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The Council Housing Sell-Off Disaster

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Council house blog

Forty years ago, there were five million council houses in England, lived in by three out of ten families. Since then the number has declined by two-thirds. The Housing and Planning Bill, which returns to the Commons this week, will make it even more difficult for anyone either to get a council home or to keep it once they do.

Councils will be forced to sell off higher-value properties that could have been let to people on their waiting lists. Most of the money will go to the Treasury. It’s nominally aimed at funding the new right to buy for housing association tenants, but it now looks likely that the ‘higher value’ threshold will be set so low that the sales will create enough money to fund other policies, too, such as the programme to build ‘starter homes’ for first-time buyers. According to Shelter, ‘the only group it appears to help on a significant scale will be those already earning high salaries who should be able to afford on the open market without government assistance.’

Councils are supposed to replace the homes they sell off, but even if they are able to do so there are likely to be delays of four to five years and a permanent fall in the number of new lettings, already at record low levels. The replacements will have higher rents or could even be for sale. Among the council tenants whose houses will be forceably sold off are pensioners and disabled people who need council-owned bungalows. They usually have higher values and, because they take up more land, are harder to replace.

Anyone who does manage to get a council tenancy will also get a much worse deal. The bill removes the security of tenure which (after a trial period) means tenants can only be evicted for good reason, such as seriously annoying the neighbours or not paying the rent. The new bill means that tenancies will end automatically after a fixed period. Households earning more than £30,000 (or £40,000 in London) will pay much higher rents. The extra money will go not to councils but to the Treasury. By selling off better properties and making it harder for tenants to stay in those that remain, the government will make council housing much less attractive. More tenants will be tempted by the right to buy. If properties that are sold are later bought by private landlords, they’ll command rents that are at least double those charged by councils.

The government is also forcing councils to cut their rents every year until 2020. This is promoted as a saving to tenants, but the biggest saving is the Treasury’s, in lower benefit costs. It will be devastating for councils’ finances, and could lead to the cancelling of building plans for more than 18,000 new homes.

Four years ago, council housing became self-financing. Councils paid £7 billion to the Treasury in return for being able to keep all their rent revenue for themselves. Grant Shapps, then the housing minister, promised that the arrangement would ‘endure for the long term’. But the government immediately started to undermine the deal: it raised the discount that tenants can get if they buy their house to over £100,000 in London, and cut the qualifying tenancy period to three years; it brought in welfare reforms like the bedroom tax that mean more tenants trying to move and many having difficulty paying their rents. By the time the bill was published, many councils had already started to pay off their debts rather than borrow more money to build new homes.

Self-financing was supposed to give council housing some of the independence enjoyed by housing associations. But the bill will reinforce the differences, encouraging associations to cater for better-off tenants and leaving councils to house those who have no choice. Council housing could eventually be reduced to a mere ambulance service, as it is in the US and Canada, rescuing people in desperate need, putting them in flats that no one wants to buy and quickly moving them on.

Is this a calculated strategy or is the government simply blundering into it? Officials have admitted to the Public Accounts Committee that they didn’t look into the effects of the sales policy, cost it or test different options. Meg Hillier MP, the committee’s chair, criticised the government’s ‘vague assertions’: ‘We are not talking about a “back of an envelope” calculation – there is no envelope at all.’


Read more in the London Review of Books

James Meek: Where will we live? · 9 January 2014

Owen Hatherley: Nye Bevan · 7 May 2015

Gillian Darley: Ernö Goldfinger · 1 April 2004

Comments

  1. Graucho says:

    Scratch a Tory and you will find an asset stripper. Mrs. T turned stripping the tax payers of their assets into a fine art. Now these assets are no longer contributing to revenues is there little wonder that it is impossible to balance the government books.

  2. John Perry says:

    Ironically the government is being forced this week to make changes to its Bill in order to get it through parliament before the Queen’s Speech. The ‘pay to stay’ scheme to oblige councils to charge higher rents to ‘better-off’ tenants has been watered down, so in all likelihood it will now collect less money than it will cost (because all tenants not on benefits will in future have to be means-tested regularly, something that does not happen at present).

