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Doing Mrs Thatcher proud

New Labour’s embrace of home ownership marks an end to collectivism with the real victims being lower income households argues Duncan Bowie.

Ten years ago Labour refused to oppose Major on the Right to Buy for fear of losing votes. Labour has now moved from ambivalence to a whole-hearted endorsement of home ownership as the future which would make Margaret Thatcher proud. The post-Thatcherite analysis, as presented by Yvette Cooper in The Guardian (22/3), is that given home ownership is the main basis of wealth in Britain, the solution to inequity of wealth is to make all households owner occupiers so that all people can have individual wealth. This was followed by a pre-election statement by John Prescott on 1st April announcing new home ownership initiatives, including the “social homebuy” proposal, which comprises the Government giving money to tenants to buy their existing tenancies in stages, a form of phased right to buy who can’t afford, even with the right to buy discount, to buy outright. The initiative is a form of the equity stake proposal included at the last moment in the last Labour election manifesto, but then put on the backburner. The proposal has been warmed up for the election campaign.

Yvette Cooper’s analysis of the role of housing in wealth appreciation is of course right. It is the policy response which is completely wrong. Labour has clearly given up trying to limit individual wealth appreciation – arguably Labour policies over the last 15 years have done more that the policies of the previous Tory government to increase the gap between rich and poor in terms of assets. The combination of increasing incomes at the higher end of the earnings scale, combined with a fall off in house-building, assisted by transfer of wealth between generations and a revival of investment in property for profit through the buy to let market has created a house price boom. This has both increased homelessness and the exclusion of middle and lower income households. It has also led to a series of desperate initiatives by the Government to help middle income public sector professional households in the Southeast.

The Government’s mistake however has been to focus on short term interventions rather than long term investment – and their interventions have been primarily about assisting certain types of key workers, mainly teachers and NHS staff to access the market by giving them interest free loans or grants, rather than actually increasing supply. These interventions have further inflated market prices, assisting some key workers to leapfrog over others. Peter Malpass, housing academic and one of the long term members of the Labour Housing group, rightly called the initiative ‘economically illiterate’.

Government argues that because most people aspire to be home owners, Government investment should focus on assisting home ownership. With 67% of households now home owners (though in practice most have large mortgages, with the lenders actually owning most of the equity, while most of the new initiatives are shared ownership, where the owners mortgaged equity stake is only 50% or less), the Government still feels that, despite the growing affordability crisis, with most new households unable to access the market, somehow the proportion should be raised to 75% or higher. The Government has actually set a target.

For some time housing experts have questioned the logic of this, especially since the subsidy required to assist a middle income household on an income of £25,000 a year to buy into the market in London, at £100,000 is now greater than the subsidy required to provide a social rented home for 60 years. Even Treasury officials question the relative value for money for this investment.

What is perhaps not widely known is that for the last few years – and the next three, nearly 50% of Government investment in new housing has actually been allocated for home ownership initiatives rather than for social housing – the social housing output has been falling and is actually lower in London than it was 10 years ago. In London alone, over 20,000 new social rented homes are needed each year – nearly 60% of the annual total housing requirement of 35,000. Actual new social rent completions have been only 5-6,000 a year.

So while market supply is failing to meet market demand, and shared ownership initiatives have limited impact, it is provision for lower income households that is most inadequate – so the fact that the number of homeless households in London has increased from 30,000 to 60,000 over the last 5 years should not be too surprising. Nor should the fact that overcrowding has dramatically increased.

Throwing Government money at a select group of middle income key workers may have been electorally popular with the groups concerned, but has actually been an unproductive diversion of resources, especially given there is little evidence that the key worker initiatives have actually eased NHS or education authority retention and recruitment problems. Housing a teacher will have only a limited impact on the quality of education when a high proportion of the children in a school are homeless, forced to move from one form of temporary accommodation to another or living in poor accommodation, especially if the teacher can walk out of the job as soon as they have their subsidised key worker house.

In the absence of a housing policy or cost effectiveness justification for its policies, Yvette Cooper’s rallying call to extend the benefits of home ownership to all is startling in two ways. Firstly it is not of course about enabling all households to have equity stakes in property, as even with substantial equity loans or grants, lowest income households will never be able to exercise any right to social homebuy or any similar initiative which could be introduced, as most lower income households could not afford even a 25% mortgage on an average market property in London or the SouthEast, unless of course housing benefit was increased and extended to cover repayment of principal as well as interest – not yet proposed by the Government.

Private sector tenants have little security, while many council tenants get ‘probationary’ tenancies conditional on their good behaviour. The initiative is actually aimed at the 10% marginal home owners who could afford to buy 10 years ago but can’t now. Even more startling is the Government’s abandonment of collectivist solutions and its recognition of private wealth appreciation rather than publicly funded provision on the basis of need, as the fundamental basis of its approach to public policy.

Over the last 10 years, we have witnessed the end of public sector housing provision, the contracting out of management of public sector housing to the private or independent sector, followed by the transfer of the ownership of a large proportion of the social housing stock to the private or independent sector, the introduction of rent regimes in the social sector which take into account asset value as well as affordability, the increasing dependence of both new building and estate regeneration on private finance and private equity stakes through the private finance initiative, and the introduction of versions of incentives to transfer social rented homes into forms of homeownership which take the stock outside the social housing stock available for future households in housing need.

If the Alan Milburn tendency has its way, we will see legislation post election applying a social homebuy right to all social housing tenants, in council and housing association sectors, leading to a further loss of social housing stock, as if council house sales has not done enough damage.

The distinction between this initiative and the Tories plan for further extending the Right to Buy becomes somewhat semantic. We have seen the deskilling of local authority housing departments and the rise of a highly profitable housing consultancy sector, funded by a combination of tenants rents and government grants. There is however little evidence that the introduction of the profit motive into the social housing sector has either increased efficiency, quality of service or cost effectiveness – but the Government message continues to be private sector good – public sector bad.

Which brings us back to Yvette Cooper. Having helped so many households to get rich on the back of home ownership, the next Labour Government’s main objective is to help a few more middle income households join in. Everybody will have the ‘right’ to be a home owner – unfortunately only some will have the means. The Government’s equality of opportunity is theoretical. How the policy will help lower income households is unclear.

This is part of a general trend in New Labour policy to move from focusing on collectivist approaches and benefits to privatizing wealth and focusing on individual gains out – private wealth in. Tony Crosland will not be the only one turning in his grave at this abandonment of a fundamental socialist principle.

At a recent SHELTER seminar, the Tory housing spokesman John Hayes asked the Housing Minister, Keith Hill, what Labour had against councils and the public sector as a whole – a cheap jibe but an effective one. We now have the answer. The public sector’s role is now to be as an instrument for private wealth creation. The public sector should not have assets used for the public good, but should dispose of them so that the assets can be used for private gain. I doubt Margaret Thatcher or John Major would have to be so explicit .