Who should build our houses?

Why should the government loan money to small construction firms that build homes (at a profit)? Could this money be used in a different way to supports the development of a not for profit building industry?

These questions are prompted by the government’s decision to set aside £500 million to create a ‘Builder’s Finance Fund‘ in a desperate attempt to increase the number of houses that are built in the UK. We are still waiting for more details but it seems that the government will lend money to small and medium sized house builders.

This idea has wide support in policy circles, and has been broadly endorsed by the Labour Party and by Shelter but it is a limited idea with many downsides. 

It comes from the undoubtedly true twin observations that we are not building enough homes and that the construction industry is increasingly dominated by a small number of large house builders. These two facts are linked. These large house builders do not currently seem to be inclined to dramatically increase production.

Given this situation you can see why the government would want to create more competition between house builders. Hence today’s announcement.

This is a missed opportunity. The government could have used this moment to signal that they would support a different type of house builder. Not just small builders but value based builders.

Rather than giving cheap loans to small private house builders, the government could be doing much more to support not for profit construction companies such as housing associations or council owned construction companies (such as the one recently established by Newham council). 

Instead we are left with yet more state support for private industry.

Social housing in the UK: a Rolls-Royce achievement

Social housing in the UK is a Rolls-Royce achievement. There are a substantial number of houses and flats in the UK that are warm, have low rent and are often rented out to people with long term illnesses or who live in poverty.

Compare to other European countries the UK has a good number of social housing units

You may have read about the dramatic reduction in the amount of social housing in the UK. This has certainly happened. But there are still a substantial number number of units of social housing in this UK, especially if you compare us with other European countries.


Social housing has low rents

On average these units are rented out at £83 per week, exactly half of the average for private rented accommodation. (Among those receiving housing benefit, private renters received an average weekly housing benefit payment of £115, whereas social renters received £73).

Social housing provides stability for tenants

44% of tenants in social housing have lived in same place for more than 10 years, something only 9% of private renters can say.

Most people who rent social housing are satisfied with their accommodation

84% of housing association renters and 80% of local authority renters were either very or slightly satisfied with their accommodation,

Social housing is  less likely to be damp or ‘non-decent’ than private rented accommodationchart1 (1)

Social housing benefits people with long term illnesses or who live in poverty

Social housing in the UK means low rents, secure tenancies and accommodation that general meets a decent standard. This benefits the many people who rent from housing associations or local authorities who live in poverty or who have a long term illness.

chart1 (2)

The benefits of housing benefit

I feel the same way about housing benefit that Millwall fans feel about their football club, no one likes it and I don’t care.

On the left wing of politics housing benefit is called “‘taxpayers’ subsidies to landlords” while the right talk about how spending on housing benefit is ‘out of control‘.

Despite arguments by some, the fact is that housing benefit is here to stay. Because;

  • It stops people who lose their jobs from being evicted
  • It pays for the rent of people who rely on state pension or disability benefits for income
  • It funds a big chunk of the cost of building new social housing (because housing associations or councils borrow for part of the cost of this housing against future rents, which partly come from housing benefit)

Perhaps most importantly, the reason house benefit is hear to stay is because it accounts for a significant proportion of the income of poorer households.

This chart shows the percentage of poorer people’s income that comes from housing benefit;

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You might say that housing benefit isn’t really income because it goes to the landlord. This doesn’t really make any sense. It’s like saying my wage isn’t really income because it pays for my mortgage. People are getting something for this money.

None of this is to say that the current housing benefit system is perfect. Far from it. Just look at this chart which shows how much, on average, poorer people pay on rent even after housing benefit is taken into account;

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‘Net rent’ (ie rent costs on top of the amount paid for by housing benefit) still accounts for over 10% of the incomes of poorer people.

There are a number of problems with the current housing benefit system, including;

1. Low take up

In 2009 to 2010, the number of people that were entitled to but not claiming Housing Benefit was between 0.75 million and 1.14 million. The total amount of Housing Benefit unclaimed was between £1.85 billion and £3.10 billion.

2. Stigma

In a recent survey, 4 out of 5 landlords said they would not accept tenants who receive housing benefit. This gives even more power to landlords who do have tenants on housing benefit, because they know their tenants are not going to be able to easily shop around.