    • Mike Cameron says:

      It seems clear to me that ‘pay to stay’ will cost more to implement than it will generate. The impact assessment states that at 100% it would generate £0.37bn, therefore with a 15% taper it will generate £55m, they state that it will cost Councils £37m to implement, this leaves them with £18m, they also state that their calculations includes all housing benefit payments that would need to be paid as part of this rent increase, but the watered down version that we now have states that HB eligible tenants are exempt. I believe that 2 million occupiers of council houses will need their income assessed, this is obviously going to be very difficult. They also state that about 50% of their income is coming from fiscal drag, but the new scheme is now indexed linked.

      The fact that residents are called ‘high income earners’ but yet the policy document states that many residents will be forced onto housing benefit because of the new rent, therefore is everyone who is not getting housing benefit a high income earner. There is no account of household size.

      I had some minimal sympathy for this policy at the original £60k level, but at £30k it is a disgrace, I believe we have a figure of £30k because someone took the view that this is the level were the policy may pay for its self. There was always going to be a taper, we could not have a cliff edge were residents paid 80% market value, after going over £40k.

      I imagine the Bob Crow clause, as it is being named is to target the over £50k earners and by the DCLG’s own figures this amount is 16k,therefore this is to capture 0.008% of households, who will do as I am doing and engage in a mutual exchange and exercise the RTB.

      This policy and the drafted legislation were thought up by some people who know nothing about how residents in social housing.

  3. Neil Foxlee says:

    “Is this a calculated strategy or is the government simply blundering into it?” I’m surprised you feel the need to ask. The government may have failed to take account of some perverse effects of their plans, but this is simply evidence of their dogmatic determination to plough on regardless with their two-pronged project: to consolidate and strengthen the Tory party’s grip on power, and to complete the Thatcherite project of ‘rolling back the frontiers of the State’.

    Hence forced academisation of schools (pushing them towards multi-academy trusts), draconian cuts in local government funding, and the softening-up of the BBC and the NHS for eventual privatisation (they remain too popular for anything quicker). If they’re allowed to get away with it, this country will be unrecognisable. And they call this ‘Conservatism’.

    • Alan Benfield says:

      Agreed: when Thatcher decided all those years ago to deliberately dismantle social housing by implementing right-to-buy at a discount (and at the same time preventing councils from using the proceeds to invest in new building), I was surprised that nobody asked the following question: why only council housing and why not just any rented housing?

      The answer, of course, is obvious: while to expropriate the state on the grounds that council tenants have paid a large amount of money in rent (and thus deserve a discount in lieu of their rental payments) is a given in Tory philosophy, to do the same to private landlords would be a quasi-Stalinist outrage. And as far as renting at a reasonable price is concerned: the market will provide.

      That this has led gradually (or not so gradually) to a situation in which (in London and the South-East, at least) appalling accommodation lets for obscene prices and, paradoxically, because the market is so inflated, owner-occupancy is actually falling, because new entrants cannot afford to buy, could, charitably, be described as the action of the law of unintended consequences.

      I think, however, that it is more the working of the law of ‘Tories don’t give a toss about consequences, as long as they can make a buck out of it’.

    • Neil Foxlee says:

      My mention of forced academisation above was of course made before the announcement – just made – that the government has backed down on this issue. What they would like to do, however, remains unchanged, and it is probably only rebellion within Conservative ranks that has stopped them. Likewise the overall strategy, taking in benefits, education, health, housing, local government and public services generally.

  4. John Perry says:

    Neil Foxlee understandably thinks that the government has a calculated strategy, but it also puts up a good appearance of its left hand not knowing what its right hand is doing. For example, while undermining council housing investment in the way described in the blog, it has this week announced a new £1bn fund ‘to help cash-strapped councils build 10,000 mixed-tenure homes’.

    • Neil Foxlee says:

      I take your point about left hand/right hand, but according to an Inside Housing article on the scheme (http://www.insidehousing.co.uk/hca-backed-1bn-housing-fund-launches/7015042.article) :

      ‘A new £1bn fund to help cash-strapped councils build 10,000 mixed-tenure homes has been launched with the support of the Homes and Communities Agency (HCA).

