The housing crisis is getting worse – time for the coalition to rethink its strategy

Tom Muddimer examines whether a living wage and changes to council tax valuations would mitigate the worst effects of the housing crisis.

 

A recent study by the London School of Economics (LSE) found house rental prices were soaring above inflation and wages – reducing household disposable income – and representing a formidable hurdle to the UK’s economic recovery from the financial crisis.

To many, this will not come as a surprise. Our private rental sector is the most unregulated in Europe, with rents amongst the highest in a context of wage stagflation.

Standard contracts last only a year, allowing landlords to arbitrarily hike the rent they demand annually. Housing maintenance and general conditions are not monitored sufficiently by local councils, leaving tenants at the disposal of landlords when repairs are needed.

Anybody can start a letting agency in their sitting room, or in my direct experience a garage, and demand fees from both tenants and landlords. They act as brokers, profiting from a stagnant housing market, driving up prices and the fees they accrue as a result.

Landlords are increasingly seeking maximising the space in their existing properties, converting lofts and turning what might have once have been a three-bedroom house with a box room into a four bedroom house. The poorest tenants are often forced to convert their living room into an additional bedroom to lower the average rent per tenant.

The minimum space standards of affordable homes, even luxury housing and the infamous Unite student halls of residence are far below the minimum space requirements for dockworker housing the 1960s; living space is increasingly becoming a class issue.

The disparities between wages and rents are particularly acute in London where the financial sector and the creative industries distort local prices, providing decent wages for the minority of those directly employed in it, but little to anybody else.  The current struggles for the Living Wage by the outsourced cleaners at the French bank Société Générale show those working at the bottom of these sectors face profound difficulties in earning a fair wage amongst London’s grossly inflated prices.

Local councils, on the other hand, have been left with few powers to regulate the private rental sector and few resources to regulate it in the interests of the poorest.

Councils have been rendered impotent by the Conservatives’ aggressive localism agenda that forces them to be ‘creative’ in their centrally enforced fiscal retrenchment strategies – but are the democratic mechanisms in place to decide how this is done?

Do councils have the power to impose council tax increases for the most expensive homes, based not on the current archaic 1991 property value references, but on a new system that is able to account for houses worth considerably more than the current top Band H (£320, 000 at 1991 prices) – perhaps it could additionally be tied to income?

Why is taxation based only on property at the council level and income at the national level?

Councils need the ability to capture the heterogeneity of both housing and labour markets – it would allow them to differentiate between, say, a Sheikh’s penthouse in Marylebone and a General Practitioner’s semi-detached townhouse in Norwich and say half a dozen minimum wage earners sharing a six-bedroom house in Peckham and an advertising executive in a similar property in Camberwell.

There is of course the need for a much-needed new wave of council housing to help some of today’s working poor – checkout assistants, call-centre workers, cleaners and bartenders to name just some. This would, at the same time, cut through the power of unscrupulous landlords and create competition in the housing market.

The coalition is right that the cost of Housing Benefit is spiralling out of control: in 1997/98 its total cost was £11.2 billion; today it is around £20 billion and rising. It is important to remember, though, that this is a subsidy for landlords not tenants – a form of socialism for the rich.

The government, on the other hand, seem more concerned with the state ‘institutions’ that artificially inflate the rental market, and as a policy response, have implemented a new Housing Benefit cap to counteract this. They have imposed restrictions on the weakest actors in the housing market – the poorest tenants. You would have to be a flying pig in the Tory party to believe such an act will reduce the rent tenants pay.

The coalition’s attempts to install dynamism in the housing market have revolved around the policy mantra of affordable homes. However, this is based on a very dubious and ideological conception of who the poor are.

Who exactly are these affordable to?

Couples each earning the UK’s average wage and the rest of today’s deserving poor?

What about the poorest, for example single parents earning considerably less than the average wage? They are likely to spend a considerable part of their lives in the private rental sector along with many others.

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12 Responses to “The housing crisis is getting worse – time for the coalition to rethink its strategy”

  1. Nick

    Hint.

    If you allow uncontrolled migration, then you will get a housing shortage.

    If you take people 50% of their earnings, you shouldn’t be surprised when they can’t afford rent or to buy.

    When you end up subsidising 44% of the population, because they can’t afford essentials (because of all that tax), don’t be surprised when the HB rockets.

    When you paid out 104,000 a year to some people on HB, it’s not surprising youv’e run up debts.

  2. Rahul Kamath

    There is so much economic illiteracy in this article, one doesn’t know where to begin. Top tip – HB is not socialism for rich landlords. The person receiving the subsidy is not necessarily the person benefitting from it. Its the same argument as taxation, the person the tax is charged to is not necessarily the person who pays.

  3. Carol Wilcox

    Please advertise this from the Labour Land Campaign http://www.labourland.org/the_campaign/hoco2012.php. Conference on 14 November: A Permanent Solution to the Permanent Housing Crisis?

