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From The Socialist newspaper, 29 September 2000

When Housing goes to market

MARGARET THATCHER promised to create a "property owning democracy" by selling council houses and applying the 'benefits' of the market to housing provision.

Jared Wood

Twenty years on, the proportion of homes provided by social landlords (councils and housing associations) has fallen sharply but the market has brought increased homelessness and an epidemic of sub-standard housing that is outdated and in urgent need of repair.

The government's green paper, which is now passing before parliament, tells a story of millions of people in 21st-century Britain who still live in poor housing. They say:

My article in The Socialist (28 July), looked at the disastrous effects the dismantling of social housing has had on low-income households. The article below looks at the other main element of recent government housing policy, the promotion of owner occupation and support for the private market in property.

RISING PROPERTY prices now exclude even those on average earnings from owning their own homes. Meanwhile the private rented sector offers poor quality housing at unaffordable prices.

What's more, thousands of privately owned homes sit empty despite a chronic housing shortage! Nowhere is the problem so virulent as in London. As "The City" has dished out million pound bonuses, its executives have splashed out on "pied-a-terres", formerly known as flats, to save commuting from Godalming.

There has also been an influx of European executives coming to London, which many analysts believe is a key factor in property prices rising beyond the stratosphere in the last two years. Indeed you could be forgiven for thinking that many house prices are now being quoted in Euros.

In need of new housing myself, I recently visited an estate agent in Acton, West London. Acton is one of those areas that used to be predominantly working class and offered relatively affordable housing.

Today agents are offering rented studio flats, another invention of 'estate agent speak' to dress up a bed-sit, starting at 140 a week.

Rents for a two-bedroom family home in inner London start at around 200 - 250 a week. To buy a similar property will cost at least 150,000. To get a mortgage sufficient for this, a household needs an income of 40,000 or more.

Housing policy in London is leading to the economic cleansing of the city's working class! Londoners on average or below average earnings are facing forced migration as every avenue of housing is closed off.

London is at the sharp end of the housing crisis but its situation is not unique. The average price of a home in Britain has risen to 102,000, according to the Department of the Environment.

A mortgage to cover this requires a single income of 30,000 or joint income in excess of 40,000. As most people in Britain earn well below 20,000, crisis is inevitable.

Owner occupation has risen from 56% in 1979 to 68% today and this increases the impact that booms and slumps in the housing market have on the rest of the economy. Housing constitutes a large part of most households' expenditure and a massive proportion of any savings.

Because of this, any shock in the housing market is felt throughout society and has to be paid for by working-class households whether owner occupiers or not.

MANY ECONOMISTS reckon that "equity withdrawal" from property contributes to "overheating" consumer spending and other inflationary trends.

This gobbledegook means that homeowners are spending the profits made on their homes, either by selling up or, more often, borrowing against expectations of even higher values in future years. This can push up interest rates, set by the Bank of England in order to cool demand.

Higher borrowing costs have an adverse impact on investment and can accelerate a slide into recession. Once in a recession the economy needs people to start spending, but the housing market is likely to have collapsed even more dramatically than the economy as a whole.

Homeowners will have suffered falling property values or even negative equity, when their outstanding mortgage is greater than the value of their home. That means they're likely to cut back on their general expenditure.

So while the housing market promotes inflation in a boom period when inflationary trends are dominating, it dampens consumer spending in a recession.

Economic studies also blame Britain's high proportion of owner occupation for "labour immobility". Moving is not only very expensive but home ownership can act as a powerful psychological disincentive to moving.

But employers now increasingly demand "flexible", i.e. easy to sack, workers. Part-time working, short-term contracts and self-employment don't sit easily with mortgage lenders. So owner-occupation can cause economic disruption and can clash with the labour market.

The private rented sector also reveals the disruptive influence of the market on housing provision. A huge stock of empty housing can be blamed, at least in part, on the boom in property values.

The government's empty homes agency estimates that there are 773,000 empty homes in Britain. Of these 637,000 are owned privately. In London alone there are 114,000 empty homes of which 40,000 have been empty for over a year.

While property values are rising at around 20% per year, many landlords don't bother themselves with the messy business of tenancy agreements and repairs but just sit back and watch the profits roll in.

Those landlords who do choose to let their property preside over another sector in crisis. The Department of the Environment (DofE) reports that private rents are still around 30% more than equivalent council rents while the standard of maintenance and the quality of accommodation remains inferior.

The DofE's estimate of this cost differential is very conservative. Commercial rents in London for a family home can easily exceed council rents by 100% or more.

THE GOVERNMENT'S housing green paper reveals a crisis. It estimates that 19 billion is needed to renovate Britain's council housing stock; 60 billion would bring the country's entire stock of housing, public and private up to scratch.

The green paper's proposals are predictably anodyne and ineffectual. No new resources are offered; the repairs will have to wait. The paper seeks to further promote the private market.

There are fine words about 'empowering' local authorities but these hide the real intention to force councils to smooth the path for the market in their local areas. The government is considering tax breaks for private landlords, to be paid for by restricting housing benefit to the market's victims!

The state of private housing provision is a clear warning of what to expect from private health care and privatised pensions. The invisible hand of the market acts only for those who own and control society's resources.

The rehabilitation of social housing, i.e. the provision of affordable, good quality housing as an essential part of state welfare must be a central demand of socialists and the working class today.

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In The Socialist 29 September 2000:

Blair's empty promises

Biwaters workers fight closure

Prague Protests Czech police go in heavy

The movement which stopped Britain

When Housing goes to market

Indian kidnapping stokes sectarian divisions

New Labour and the Trade Unions

What's the alternative to New Labour?

Free the Funds


 

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