The inequality at the heart of the housing crisis

A new study by the LSE highlights systemic inequality in the housing crisis.

 

A recent study by the London School of Economics has found average house rent prices bear little relation to average wages. Crucially the dataset focuses on average London Wages and London Rents.

House prices are likely to be particularly irrelevant to the poorest; it is the price of rent they pay that is the crucial indicator when we speak of poor people’s experienced realities of housing markets. However, we are able to learn little about the disparity between the wages of the poorest and rent increases they face.


The data fails to highlight significant heterogeneity in both labour and housing markets; as a result, the data grossly underestimates the effect of rent increases on the poor where the use of average wages aggregates highly variable wage rates. To make this clearer, the wages of someone working in the financial sector have been aggregated with a checkout assistant in Tesco.

If rent increases are hurting average wage earners, they are hurting the poorest wage earners considerably more.

Increasing rents and gentrification are forcing the poorest private-sector tenants and those on housing benefit out of their homes if they can’t extend their working week to cover the extra costs.  High rents can also encourage sub-letting, a trend that leaves would be sub-letters without a social safety net, as their names do not appear on the original contracts.

From the start, landlords are able to demand less than five names on a contract in order to avoid paying a House of Multiple Occupancy Licence, leaving the remaining tenants vulnerable and exempt from housing benefit.

Welfare structures have failed to keep pace with the dynamics and contemporary realities of today’s rental market. Affordable homes will no doubt help some of today’s poor, however their effect on poverty reduction is likely to be negligible as they are unlikely to create sufficient dynamism in the housing market, nor improve the lives of the poorest in the private rental sector.

Only the state has the ability to cut through the power of landlords and Barratt Homes.

The effect of rent prices on labour markets remains resoundingly under-researched. High rents place unnecessary pressure on labour markets, forcing people to work longer hours to pay for, amongst over things, rent increases, reducing the availability of work for others. Where does the money go? To an unproductive set of landlords who profit from a stagnant housing market and fail to reinvest in new stock, nor the maintenance of their existing houses.

Greater regulation, such as the enforcement of energy saving devices, could provide an economic boost to the construction industry and reduce the vulnerability of the poorest tenants to usurious energy companies. If a landlord tax would simply be transferred to the prices tenants pay, the implementation of rent caps would place more money in their pockets.

Rent increases could be tied to the minimum wage, ensuring increases are in the interests of the poorest, whilst perhaps at the same time providing an incentive to implement the Living Wage.

Where can the money be found to invest in new council housing? You only have to look at the not-so-transparent highly profitable and exploitative relationship between tenant and landlord. If this could be tapped into, the much-needed cash for investment in new housing stock could be found. Poor people are not only exploited in the workplace, they are exploited through their consumption too.

The money exists for change – you only have to look at the exploitative relations of production and consumption. This is where the money for new policy manoeuvres can be found. Declining real wages for the working poor; increasing real prices (plus higher taxes for them where VAT hurts them harder); lower taxes for the wealthy (reduction in the top rate of tax); increasing housing, energy, food and transport prices. The poor and the not-so-poor are being hurt from all angles.

There exists a wealth of policy options available to the government that won’t hurt the poorest. This has to start with a decent and non-ideological conception of the poor. The policy options however, will not come from the current coalition government, but the protests and struggles that have marked and will continue to mark the financial crisis.

6 Responses to “The inequality at the heart of the housing crisis”

  1. LB

    1. It was the state, Clinton, who insisted on forcing banks to lend to the poor to buy houses they couldn’t afford.

    When they failed to repay, it all went tits up.

    Solution, stop taxing the poor, and then they can afford to spend more on housing.

    2. Regulation. Stop regulating, and the cost of new housing falls.

    3. The money exists for change.

    Only in your dreams. Remember all that fraudulent accounting. Pensions for the poor not on the books. The Post Office pension fund. Taken, spent. Where’s the debt? Ah yes, magic. It’s disappeared. Not on the books. A nice little fraud if ever there was one, perpertrated by the state.

    The state is bankrupt. You need to take your head out of your postierier and wake up.

  2. LB

    And then of course, as usual, supply is the issue, but we can’t talk about demand.

    Let in millions of poor migrants, and its not surprising they compete for living space.

    Declining real wages? Yep I’m with you on that one. What’s the cause? Yep More taxes. Why more taxes? The state’s got a debt to pay, a debt that’s been hidden off the books, so we have to tax everyone to keep those ‘key workers’ earning their dosh.

  3. Tom Muddimer

    It’s more than a case of taxation. The poorest workers have seen declining real incomes. The minimum wage (for those above the age of 21) increased by less than the rate of inflation. Real prices are increasing (energy, housing, food etc.); in real terms, wages are very much in decline. Take supermarkets which are able to profit from increasing food prices, also the largest employment sector outside the NHS, yet they pay the most abysmal wages and command the highest profits. A friend of mine interviewed the head of the British Retail Consortium (which represents them) and asked if low wages were hindering economic recovery; he agreed. This is the representative of the largest employer outside the NHS agreeing that wages are too low – yet they can easily afford to pay substantially higher wages.

    We’ve had a regressive tax rate on the wealthiest since Thatcher, which was compiled under Major and Blair and cut recently by Cameron. Finance is harder to tax than manufacturing as it has a very loose ‘production’ base. The state has certainly seen its income decline. Companies are also sitting on vast quantities of wealth, doing nothing productive with their cash.

    I agree tax on the poorest is too high – take VAT – a tax widely known to hit the poor hardest as they spend a large proportion of their income on consumables. My point however is that there are some not so transparent modes of exploitation at the moment, not only in the workplace, but in the private rental sector.

  4. Newsbot9

    House rental prices track the overall economy quite well, though. And as is well known, rents have fallen as a share of the economy since the 1970’s. That’s before we talk about housing benefit, which is now only changed once per year with the inflation measure which specifically *excludes* housing.

  5. Newsbot9

    As ever, racist xenophobia is easier than dealing with reality. The fact is, even if you got your way and killed every immigrant, we’d still have a critical housing shortage.

    The figures are right there, YOUR plan is not to pay them so you can keep the corporate welfare gravy train running.

  6. Newsbot9

    So you’re bankrupt, as a politician? Yes, morally and economically. You should be fired, yes!

    The figures are on the books, you’re simply planning on not paying them so you can keep living a life of luxury. We can’t afford NOT to invest in council houses in reality, since the damage you have caused to the economy has already eclipsed the cost of doing so, and will continue to rise!

    And no, paving over the green belt for your luxury homes for the rich isn’t the answer. Neither is ending housing benefit and giving the poor a penny off income tax, and laughing as they start building India-type slums.

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