Vince Cable made a substantial speech to the Royal Economic Society at the beginning of this week. The speech is worth reading in full because it represents one of the most thorough, thoughtful and wide-ranging perspectives on the economy that you are likely to hear from a front bench politician. Vince very clearly differentiates his position from that of the Conservatives on a whole host of points. He also, in my view, provides a more balanced assessment of the nature of economic policy under Coalition than you are likely to get from any member of the Quad. Vince does not pretend that the Coalition has adhered resolutely to plan A in the face of temptations to change course. Rather he acknowledges that things have not played out in the way that was anticipated in May 2010. He acknowledges that the recovery, though real, is not balanced and consequently places a welcome emphasis upon the continuing need to rebalance the economy and upon investment.
Vince identifies four major areas of policy action in pursuit of a sustainable, balanced recovery. These are “boosting the disposable income of low and middle earners; stimulating business investment (with the help of public investment); taking action, including through the industrial strategy, to tackle bottlenecks in skills, business finance, exports and UK supply chains; and building lots of new homes”. There is much that could be said about his thoughts under each of these headings, but my eye was inevitably drawn to his comments on housing.
The overarching theme was the need to avoid a continuation of boom and bust in the property market and the deterioration in affordability. A key part of the solution is building more new houses. Vince acknowledges that our systems of housing supply are much less permissive today than they were in the 1930s, the last time post-slump new supply hit the sort of levels that are seen as necessary to deal with our current shortfall.
Vince argues that:
It would be fanciful to expect a re-run of the 1930s in terms of private housing but there is no reason why social housing should not be increasing greatly in scale if (necessarily limited) government subsidy is matched by guarantees for housing associations.
There is something important here that Vince is not saying.
It is very likely that housing associations may well build more properties with assistance from limited government subsidy and guarantees. But it is very unlikely that it will be social housing. We need to acknowledge that the term “social housing” is being thoroughly debased. Vince’s own government is quite clearly attempting to precipitate the end of social housing as we have conventionally understood it.
This attempt started with the first wave of the affordable rent regime, which offered housing associations reduced levels of subsidy on the understanding that rents would reach up to 80% of market levels. Landlords have the option of converting existing social housing properties to “affordable” rents on reletting. In many parts of the country this translates into rents that few, apart from Humpty Dumpty, would define as “affordable” to low income households. Housing benefit is expected to take the strain, even though the housing benefit bill is already considered to be problematically high, and even though the net result of the policy is to land lower income households in even deeper poverty traps.
This week we saw the launch of the second wave of the affordable rent regime. This represents an intensification of the existing policy direction. Not only is subsidy available only on the condition that housing associations display greater enthusiasm for converting existing properties to affordable rent but also they are going to be obliged to dispose of high value properties.
Of course, how this policy plays out depends on the reaction on the ground.
If housing associations embrace the new affordable rent regime then the consequences are relatively easy to predict. We will see greater spatial segregation of rich and poor, as social housing in higher value areas is sold off and poorer households are forced to migrate to poorer areas. We will see more people caught in deeper poverty traps and dependant on housing benefit and/or we will see housing associations increasingly targeting better off households and reconceptualising their role as no longer principally housing providers to those households in greatest need. The most vulnerable will have to fend for themselves somewhere else.
Some would be tempted to say that these consequences shouldn’t come as a surprise because they are the – only slightly – implicit objectives of the policy.
Housing commentators are now routinely discussing the slow death of “social housing”. And while that death is not imminent, it is by no means hyperbole to anticipate that this is the ultimate outcome, if current policy directions persist. Some are even arguing that housing associations are no longer part of the solution to our housing problems but, by complying with the Government’s agenda, are becoming part of the problem.
The alternative is that housing associations turn their back on the affordable housing regime. Housing association Boards may conclude that the conditions attached to government subsidy are so onerous – fundamentally threaten the very essence of what the organisations were set up to achieve, not to mention the practical problem of seriously weakening their balance sheets – that they will not be bidding for funds.
