IEA Blog

David Cameron has stated that his government will consider ending security of tenure for social-housing tenants. Those tenants who were in employment would be “encouraged” to rent in the private sector or to buy, so freeing up a scarce resource for those in severe housing need. Such a policy would bring social housing into line with the private rented sector where assured shorthold tenancies are the norm.

Currently social housing is means-tested only at the point of entry, and this means that a lucky few can receive a tenancy for life regardless of how their circumstances might change. However, time-limiting tenancies means that households can be means-tested at regular intervals (perhaps every three or five years). If their income is above a certain threshold their tenancy would not be renewed. A less punitive scheme would be to offer incentives for a household to leave, such as helping with a deposit to purchase a dwelling.

The idea of time-limited tenancies is not, however, a new one. It has been around for a number of years and Ruth Kelly was apparently very keen on the idea when she was Secretary of State at DCLG in 2007. New Labour saw this a means of helping the homeless without the huge outlay of building new social housing. But, as with many policies, changes in ministers and the dead hand of Gordon Brown put paid to it.

Whilst the idea has some attraction, especially with over 1.5 million households on housing waiting lists, it does have a number of problems. In particular, it runs completely counter to the government’s welfare to work agenda: time-limited tenancies mean that households would have to leave when they find work to be replaced by workless households. This would massively increase their housing costs and perhaps encourage them back onto handouts. A social tenancy would remain for life only if you stayed poor and on benefits.

Second, we should consider the impact that the policy might have on social housing estates. As Iain Duncan Smith argued last week, there are certain estates in Britain that are work-free zones, inhabited by families who have not been in employment for several generations. The policy of time-limited tenancies will institutionalise this and ensure that an even larger percentage of tenants are dependent solely on benefits.

Third, the policy contradicts policies aimed at encouraging shared ownership and key worker housing funded by housing associations. It would seem perverse to insist that working tenants leave their dwelling, whilst allowing nurses, teachers and policemen to become part-tenants of social housing.

More sensible, as I argued in my IEA monograph in 2006, would be a common tenancy for all rented housing – private and social – with financial support offered to households and not landlords. This reform could be quite readily tied into the DWP’s proposed unified benefit system and allow for proper competition between landlords instead of the collusion that exists at present where social rents can be set according to government targets and not based on the market. Imposing time-limited tenancies on the social sector without undertaking more fundamental reforms would be counterproductive.

Even Margaret Thatcher didn’t manage to dismantle Britain’s disastrous welfare system. Judging by the policy plans of the Lib-Con coalition, there is little reason to be optimistic that today’s leaders will be any more successful. The timid proposals on welfare are little more than an expansion of existing failed programmes.

It is unsurprising that welfare reform has presented such a problem for successive governments. The six million working-age adults who now receive out-of-work benefits – plus millions more over-60s receiving generous pension credits – comprise a large voting bloc. Labour would have risked losing its core support had it attacked benefit dependency.

Within the new administration, the rebranded, centrist Conservative Party will be wary of implementing policies perceived (wrongly) as an attack on the poor, while any major changes could face strong opposition from the Liberal Democrats’ hard-socialist Left.

Nevertheless, the dire state of the public finances means the Government will have little choice but to make substantial cuts in welfare expenditure…

Read the full article in The Daily Telegraph.

Classical liberals, and many Conservatives, will tend to take a dim view of government intervention, but should they be equally dismissive of all government action?

Take a couple of examples from housing policy. First, social housing is funded in part by government subsidy and is allocated to those households that are considered vulnerable and in greatest need. However, because of their vulnerability they are deemed to need continuous support to maintain their tenancy. And of course, they are likely to be out of work and so are eligible for Housing Benefit to fund their rent. So the majority of social housing tenants receive a subsidised tenancy and a further subsidy to pay their rent, all backed up by a support system of housing professionals. So, even though their housing need is fulfilled by the granting of a tenancy, these households remain dependent on continuous support.

Second, the Right to Buy allowed social tenants to purchase their existing dwelling at a discount that depended on their length of tenancy. After a number of years they may sell the dwelling and keep any capital gain. In many cases this provided a considerable financial benefit to households. However, the key point about Right-to-Buy discounts is that this subsidy is a one-off: once they receive it households can no longer claim any state support for their housing costs and are expected to maintain the dwelling themselves. The result in this case is independence and heightened personal responsibility. They are given initial support, but after that they sink or swim on their own.

I would argue that the Right to Buy was a thoroughly benign form of state intervention that created greater freedom and independence rather than tying households permanently to state support. Perhaps we should see this as the model for how a newly elected Conservative government should act: they should seek to develop forms of support that make a permanent difference through a specific limited intervention.

