Thursday, November 22, 2018

Home ownership is the most ‘subsidised’ tenure

Another excellent housing "myth buster" by Red Brick (Website of the Labour Housing Group) "home ownership is now easily the most subsidised tenure, much more so than social housing, with private renting receiving the least help".

"It often seems that the term ‘council tenant’ automatically comes with the word ‘subsidised’ in front of it. It is part and parcel of the stigmatisation of the tenure by many politicians and much of the media – and even some within the social housing sector. Following Grenfell, the government in its green paper nodded in recognition of the unfair portrayal of council housing and noted that stigma has a deleterious effect both on the tenure and on the people who live in it. But even as they recognised it, they also repeated their underlying belief in the superiority of home ownership.
Despite overwhelming political and popular support, since 2003 or so home ownership has been in decline as the affordability of housing has deteriorated. For all its efforts, this government has not yet managed to reverse the trend. In his book launched last week, Josh Ryan-Collins showed that this was not just a UK effect, it has happened across what he calls the ‘Anglo-Saxon economies’ where banking systems have been deregulated in  the same way and at the same time. Encouraged by the collateral of bricks and mortar, overly keen banks with liberal lending policies pushed prices up much faster than incomes, hugely stretching price to income ratios. Other countries with different types of bank – notably Germany where banks are regional and based more on co-operative principles – have experienced much less house price inflation and have much less emphasis on houses being investments rather than places to live.
In the UK since 2010 we have seen the amount of public money put into social housing slashed yet there have been many, often costly, initiatives to help slow the decline in home ownership. The net effect is that home ownership is now easily the most subsidised tenure, much more so than social housing, with private renting receiving the least help.
The conclusion that the state gives far more help to home ownership cuts against the grain of conventional thinking. But it has now been very well documented in a report entitled Dreams and Reality? Government finance, taxation and the private housing market published today by the Chartered Institute of Housing and written by housing finance experts Steve Wilcox and Peter Williams. The authors reached their conclusion after an exhaustive analysis, taking account of all types of government intervention in the market, not only spending on grants, loans and guarantees, but also tax reliefs, welfare benefits and regulatory mechanisms which aim to stimulate or control the three main routes by which people get access to housing.
They show that government is directing about £8 billion annually into private housing over the five years to 2020/21, with over half going specifically to support home ownership and the remainder being more broadly aimed at the private market. In contrast, direct funding for new social housing is less than £2 billion annually.
Wilcox and Williams accept that the analysis is bound to be crude because financial support for the sectors comes in different forms – for social housing it is mainly grant spending whereas much of the private market support is via loans or guarantees. Some specifics:
  • In terms of tax reliefs, home owners benefit much more than private landlords: net tax relief for owners was some £29 billion in 2016/17 (£10 billion paid in tax; £39 billion received in tax reliefs) whereas private landlords paid net tax of at least £8 billion.
  • Within the benefits system, tenants receive much more assistance than home-owners, with about £15 billion annually going to social housing tenants and £8.5 billion to private renters.
  • Private renting has a big advantage in mortgage regulation because it can access interest-only mortgages whereas new home buyers have to navigate various restrictions on mortgage availability.
  • Despite the huge increase in general support for the market, the government safety net for those homeowners facing financial difficulty has been much reduced. Support for mortgage interest will soon migrate from paying mortgage interest charges for unemployed home buyers to providing loans – a further erosion.
CIH chief executive Terrie Alafat CBE said:
“This report demonstrates just how much government support is going to the private market, and to home-owners in particular – probably contrary to many people’s expectations. It takes a comprehensive look at the way the government supports our housing system – and we would urge ministers to do the same. Currently just 21 per cent of government investment is going to affordable housing. Rebalancing this budget to support people on lower incomes who can’t afford to buy could make a big difference. It is vital that the government supports councils and housing associations to build more homes for social rent.”
Wilcox and Williams also sneak a look into the future. If home ownership is stabilised at around 60% and if the social housing sector does not grow proportionately, it follows that future net growth will come mainly in the private rented sector. This will lead to a substantial long term increase in the cost of housing benefit (especially as working private tenants retire and become eligible for rent support). Unlike social housing, where housing benefit is retained by landlords and surpluses recycled, HB to private landlords funds profits which are removed from the sector.
‘It serves to make the point’, the authors say, ‘that the continuation of current trends is not a cost-neutral option for government’.
And in a massive understatement they comment that ‘there are questions as to whether we are spending as efficiently as we can in the housing sector, a pertinent point given the general pressure on public finances.’ In particular, they question the emphasis on intervention on the demand-side through Help to Buy and other schemes rather than supporting supply-side initiatives (ie directly building more houses rather than increasing buyers’ purchasing power).
We may have to wait a long time to see ‘subsidised home owners’ replace ‘subsidised council tenants’ in the headlines. But this report demonstrates that government intervention has become critically important to the operation of the private housing market. It seems highly unlikely that the schemes chosen by the government will lead to less volatility and house price inflation. Whatever happens, in future a much sharper focus will be needed on private renting, both in terms of the cost to households in rent but also the cost to government in benefits".

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