3. Paid in arrears

Like most benefits, housing benefit is paid in arrears. This can cause problems for tenants, especially if there are any delays or complications, if they can’t afford a deposit or if any other of the number of things that can go wrong with administration of a complex benefit go wrong.

These problems with housing benefit are not being addressed in contemporary political debate because housing benefit is so unloved. Perhaps it’s time to change that, for example by proposing a ‘basic income‘ for all citizens.

Kirby’s cunning plan

Paul Kirby, former head of the No 10 policy unit claims to have come up with a simple idea to solve the housing crisis


In essence he says we should start building social housing with a grant of £50,000 per unit. HMT would recoup this outlaw by insisting that any social housing that becomes vacant is sold on the open market. Kirby estimates that each unit will go for £120,000 per unit.

It sounds like a win-win with more housing being built and more money for the government to build garden cities and other goodies.

From another way of looking at it, this is a deficit financed growth strategy.

Kirby is probably right to say that you can build a new social housing unit for £50,000 per unit. The reason that this is possible is because the housing association or council that build the unit borrow the rest of the money, on the basis that they will pay back the loan from rents.

Council housing debt is certainly a form of government debt. Housing association debt is probably a form of government debt, since, ultimately, the government would stand behind housing associations if they were threatened with insolvency.

(It is also worth noting that much of the money for the rents will be paid for through housing benefit.)

This is the first way that Kirby’s plan is financed through deficit spending. The second way is contained in the idea that you would ‘build the new houses quicker than the old ones are sold off’. Kirby explicitly says that this means a Treasury ‘guarantee’ of £240 billion. ‘Guarantee’ here in effect means spending money that the government does not currently have but will have in the future. This is another way of saying deficit financing.

Perhaps there is nothing wrong with housing associations, councils and central government borrowing money now to build housing given that interest rates are low and there is lots of slack in the construction industry.
However, this form of deficit financed growth strategy is precisely the approach that the coalition government has rejected.

There’s room for everyone but will everyone benefit?

There are more and more people living in inner London. Some residents are benefiting more than others from this trend. The principle question this raises for public policy is how to ensure that any new wealth that is created is shared more equally.

You might be surprised to hear that the population of inner London is increasing. Surely the poor and those on middle incomes are being priced out by foreign billionaires! Some articles on this topic remind me of the old joke about New York, no one drives, there are too many cars.

Robbie de Santos‘s piece for Changing London is too nuanced to fall into this trap. In it he argues that, in rapidly gentrifying areas, more should be done to provide housing that households on £30-45,000 per year can afford.

Dave Hill at the Guardian has already pointed out that it might be controversial to argue for increasing spending on shared ownership housing when the amount being spent on social housing has been cut so dramatically.

In addition to this we need to remember that the population of inner London is increasing. As a result there are now actually more people on middle incomes living in inner London than previously.

This chart (all data from the 2001 and 2011 census) shows the significant increase in the number of people in ‘intermediate occupations’ living in a few inner London boroughs.



Here is a similar chart for people in ‘higher managerial’ jobs;

chart6Here is a similar chart for people in ‘routine’ jobs



This is what the overall picture looks like.



Although some people on middle incomes may be being priced out of inner London, overall the number of people on middle incomes living in inner London is increasing, as is the number of people on high incomes, and on low incomes.

How is the increased population of inner London being housed? Robbie will be glad to see that there has been an increase in the numbers living in shared ownership, although this still accounts for a very small number of people.

chart2 (3)


There has certainly not been a general increase in the number of people who own their own home (although those that do have, on paper, in general made a lot of money).

chart1 (10)


And there has been a noticeable and much commented upon decrease in the number of people who rent from housing associations or local authorities.

chart3 (1)


Most importantly, there has been a dramatic increase in the number of people who rent privately (lots of these will be houses that have been split into flats).

chart4 (1)


This chart puts the rise in private renting into perspective.

chart5 (2)


The story then is not so much that people on middle incomes are being prices out of the inner London boroughs (although some may be and more may be being priced out of certain neighbourhoods within these boroughs).

In fact, there are more people on middle incomes living in the inner London boroughs but they are more likely to being renting privately than people on similar incomes would have been a decade ago. This means that rising house prices do not benefit them and in fact probably harm them, since their rents go up.

