide publicly subsidised housing for young people with university qualifications about to enter such eminently middle class professions as teaching and medicine.
It seems hard to understand why the market should have failed in housing, when in most other sectors, the goods and services it delivers have become steadily more ‘affordable’, not less.
Could the answer be ‘government failure’ rather than ‘market failure’?
3. The policy conclusions
New ‘affordable’ housing policies
Mrs. Thatcher’s government removed from local authorities their established role as providers of social housing. They also pressured the local authorities to contract out the management of their housing stock, and gave tenants the right to buy. The present government has, until now, continued these policies. Thus, the housing associations, which were given the local authorities’ social housing role, have remained the principal means by which public subsidy might be channelled into ‘affordable’ housing.
But now, in addition, increasing use has been made of planning policy guidance requiring larger-scale developments of new private-sector housing to include a substantial ‘affordable’ element (in conjunction with a Registered Social Landlord) by means of a Section 106 agreement incorporated into the planning permission. (Exactly how much of a new private development should be dedicated to ‘affordable’ housing is a matter of acute political debate, but the consensus is between one-third and one-half of the new supply, with the Mayor of London at the upper end of the range.)
Make housing less affordable
Many people assume that Section 106 agreements to provide new ‘affordable’ housing are either costless (since no public money is provided), or that they capture for the public sector a planning gain that would otherwise have gone to the developer or landowner.
But developers and landowners are unlikely to give away their gains without a qualm. In reality, they pass at least some of the cost of providing the ‘affordable’ houses to the purchasers of the new private units that are built alongside. Section 106 agreements therefore contribute to the upward spiral in private sector house prices; and the wedge between those who can afford to enter that market and those condemned to state support widens even further.
Supporting bad managers
Structural rigidities in the social-landlord sector also need more rigorous examination. The management failings of housing associations (in very ordinary ways, such as replacing light-bulbs in common areas) are often overlooked by the proponents of ‘affordable housing’, although most councillors know from case work that housing associations tend to be very sub-standard property managers.
If the Right to Buy cannot be imposed on housing associations – and the House of Lords would not pass it even when the Conservatives were in power – might not housing association tenants at least have the power to appoint private sector managers for their blocks?
Creating more dependants
As to ‘key workers’, it is no coincidence that the groups usually mentioned are all workers in the public sector. Formerly, police and nurses (among others) were provided with subsidised accommodation as part of their remuneration. But much of this stock has now been sold off, in part because of the constraining effects of government accounting policies.
In private, public-sector employers admit that it is bad pay policies that are at the root of the calls for ‘key worker’ housing. It seems pointlessly destructive to distort the whole of the housing market just to make up for this deficiency. The only lasting solution is to address the deficiencies in public-sector pay.
We need more market, not less
If the established policy consensus has any merit, then it must rest on one or more of the following demonstrable facts:
a) that there is an overall shortage of housing, now and projected into the future, that the market is not meeting; or b) that what is regarded as a decent standard of housing has risen faster then ordinary incomes can sustain.
There is some evidence for both of these propositions, but it is not clear that they support the extension of subsidised housing to an ever-growing section of society. Rather, they might point to the need for more house-building overall (rather than just ‘affordable’ housing), to the need for market liberalisation, or more flexible planning controls, or less restrictive regulation on minimum housing standards.
They might point, indeed, to the need for the housing sector to be driven far more by the power of the market, and far less by the powers within politics.