      Kier Living has joined forces with fund manager Cheyne Capital and the Housing Growth Partnership – a joint venture between the HCA and Lloyds Bank – to launch the New Communities Partnership.

      The new fund will offer finance to housing providers, in particular councils, to develop housing schemes without government grant.

      It says it can finance schemes with any tenure split – including private sale, social rent, discounted rent and shared ownership – based on local need.

      The rental homes will be owned by Cheyne Social Property Impact Fund, managed by Cheyne Capital, and leased to the council for a period of usually 20 years.

      Councils will then pay an index-linked rent to the fund for the duration of the lease.’

      I’m no expert in this area, but it sounds like a Private Finance Initiative to me.

      • Alan Benfield says:

        Well, the weird thing about modern finance is that about 95% of what we call ‘money’ is actually created by banks when they extend loans, with a view to making a profit on the deal and does not ever exist in terms of printed paper or anything tangible, at least until the loan is finally repaid. When regulators try to insist that at least a small part of these huge liabilities should be covered by capital, the said banks whine that it would make them uncompetitive and tie up capital which could otherwise be used in productive ways.

        And yet, when governments create money in the same way in order to finance public expenditure, usually without any profit motive, except the social improvements involved, neoclassical economists complain that such profligate money creation will precipitate the end of civilisation as we know it by generating inflation.

        As we have seen from recent experience (QE in both the US and latterly the Eurozone), this is actually false. And why does bank money creation not drive inflation in the same way?

        Can a neoclassical economist out there explain this paradox?

        • Graucho says:

          I’m no economist, but Paul Krugman, who has a Nobel prize to his name, writes a really good blog on these issues http://krugman.blogs.nytimes.com/ . One thing that he has been consistently pointing out is that all the doomsayers claiming that the U.S. deficit was going to to cause hyper-inflation have been wrong year in year out. As far as I can seen bank lending does cause inflation if the money lent is for the purchase of assets as opposed to the creation of them, the U.K. housing market being a painful example.

          • bevin says:

            One reason why “the doomsayers” have been wrong is that every sector of the economy, with the exception of profits, is tending towards deflation.
            Deficits are one of the means by which a plunge into depression is postponed.

  5. mototom says:

    We are crazy.

    The latest government sponsored English Housing Survey (EHS)(published Feb 2016) shows, for example, that 50% of households in London rent (23% council of HA, 27% private rented sector).

    That 27%, or the vast majority, (there are still a few Rent Act tenants hanging on), have no security of tenure and have to pay the open market rent – unaffordable to many households.

    A few years ago John Perry set out in a LRB blog that council housing wasn’t subsidised. In fact it: made a profit; tenants got (literally) affordable rents and security of tenure; folks were employed on decent terms and conditions up and down the land in the management and maintenance of these homes.

    Unfortunately we have a government populated by those with an almost religious belief in the power of the market to solve our ills.

    The evidence with respect to housing though shows clearly that the state does much better on all fronts than the private rented sector (e.g. the EHS shows that 11% of public housing fails to meet the governments health standards compared to 29% of the private rented sector – and note that although over the last 5 years this percentage has decreased, because of the growth in the size of the private rented sector, the actual number of such homes has increased.)

    We are in the middle of a massive housing crisis and the policies of government can clearly only make it worse. Yet the blanket response of the media is that Labour under Corbyn is nuts.

    How does that work when only a radical solution will do?

    Walter Benjamin said that capitalism is the runaway train, socialism an application of the brakes.

    Someone needs to put their foot down.

  6. XopherO says:

    I don’t want to diminish the perceived nastiness of the nasty party, but Blairite Labour had 13 years to sort out the housing problems. Attlee and Wilson had a lot less, and built over 200,000 homes a year. In France, whether right or left controls government, around 200,000 homes are built a year, and a lot of these are HLMs (council housing). In the UK, right or left, since Thatcher, less than half this number has been built, and few at affordable rents. If the Blairites gain power again, we can surely expect the same – or perhaps they’ll have a brainwave – tents, just as for refugees. Calais will really have arrived in the UK.


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