If that were the case then it means that housing associations won’t be playing the role that Vince thinks they will.
Some will no doubt be of the view that the economisation of policy is doing real damage to society. Coalition housing policy is succumbing to the divisive and destructive nostrums of market fundamentalism. It is indisputably the case that policy ever more clearly displays the malign influence of the Policy Exchange.
Others consider that writing off problematic policy as “neoliberal” or “market fundamentalism” doesn’t, in itself, get you very far.
Either way, as I have blogged previously, housing policy discussion would benefit from more fundamental reflection. That is likely to be the route to more significant reorientation in policy thinking.
I was struck by a passage in a recent paper by Christine Whitehead. Christine argues that:
The biggest problem in the interface between economists and politicians lies in the fact that politicians like simple messages, while economists want to spell out the complexities. As a result, most of the messages that politicians argue they take from economics are wrong … [P]olicy-makers tend to argue that on economic grounds, demand-side subsidies are more effective than subsidising supply. This is true only under the most restrictive partial comparative static model, but has been central to the housing policy debate on income related vs. rent subsidies over the last 30 years.
This is a hugely important point. The economic justifications claimed for the principal thrust of rental housing policy over the last several decades are wrong. Or rather they are simplistic. Policy relies on simple textbook thinking, when more sophisticated institutionally-sensitive thinking is required. That is just as evident in some of the contemporary arguments originating from the Think Tank world. Arguments about idealised markets provide a veneer of respectability for arguments that are principally ideological.
Speaking of ideology, at the end of his discussion of housing Vince becomes rather more expansive and makes the following point:
But I fear that the problem is more than technical: it is a deep seated, almost ideological, attachment to property not just in a perfectly understandable wish by families to own their own home but as a speculative asset and as the main source of collateral for borrowing. It leads to the belief that rising house prices are a sign of prosperity when, in fact, they represent a neglect of enterprise and a diversion from productive activity.
This touches on a fundamental problem that we face. The problem is deep rooted and tenacious. But unless we can work out a way to tackle it the UK economy will not recover from the chronic sickness that ails it.
That is the profound challenge that policy needs to face up to.
Alex – interesting as always, but there is an issue about the definition of “social housing” that is causing confusion and only came to light after my latest blog about the affordable rent programme. The CLG website defines various housing terms under the heading “Social and affordable Housing”, including affordable rent, social rent etc. There is no definition of a thing called “social housing” on its own. However, section 68 of the Housing and Regeneration Act defines “social housing” as anything that has a sub market rent. Unless I have missed something, it seems that the official government definition of “social housing” is not just properties let at target rents but anything where the rent is less than 100% of market rent. The cynical part of me thinks that this level of obfuscation may be deliberate, because it renders meaningless any sensible discussion about housing facts and figures.
Thanks Colin. You are right, of course. We are in some senses paying the price for never having established a very clear understanding of the term ‘social housing’ prior to the arrival of the Coalition. The current government may argue that it is not seeking to redefine what constitutes social housing because it within the letter of the Housing and Regeneration Act. We could respond to that in several ways. We could argue that the blurring of boundaries and the process of redefinition was already under way under Labour. We could also argue that the definition as per the H&RA is not hugely illuminating because it does not lead to a very clearly identifiable group of properties (the idea of a submarket rent is pivotal and yet itself raises all sorts of issues).
“Or rather they are simplistic. Policy relies on simple textbook thinking, when more sophisticated institutionally-sensitive thinking is required” – I’d add socially sensitive too. Demand-side subsidies in the form of vouchers etc. (I’m thinking Moving to Opportunity) could be a way to create mixed communities (if that is what we want). But they would have to be designed properly to avoid disincentives to work and be more generous than housing benefit.
Or we could just tackle income inequality so social housing wasn’t so residualised…