Housing quality and equality

Is it possible to improve the quality of housing for people on low incomes in an unequal society?

That might be a strange question but the case of the Decent Homes Standard shows how hard it actually is to improve the quality of social housing when society is unequal.

The Decent Homes Standard was introduced in 2000 as a way of ensuring that all social housing in the UK was up to a certain quality.

It cost somewhere between £19 billion and £37 billion and was, by its own standards, a success.

Here is a chart showing, over time, the percentage of houses owned by local authorities or housing associations that met the standard.

chart1 (8)

 

As a result of a significant investment of public funds many people had new kitchens and bathrooms and other improvements made to their homes.

You might expect that people who live in social housing would be much more satisfied with their housing as a result of this investment, but you would be wrong.

Here is a chart showing how satisfied people were, over time, with their accommodation.

Screen Shot 2013-08-27 at 10.53.11 PM

 

We can see that there was no noticeable increase in the number of people living in social housing who said that they were satisfied with their accommodation.

Why might this be? One reason is inequality.

If a government spends public money improving the quality of social housing, this doesn’t stop middle class people who own their own homes spending their own money (or their parents money) improving their homes.

In fact, it is conceivable that public investment in social housing might encourage middle class people to spend even more money on their homes, to make sure that their homes remain of a higher quality than social housing.

Housing is, to an extent, a ‘positional good‘, a lot of the value of a house comes not from some objective measure of it’s worth, but through a comparison with other houses. It gives people little satisfaction to look at their kitchen and to think that it is much better than the kitchen their grandparents had, when their neighbours have a nicer kitchen still.

We all know the phrase ‘keeping up with the Joneses’. It might just be that it is impossible for public investment in social housing to keep up with the Joneses, when the Joneses are so much richer than those on low incomes.

What’s wrong with rising house prices?

The government’s ‘Help to Buy’ scheme could raise house prices by 20% in the next couple of years, according to a report by Fathom Consultancy.

This is not being heralded as good news by everyone (although The Express has followed its time honoured tradition of solely reporting on speculation about house prices with a very positive story)

But why would it be a bad thing for house prices to go up? We don’t worry so much when share prices go up, why are house prices any different?

Three of the most important reasons for concern about booming house prices are;

  • It could be a bubble followed by a housing crash leaving people in ‘negative equity’

  • Rising house prices can make it harder for first time buyers to afford to buy (especially if they do not have help from the bank of mum and dad)

  • Less commented on, but still important, richer people might benefit disproportionately from rising house prices since they own more property wealth than the rest of us

So, as Lenin famously once said, what is to be done?

There is a healthy debate in think-tank land about so-called ‘de-coupling’, the idea that as the economy grows middle and low income people do not benefit because their wages do not keep up. This has lead to proposals such as living wage zones and representation of low paid workers on remuneration committees.

Perhaps we need a similar debate around how we can ensure that everyone benefits from rising house prices.

This could involve ways of re-distributing housing wealth including;

A land value tax

– A ‘mansion tax

– Or even more technical reforms of how we tax land and property which can be found in the Mirrelees Review

The money that these measures raise could then in turn be used to benefit those who do not have the good fortune of owning expensive properties that have gone up in value.

This could happen, for example, through;

– Funding a programme of housing associations or council built starter homes

– Funding part of the state pension as it becomes increasingly contributory

– Paying for part of a new universal adult social care system

Of course, as with so many questions of public policy, there is a possibility that any attempt to both take the heat out of the housing market and distribute gains more fairly, could be self defeating if they dampen the market too much.

However, this does not take away from the principle, that, currently, wealthy people disproportionately benefit from rising house prices and that we need to think about how we create a system in which more and more people, especially those on low and middle incomes, can benefit.

Housing wealth

There has been lots of discussion recently about how much more the ‘1%’ earn than everyone else. There has been less attention paid to how much more they own.

In fact, wealth (what people own) is more unequally distributed than income.

Wealth vs income distribution

 

This chart gives you an idea of just how unequally distributed wealth is in the UK.

Wealth distribution

Wealth includes things like pensions and stocks. If we just concentrate on housing wealth (Total housing wealth in the UK stands at something like £3,375 billion) we see a similar picture. Here is how housing wealth is distributed.

Distribution of housing wealth

 

House prices have increased significantly, even adjusting for inflation, since the 1970s as this chart shows.

House prices adjusting for inflation

 

However, this has not uniformly benefited all homeowners.

Rises in house prices for mean and median

 

But has hugely benefitted those who own expensive houses.

Rise in value of prime accomidation

 

Many of whom are not born in the UK.

Country of origin of prime accommodation buyers

The state is not inherently left wing

The nation state is inherently aligned with the interests and views of left wing parties.

People still believe this.

Somehow.

I find it astonishing that I still regularly have conversations with people from a variety of political views who continue to believe that the nation state is inherently left wing.

It seems much more convincing to me to argue that various parts of the nation state can be directed in a number of different directions for left or right wing purposes, but that richer people will be better at directing the state than poorer people.

Martin Gilens of Princeton University argues in his new book Economic Inequality and Political Power in the United States that it is a matter of fact that;

when Americans with different income levels differ in their policy preferences, actual policy outcomes strongly reflect the preferences of the most affluent but bear virtually no relationship to the preferences of poor or middle-income Americans.

 

Similarly Jacob Hacker and Paul Pierson in Winner-Take-All Politics: How Washington Made the Rich Richer–and Turned Its Back on the Middle Class argue that

Those at the very top of the economic ladder have developed and used political muscle to dramatically cut their taxes, deregulate the financial industry, keep corporate governance lax and labor unions hamstrung.

Given the increasing power and organization of wealthy people and the decreasing power and organization of middle to low income people I only expect this trend to continue.

In fact new research from Robert Putnam’s team has found that wealthy households are spending 8 times as much money as poorer households on “enrichment” activities for their children. One of the effects of these activities is to better equip children to become adults that are adept at influencing the government.

So, I would argue that, given the current power structures in America and Britain, in any given situation, the state will more than likely act to support the interests of wealthy households over the interests of lower income households if there is a conflict between their interests.

Doesn’t sound very left wing to me.