Coronavirus has shone a light on UK’s housing crisis – here’s how it can be fixed
Our take | This article calls for fundamental reform of the broken housing market in the UK. Successive governments have failed to take the bold steps that are needed to deliver decent housing for all, rather than supporting a winner-takes-all situation.
The UK’s housing crisis has been thrown into sharp relief by COVID-19. Lockdown has been especially difficult for the homeless and those with young children living in overcrowded homes without outdoor space. Private renters who have lost their jobs face the prospect of eviction and increasing numbers of homeless people are unable to find support despite initial announcements that they would be housed in hotels.
For others, the lockdown effects are less pronounced. An estimated 250,000 people left London to live in second homes mainly in rural and coastal locations. Meanwhile, investors have started to look for bargain purchases to capitalise from the fall in house prices.
Coronavirus may have accentuated these inequities, but the housing system has looked broken for years. Its dysfunction can be superficially measured via massive housing waiting lists, high rents and homes so expensive that new generations can’t buy. Other signs include homelessness and sofa surfing, rising evictions, overcrowding, and young people staying with parents for longer.
Underlying the froth of commentary and concern is often significant misunderstanding of how the housing system operates, and whose interests it serves. Owners of land and housing have thrived amid decades of housing policy and economic management that do little or nothing to address real human housing need.
Property vs people
Let’s begin with what might seem a controversial proposition: the UK housing system is an efficient and highly successful machine – but only benefits those who already have plenty.
Successive governments have fed the machine with low interest rates, planning targets that assist builders, help for prospective owners and low regulation for finance and investors. This primarily helps those with capital and housing assets. The primary beneficiaries are investors (already among the most affluent in society), financial institutions and homeowners, all of whose wealth has expanded massively.
So much for the good news. The bad news is that most households, many of them in desperate housing need, are excluded from this wealth. For example in London, the bottom 40% of households have no housing wealth at all.
This of course includes public housing tenants, who have little or no personal wealth. But it also includes private tenants who pay rents to landlords, some of whom use their own gains as owners to buy more properties to let. Money flows to those in the property machine while poverty, poor housing and worsening social conditions go unchallenged.
There is no reason why resources cannot be channelled into providing good quality, low cost, secure and environmentally sympathetic homes for their users. The problem is that this offers little yield for investors.
While the high cost of tackling housing issues is often cited as a reason for the lack of progress, the reality is that significant public funds flow to landlords, new homeowners and investors. This occurs in the form of low tariffs on home purchasing (compared with other countries); housing benefit that flows to private landlords (£23.4 billion in 2018); and the “help to buy” programme, in which over £12 billion between 2013-2018 helped mostly wealthier homeowners to buy over 200,000 homes.
In contrast, the government gives almost nothing to local authorities to build (though they can now borrow to build) while over the next four years, it will give around £10 billion in grants to housing associations. Funds to housing associations are welcome but they have lately become more commercial and have increased their proportion of new developments on sale at full market value. This is a long way from offering substantial high quality, affordable and secure social housing at a time of crisis.
What passes as housing policy today ensures that the property lobby makes enormous profits; that little or no social and affordable housing is built; that homeowners generate a stake in the value of their property, while private renters help to support more affluent landlords. The UK’s housing system is a wealth generator, but too often it only deepens inequality, rather than providing well-being for all.
There is nothing inevitable about the housing problems experienced by low income households and the homeless – choices can be made and money can be found. Options include deterring banks from lending to speculators betting on rising land values, or measures to ensure developers who build in areas of high demand set aside 30% of new properties for social housing tenants.
Other reforms could assist the large number of renters who endure sub-standard accommodation, but we might go still further. Should private renting be encouraged? Why not call out the sector as a largely redundant, expensive drain on public and private resources and work instead to promote owner occupation and a high quality public rental sector?
In the meantime, the government could disincentivise private landlordism; particularly those who buy existing properties solely to generate profit. Many investor landlords out-compete first-time homeowners in purchasing power, too often letting properties in poor condition and at high cost.
A significant public housing building programme is needed in areas of high demand, such as London. This would require local authorities to borrow money at preferential interest rates. Authorities that handle public housing are currently underfunded, but revenue for their programmes could be generated by taxing the capital gains made from homeownership, or annual taxes on wealth and landlord purchases.
There’s also a strong case for nationalising land in areas of high demand to facilitate new public housing. Compulsory purchasing of land by the state could be used to help local authorities and housing associations to build good quality social housing. We also support a new tax based on the value of land. The UK government could apply an arrangement similar to Singapore, where as much as 90% of the land is under the ownership of the government but leased to developers so that rising land values enrich the taxpayer instead.
Most, if not all, of these proposed reforms will likely be opposed by those who currently profit from the shortage of affordable housing. But many new models for co-operative housing, innovative co-housing developments and high-tech or sustainable material uses are being experimented with. The current crisis has starkly shown how critical our homes are and how vulnerable many are as a result of the choices we have made to support homeowners and the wealthy. Action for private tenants and the homeless are urgently required.
Our verdict | Housing has become an asset class and a means of accumulating wealth, resulting in rampant speculation and price appreciation to the point where few people can afford to buy a home without access to inherited wealth or mortgage debt, and those who own property have seen their own wealth increase enormously over recent decades. In the absence of sufficient social housing, and with house prices at unaffordable levels, millions of people have no option but to turn to private rented housing. Here, however, increasing demand for a limited supply of housing stock has pushed rents up and quality down, condemning millions of people to live in insecure, inadequate and unaffordable accommodation, and forcing governments to spend billions every year subsidising private landlords through housing benefits. This unsustainable and unfair state of affairs cannot be allowed to continue.