Housing in a Low Income Economy

Ignoring current threats, the UK economy has actually been performing quite well – certainly in comparison to most of our European neighbours.  GDP growth has been high for an OECD country, unemployment has dropped back and real wages have shown signs of increasing.  It is not a low income economy if you are a senior politician, CEO of a major firm or a local authority, a banker or even a senior manager in a housing association.  However, there are still a lot of people on low incomes and the Chancellor himself has accepted that this is a problem with his proposal for a new National Living Wage.  It therefore seems perverse that housing policy should do so little for people on low incomes.

The Conservative Government’s housing policy focuses almost exclusively on measures to boost home ownership.  The “sink estates” initiative is an under-funded exception that will do nothing to expand the amount of housing available to people on low incomes.  Help to Buy, the flagship Starter Homes programme and the Right to Buy extension are all about home ownership.  This policy bias ignores the fact that there will always be people for whom home ownership is an unachievable dream.  Even in relatively low house price areas many people cannot realistically aspire to home ownership.  As well as low incomes, people often have variable or unreliable incomes.  They can be on short term or zero hours contracts.   Worthy though it might be, the new National Living Wage will never solve this problem.

Looked at historically, people on the lowest wages in the UK have always been unable to afford decent housing.  This was the root cause of nineteenth century slum housing with society’s responses being the early public health acts and building by the big housing charities.  The first council housing followed with major building peaks in the inter-war years and after World War II.  The reality is that providing decent housing for people on low incomes requires subsidy because income levels do not cover the economic cost.  Subsidy can come from charitable sources, capital grant for council building, housing association grant or social housing grant, to a lesser extent from “affordable housing grant”, or from cross-subsidy measures such as the S106 planning gain system.

In recent years the biggest subsidy has been directly to tenants’ rental costs through Housing Benefit.  Both Labour and Conservative Governments “let the rent take the strain” – encouraging inflation in both private and social rents – with the result that the Housing Benefit bill became unsustainable.  It is arguable – and ironic – that the most cost-effective and economical form of public subsidy in the long term is direct capital grant either to councils or to housing associations.

So a balanced housing policy – with something in it to help people on really low incomes – would include a major programme of constructing social housing for rent.  And there is another irony here in that it is also the route for the Chancellor to achieve his desired level of increased house building.  Relying on the private house builders alone is not enough.  They are building to the market and it is not in their interests to boost production significantly at the lower end of the price range.  The Government’s planning reforms prove this point – there is now plenty of land approved for housing but construction rates have not matched the increase in land availability.

It is probably too much to expect from this Chancellor that he will announce a major programme of social housing for rent in his 16 March Budget, but if he really wanted to boost construction, and if he really wanted a balanced housing policy that would help people across the incomes spectrum, he would do so.

Kim Penfold
February 2016