Robbie’s argument is not only that people on middle incomes are increasingly being priced out, but also that this has a negative impact on community life and the diversity of businesses in an area. This is an interesting argument. I am not sure that the splits between tenures by itself, can guarantee much about community life, which is as much a result of interaction and institutions as it is a result of population composition.

However, if we look that the situation in terms of how the new wealth that has been created by the increased population can be shared more fairly perhaps we get different answers (some earlier thoughts from me on a related topic can be found here). For example, we might start thinking about how newly built houses can be part of community land trusts, so that increased housing wealth is invested in the community and does not just go into the hands of the owners. Similarly, there may be a case for more flexible local property taxes and co-operative ownership of local businesses.

Who knows how long the current increase in population in inner London will last. As long as it does the key questions are how we can build enough houses so that rents do not force people into poverty and overcrowding and how we can spread the newly created wealth so that everyone, not just home owners, benefit.


7 Ways in which housing causes poverty

1. The high cost of housing in the UK puts millions of people into poverty each year.

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2. This is a big problem in London but it also affects people in all parts of the UK

Screen Shot 2013-12-11 at 9.24.39 PM

3. People of all races are in poverty because of housing costs but ethnic minorities are particularly badly affected 

Screen Shot 2013-12-11 at 9.23.57 PM

4. People in all types of households are in poverty because of the cost of housing, but single parent families are particularly badly affected

Screen Shot 2013-12-11 at 9.24.26 PM

5. Many working age disabled people are in poverty because of the cost of housing, unlike disabled pensioners who are less likely to be in poverty once housing costs are taken into account

Screen Shot 2013-12-11 at 9.23.26 PM

6. In fact, in general fewer pensioners are in poverty thanks to the housing system

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7. Many people who rent are put into poverty by the cost of their housing. 

Screen Shot 2013-12-11 at 9.24.54 PM


Details on methodology can be found here, data can be found here

Gentrification is not for everyone

Something, like nothing, happens anywhere, Larkin once wrote.

He wasn’t writing about gentrification but perhaps the sentiment applies.

Many writers are tempted to suggest that examples of gentrification and displacement in certain London neighbourhoods tells us a lot about what is happening throughout London.

For a classic example of this genre see this recent piece in the NewStateman.

A recent piece in The Atlantic makes quite a different argument, claiming that in 22 of the 55 biggest cities in America, including San Diego, Charlotte, Buffalo, Pittsburgh and Detroit, gentrification affected 5 or less percent of all neighbourhoods.

What’s the situation in London? How widespread is gentrification?

Here is a map of London in 2011. Neighbourhoods that are dark red have a higher percentage of residents that work in routine or semi-routine occupations (all data from the census).


Here is a map of London in 2001.


The picture is pretty clear. In large parts of East and West London and parts of North and South London there are lots of neighbourhoods where a large number of people work in routine or semi-routine jobs.

However, in inner London, near the Thames and to the West, there are neighbourhoods in which there are very few residents who work in routine jobs.

In contrast, here is a map of London in 2011. The neighbourhoods that are coloured darker blue are home to a higher percentage of residents that work in senior management positions.


Here is a map of London in 2001.


Again, the picture is pretty clear.  In Inner West London and bit of suburbs in the North and South there are neighbourhoods in which there are quite a high percentage of residents who work as senior managers. In large parts of East and West London there are numerous neighbourhoods in which very few residents work in senior management positions.

In both cases, what is striking is not an image of constant change but of continuity.

So what? It’s probably no surprise to anyone that Barking and Dagenham has lots of residents that work in routine jobs and Kensington & Chelsea has lots of senior managers.

A few observations follow;

  • Even if you believe that attracting new rich residents to your neighbourhood is the best way of regenerating it, ultimately this strategy cannot work for most neighbourhoods in London because there simply aren’t enough rich people to go round.
  • Gentrification is a curious mixture of the global and the local. International developments such as the march of the knowledge economy interact with specific neighbourhood traits such as transport infrastructure. This probably means that well resourced Local Authorities are best positioned to be the principle public agency that manages the process of gentrification (not national or city government) and to ensure that any wealth created can be shared equally.
  • Perhaps most importantly, we need strategies of neighbourhood improvement and community development that rely on building on the strengths in working class neighbourhoods since these will always be a large part of London life.