  4. Carol Wilcox

    The Labour Land Campaign believes that the collection of all land rent for public benefit would reduce the price of houses to the price of the physical structure, eliminating the land/location element. That would stop land banking, forcing the developers to get on with building or giving up ownership of land mightily reduced in selling price (but not rental value!). This would enable local authorities to have access to loads of land on which to build council houses. Not a panacea – but a big leap forward for affordable homes. (LVT has other major benefits for the economy and society – it’s time the Labour Party got back to its roots.)

  5. Newsbot9

    Yes, LB, get out. After all, enemies of this country like you under your own ideology shouldn’t be living here.

    50% of income? So you’re now claiming to live in a Nordic country? Typical.

    And it’s SO evil that the poor are allowed shelter, can’t be allowed in your world. It’s your economics which have reduced the value of wages so much, but they can just go die of course, it’s not like you see them as Human as you’ve said before…

    You’re all over the place, as usual!

  6. Newsbot9

    No, I’m sure when you’re as far out of touch from reality as you, you can’t begin to understand the article. Housing benefit is certainly socialism for the rich, your kind of slum landlord has got rich off providing poor quality accommodation for the maximum housing benefit.

  7. Newsbot9

    There are a lot of unanswered questions about a LVT.

    For example;

    * How will you deal with landlords passing it on to their tenants?
    * How would you deal with people currently exempt from council tax?
    * How will you deal with living areas above shops?

    And you want councils to have sweeping powers to claim land where the tax isn’t paid now?

    I remain completely unconvinced, when there are proven answers – council house building, rent caps and a tax on empty houses and empty brownfield sites.

  8. Big J

    depends what economic school of thought you adhere to, or how you were socialised to think. In my opinion the author of this article is an economic critic and not at all an illiterate. And in fact sees what many economists like to oversee. The status quo of patron-client relationships in the housing market needs to change for the benefit of the poor, since HB is not for the true poor… (that is the argument which really counts in this article)
    Change will only come about through struggles, a push for regulation of the market at hand, a recognition of who the poor really are (and that they are being kicked around), and empowering them to get their share of ‘decent living conditions’ in the housing market. I.e. introduce social housing. Sounds economically sound to me.

  9. Carol Wilcox

    So far as landlords’ ability to pass LVT on to tenants is concerned, the standard answer is: if landlords could charge more rent why don’t they do it now? In fact with the tax burden transferred to the landowner, and thus relieved of Council Tax, the tenant could afford to pay more to the landlord. But ultimately the market will determine how much the landlord can charge.

    Why assume that property tax relief would not continue? In fact, as well, LVT would produce such an enormous revenue stream that transitional relief could be very generous.

    As for councils claiming land where the tax is unpaid, in the case of undeveloped land, why on earth would this not be a good thing? In order for councils to build homes they need the land to start with – at present they have to fork out an arm and a leg to greedy landowners who have done absolutely nothing to create the value of the land they possess.

    You don’t buy a second-hand car and expect to sell it at a profit a few years down the line. Housing is a land issue and land is special – it is our common inheritance.

  10. Newsbot9

    Nonsense.

    LVT replaces council tax. Currently, Tenants pay council tax. The Landlord would have to pay LVT. He would thus pass it on, leading the OVERALL bill to tenants to vary according to the difference between LVT and council tax.

    “Why assume that property tax relief would not continue?”

    Because every proposal I’ve seen ends it, perhaps?

    “why on earth would this not be a good thing?”

    No potential for abuse. At all. No.

    And you’re making my case for me, that we shouldn’t leap before ALL the questions are answered. You didn’t answer the one about living above a shop…EVERY LVT proposal I’ve seen would nearly double my rent, despite the fact I’m nothing to do with the shop owners!

    Moreover, the mythical “raise” in revenue is where? Ah right, it’s hitting poor tenants and destroying shop operating margins. Not to mention ending production on a lot of farmland.

  11. Carol Wilcox

    Flats above shops – the owner would be charged LVT on the land as residential for the flat and the land as commercial for the shop – just as now the shop incurs business rates and the flat Council Tax.

    I guess you are entirely happy that the occupant of the most expensive flat in the world at Number One Park Lane pay the same Council Tax as a family in an ordinary 3 bed semi oop north. Under LVT he would pay something of the order of £5m a year.

    How do you think a tenant farmer copes with paying his LVT (the land rent) to the landowner?

    “Why assume that property tax relief would not continue?”

    Because every proposal I’ve seen ends it, perhaps?”

    Show me such a proposal – I know not one.

  12. Newsbot9

    Except that is entirely different to the published proposals, which simply classify it as “commercial” because we have a shared entrance at the back, before their and our doors.

    You keep on trying to attitude of my a desire to protect the rich rich when you are trying to have me unable to afford my current accommodation. Your trying to take a lot of houses off the rental market puts the shoe on the other foot.

    And you haven’t read the major proposals then – they deal with the owners, not the tenants. They don’t consider the tenants, or the various tax relief’s for the poor in rented housing.

    Again, while the bill per-se might not change much for many, the way the bill is presented (entirely from the landlord) will require a very different approach to benefits if you’re not to see mass evictions too.

    (And that’s before you consider the way in which English/Welsh law virtually forces landlords to evict tenants before they can sell the house…)

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