Peter King’s new book, Housing Policy Transformed: The Right to Buy and The Desire to Own, will be launched at the IEA tonight. Click here for details of the event.

A couple of weeks ago I took part in a debate on the housing opportunities for young people hosted by BBC Radio Leicester. The young people there were very aware of the issues of affordability and shortage and, quite naturally, wanted answers from the assembled experts.

Many of the young people prefaced their questions with phrases such as “When I buy…” or “How can I buy…”, and I must admit I didn’t particularly notice this until it was pointed out by one of the panel. From that moment on, however, the discussion was turned into a series of declarations on the virtues of social renting and the evils of owner occupation.

The audience of young people was told in no uncertain terms that they should not expect to buy their own home, but that rather they should live in social housing. They should be demanding that the government builds more rented housing rather than merely thinking about how they can afford to buy.

What struck me was the almost complete disjuncture between the aspirations of young people to own – even in a recession – and the attitude of housing professionals who saw their role as promoting social renting. Indeed, there was a sense of triumphalism from some of the adults in the audience that the housing market was in a state of collapse, and that finally people might stop “deluding” themselves that owning was a better option than social renting.

In normal circumstances one might be tempted just to ignore this view and see it as irrelevant. For the last 30 years academics have been barking on about the evils of owner occupation, and no one had taken any notice. But it struck me that, for the first time in a generation, this critique of owning might actually be listened to.

It is therefore very important for those who believe in the virtues of free markets and property rights to stand up and argue strongly for them and not give free run to those who see state intervention as the answer to our current problems. I found it immensely encouraging that these young people in Leicester assumed that they would buy, but in times like these they need to be told that they are right and not being selfish and unrealistic.

The whole issue of the legitimacy of government intervention in the housing market is particularly pertinent at the present moment. The government is flailing around trying to increase mortgage lending and mitigate the effects of falling house prices. This activity is pretty ineffectual and we are right to condemn it as social engineering.

Nevertheless, government intervention may not always be misguided. I’m currently half way through writing a book on the Right to Buy (RTB), the policy introduced in 1980 allowing council tenants to buy their dwelling at a discount. In many ways the RTB can be seen as one of the most successful policy interventions of the post-war period in that it actually achieved all of its main objectives, particularly the extension of owner occupation to working class households, the inculcation of personal responsibility and the reduction of state provision.

Over 2.2 million households have benefited from the RTB over the last 30 years and, despite some recent calls for its abolition from parts of the left, the policy seems unrepealable. Therefore it can certainly be seen as a success.

Yet, the RTB was itself a form of social engineering. It was a top-down policy imposed by central government on reluctant local councils. We might legitimately argue that the policy was popular, but does this justify the intervention? Is the RTB acceptable because of its outcomes, or because of the motives of the government which enacted it? Is it the type of intervention that matters, or should the RTB be seen as just as illegitimate as the Brown government’s mortgage rescue schemes?

The RTB clearly has transformed millions of people’s lives for the better. But this was because of government intervention. Perhaps, therefore, what we ought to be looking for is some means of determining which forms of government intervention work and which do not.

Peter King is the author of Choice and the End of Social Housing.

The government would have us believe that one way to help households struggling to gain access to the housing market is to build more social housing. This will also have the benefit, our Keynesian friends tell us, of boosting the economy through a healthy dose of government spending. In consequence, the government has brought forward spending for social housing with the ambition of increasing output in the short term.

Of course, this will do nothing of the sort: the short term doesn’t exist as far as housing production is concerned. It is rare for a housing association to get anything built in less than two years. But in any case, this attempt to kick start the housing market is based on some rather dodgy premises.

First, why should allocating funds to housing associations help the housing market? For most people on housing waiting lists owner occupation is not an alternative and most prospective first-time buyers would not be in priority need and so have no chance of a social tenancy. Therefore, whilst more people might be housed more quickly, this will not have any impact on the housing market.

Second, government grants only fund part of the development of social housing, the rest having to come from private investment. Yet housing associations, like everyone else, are finding it hard to borrow and are increasingly becoming concerned with their high existing debt levels and falling asset values. There could not be a worse time for a housing association to borrow more money.

There is a more fundamental problem, however, with this rush to build. Building more social housing risks creating even more centres of dependency and worklessness. We ought to have learnt by now that social housing is an experiment that has failed to improve the life chances of the poor.

Much better would be to start focusing on the individual needs of households and tailoring housing support accordingly. If we want to bolster the housing market what we need to do is to ensure everyone has access to it, not sit around for a couple of years waiting for housing associations to build more ghettos.