"Expensive" social housing is unfair for everyone in the system

Sell off the priciest homes, build more with the money, and everybody wins, argues Policy Exchange.

In England we face both a housing crisis and a growth crisis. Despite high house prices and high and rising rents, the number of homes started last year fell 4 per cent to 98,000. The complexity of this topic has floored the Coalition. Policies to kick start house building are failing. Some of the ideas being floated around Whitehall would actually make a bad situation worse by propping up a dysfunctional model of development. Social housing waiting lists have hit an all time high of over 1.8m households. Individuals and families are trapped waiting in often unsuitable accommodation. The Coalition wants to get our economy growing and sees more homes as key to this. They also grasp the housing crisis is focused on the young, disproportionately hit by Coalition policies that are increasing spend in some areas (pensions) but cutting others (tuition fees).

Fortunately, there is a popular policy that could lead to the development of a lot of new homes while making the welfare system a lot fairer. At present, around a fifth of the social housing stock in this country is "expensive" – worth more than the average for that sized property within the same region. Selling off this expensive housing stock when it becomes empty could raise £4.5bn a year. This could be used to build up to 170,000 new social homes a year, 850,000 over five years, the largest social house building programme since the 1970s. Current policy isn’t just unfair to the taxpayer but also the nearly two million families and individuals waiting on the social housing waiting list. One single family will be given a house that most taxpayers could never afford and force others to wait – possibly years.

The more you think about it, the less justified the current system seems. The public agree. 73 per cent agreed social tenants should not be offered new properties worth more than the average in the local authority. 60 per cent agreed social tenants should not be offered new properties in expensive area. The system is so unfair that even social tenants agreed with changing it. Across all regions, classes and tenures, people could see that the idea of expensive social housing for life just doesn’t fit with a fair welfare system.

There are muddled arguments against this on the grounds it would isolate social tenants and cause unemployment. But reform would only affects 20 per cent of the existing social housing stock, sold off slowly as it become vacant. If we mix new homes in the bottom half of the housing stock, and if we maintain 17 per cent of our homes as social housing, the mix would be a 2:1 ratio of private to social housing. On employment, the evidence shows higher employment in more expensive areas. But the link is weak. Even assuming just living in a more expensive area causes this rise in employment, rather than people with jobs living in more expensive areas, the cost per job created through expensive social housing is £2.5m. This eye-watering sum compares to £33,000 per job the Regional Growth Fund creates. Because of commuting, location isn’t that important.

We could create a huge amount of new decent quality council homes. Properties should have an open market value above a set minimum to ensure decent standards. Local people should control design and quality. We need to get a grip on housing policy. This is a quick and popular option that the civil service should have proposed years ago. So what is the Coalition waiting for?

Wrest Park, in Silsoe, England, is not social housing. Photograph: Getty Images

 

Alex Morton is a senior research fellow at Policy Exchange

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump