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From International Socialism (1st series), No. 104, January 1978, pp. 9–10.
Transcribed by Christian Høgsbjerg, with thanks to Sally Kincaid.
Marked up by Einde O’Callaghan for ETOL.
The Labour government officially recognises that people have the right to decent housing, but homelessness and substandard housing are at record levels. Government reports probably understate the problem. In 1967 they estimated 1.8 million ‘unfit’ dwellings and a further 4.5 million were found to be ‘unsatisfactory’, that is, lacking in standard amenities such as baths and inside toilets.
More recently the 1971 Housing Conditions Survey of England and Wales found that 1 in 14 homes were not fit for human habitation. The shortage applies to all cities and towns.
The basic reason for this is that, like any other goods that we buy, houses are only produced if they are profitable to produce. Since housing is a long term investment, money is invariably borrowed to build houses. Money lenders will also only do this if it is profitable. For this reason, the council housing sector is also caught within the profitability trap.
Land can of course be put to many uses other than housing. Land in Central London is 300 times more valuable to a company if it is used for offices than homes. In provincial cities the ratio is about 70 to 1.
Office rents are not controlled by law and office users can pass on rent increases by putting up the price of the good or service being produced on the land. Rents and prices for living accommodation are however limited by the incomes of the people who live in them.
The capital market – banks and the City – are dependent upon the property market. In 1974 when the so called ‘property boom’ collapsed, Keyser Ullman, a private bank, had to write off £17 million as bad debts, and United Dominions Trust lost £21 million. One of the largest property companies, Amalgamated Investment and Property, who owned a large chunk of St Annes on Sea in Lancashire, folded entirely. Their assets had once been worth £220 million. However, the power of land owners is less than it used to be. Scandals like the Barbuish land deal – in which a property company bought 644 acres of land for £3.25 million and sold about half of it to Crawley council for £7 million – are now less common. The big killings are now openly and legally made by builders and financial institutions.
The taxpayer – in the shape of the state – is the fall guy for the failures of the building industry. When demand forces house prices up, builders prefer to build for the private sector – because they can make profits from the increasing value of land. When the market is bad, they rely on the state programme of council house building to provide them with work. Since the building industry went into slump, in the last two years, the state has further helped out builders. It buys completed or half completed buildings so that builders can realise their assets and cut down on borrowing. When the private market can’t provide them with work the state gives them contracts which pay in stages – so they can reduce costly borrowing.
Profits may be lower, but they are certain.
Nevertheless, bankruptcies among building firms have been at record levels, throwing perhaps quarter of a million building workers into unemployment. Conversely the size of the councils’ own direct labour forces expands and contracts according to profitability in the private sector.
Perhaps 60 per cent of the nation’s unfit housing is in the private rented sector. Private tenants are the most exploited, overcrowded and insecure of all. Those, particularly the single and those who don’t conform to normal family patterns of living, are finding that private housing is increasingly hard to find at any price. The small private landlord is a dying breed.
In 1900 private landlords accounted for 90 per cent of homes – today only 14 per cent. This is because of the clearance of most of the worst property, and rent controls, which have encouraged landlords to sell empty properties. The most profitable tenancies have become concentrated in the hands of large landlords.
The main thrust of both Tory and Labour policy is now to encourage owner occupation and ultimately to use state housing as a ‘safety net’ for the most disadvantaged. Today more than half the households in the country live in owner occupied houses. The attractions are obvious and for the individual who can (just) afford it, there is often little alternative.
Each individual owner occupier is forced to pay as much for his housing as he can afford – in the early years this may be half his income – just in interest repayments. Owner occupation clearly rewards personal sacrifice. But the owner occupier is individually at the mercy of the financial world, whereas the council tenant, paying a rent which reflects the pooled (total) cost of council housing, is in a collective bargaining position. Rent strikes have played an important part in working class history – lately of note in Derry – but mortgage strikes are all but unknown.
Inflation means that owner occupiers pay a smaller and smaller proportion of their income on housing as time goes on. A council tenant’s total rent payments overtake the owner occupier’s total mortgage and interest payments in under 10 years-assuming a mortgage rate of 10 per cent.
If an owner occupier sells his house he can often make a capital gain, to use as the deposit on a bigger or better house. But the ‘investment’ is hardly one which he can trade in at any moment. It is the first time buyer at the bottom of the ladder who suffers – scrimping and saving for the deposit, spending a vast proportion of his income on repayments and having illegal lodgers to help pay the mortgage. The money in housing is made from buying and selling them, not owning them.
Thus it would be a mistake to argue that the working class owner occupier is at an absolute advantage over the council tenant. Both forms of housing depend ultimately on the capital market.
Since 1915 the government has variously controlled rents and maintained minimum building standards. These controls have made the provision of housing in itself unprofitable, so governments, aware that some form of housing has to be provided for at least the vast majority of the population, have had to step in with subsidies.
The basic flow of subsidy, in the case of both council and owner occupier housing, is from the government, (financed by the taxpayer) through local councils or mortgage holders to the financial institutions. That is, from taxpayer into the pockets of moneylenders! Private tenants and landlords receive almost no subsidy – this is one reason for the disappearance of the private sector.
Council and private tenants can justifiably complain that owner occupiers can claim complete income tax relief on their interest payments. This in itself is class biased because the tax relief is worth more to those paying higher rates of income tax.
But the real swindle is of far greater proportions. The effective rate of interest paid by mortgage holders in 1975 was about 7 per cent after tax. But at the time the reigning market interest rate in the City was 11 per cent and Building Societies would not lend at less. So governments, committed as they are to owner occupation, have to make it worthwhile for Building societies to lend. In 1975 they topped up the interest rate that Building Societies got to 11 per cent. This cost £780 million in 1975 – money that did not even appear as public expenditure. The fiddle is complex in its detail – and quite unknown to the innocent small time borrowers and savers who suffer.
Building Societies provide three quarters of the loans for house purchase. (Incidentally they often force home buyers to take out personal insurance as well – lucrative deals for the Insurance Companies which are another part of the capital market.) The rest of the loans are provided by banks and the local authorities, who are prevented from using the same borrowing fiddle as the building societies societies do.
It has been in operation in principle since 1894 and works like this.
People who save with building societies do not pay income tax directly on the interest they receive. Instead the Building Societies pay direct to the government the total tax that would have been paid by the savers.
This composite tax rate works out at less than the basic tax rate – in 1975 it was 27.55 per cent while the basic rate was 35 per cent.
This makes the Societies a good investment for the rich with plenty of money to lend – they get more interest, once tax is taken into account, than they would elsewhere. And they take advantage of it – most funds lent to the Societies come from big investors.
But some comes from the small time saver who may find it easier to get a mortgage if the deposit is saved with a building society. Societies have offices in every high street and advertise themselves heavily as benevolent institutions. The small saver is ripped off by the composite tax rate. A quarter of Building Societies interest payments are paid tax paid to people who would normally not pay tax at all!
So small savers get a much lower return on their money, invested with Building Societies, than they would if they had access to the big financial institutions.
This is why home buyers can borrow money at interest rates they can (just) afford. Since housing expenditure is ultimately limited by income, the tax payer has to make up the profitability gap for the big money lenders.
But sometimes things go wrong and the big ‘hot’ money flows out of the Building Societies. In this case, as happened in 1967 and again in 1974, the government bailed out the building societies – last time to the tune of £500 million. The Building Societies promptly lent some of this money to the local authorities at their highest interest rates.
The Tory local councils have concentrated their attacks on the council housing sector.
Council housing is financed by a system much simpler in its bias against the poor than owner occupation. Councils merely pay the rich, the moneylenders, vast sums of money as interest for the use of their funds. The naive might assume, from the fuss that is made about council housing subsidies, that finance was raised through taxing the rich ... Councils have to buy everything they need – land, builders’ services and the use of funds, at market prices. Any controls on land use they may themselves exercise on environmental or other grounds merely increase scarcity and pushes prices up. In 1973–4 they paid a total of £256 million on land and buildings – but only a fifth of this went on the buildings themselves. At the time land was in demand for other more profitable uses and thus expensive. The market for land means that its price reflects its value to the seller not the buyer.
In 1975–6 councils spent 70 per cent of their total housing budgets on interest payments alone! Indeed if it were not for government subsidies and contributions from the rates, all the council house rents collected would not be sufficient to cover the interest charges alone!
But council housing has been savagely cut in the attempt in recent years to get British Industry ‘back on its feet’-funds are being directed towards private industry.
As a result less houses were started in 1977 than in 1974. And from April 75 to April 77 there was a 40 per cent increase in average council rents. Gross average earnings rose by only 24 per cent over the same period.
Neither are councils continuing to add to their housing stock by municipalisation – buying up houses that private landlords will not or cannot afford to improve-perhaps 10,500 this year as opposed to 25,000 in 1974. Resources for the improvement of these and the councils’ own houses have been slashed despite a policy of improving the existing stock rather than building new tower block slums.
One of the most devastating cuts has been in the number of council mortgages given. Over 100,000 were granted in 1975 and this was chopped in 1976 to under 30,000. Councils give mortgages without deposits on about a quarter of their loans (building societies never do this) and are prepared to loan for cheaper, older properties that the societies won’t touch. It is the first time buyer that has suffered most from this cut. The government has asked the building societies to fill in this gap but there is no evidence or reason to suppose that they will do so.
The government produced in July 1977 a Consultative Document (‘Green Paper’) on Housing Policy for the next ten years.
Although it contains more than seventy proposals there is no evidence of any basic change in housing policy. The only new proposal is a rejigging of the method of allocations finance to councils councils – no new money. This has been called by one angry council spokesman ‘more freedom to spend less’.
The rest of the Green Paper is a restatement of the principle that owner occupation is to be encouraged and council housing kept merely as an ‘ambulance service’ for those who cannot cope with ownership. The Minister for the Environment, Peter Shore, has stated that the Government firmly supports ‘a strategy based on increasing owner occupation and on a developing public sector to meet the needs of those who cannot or do not wish to become owner occupiers.’
But the Green Paper makes no attempt to tackle the problems that increasingly face the would be home owner, instead it throws out a couple of proposals for encouraging people to save. (One of these is the ‘£500 CASH BONUS FOR HOME BUYERS’ that was splashed all over the newspaper headlines when it was announced. It is nothing more than an interest free loan the government will make to first time buyers if they save the same amount themselves over at least two years. Where they are supposed to live in the intervening period is not made clear ...)
The Green Paper makes no recommendations about the sale of council houses. Thus it is giving Tory councils a free hand to let their property go back onto the private market now that the taxpayer has finished paying the interest charges on it. The new Tory Greater London Council is an example of this. It has numerous schemes to make it easier for tenants to buy their homes. Its eventual aim is to rid itself of all responsibility for housing, leaving the ‘ambulance’ back-up to the local boroughs.
The Tory Party spokesman on Housing, Michael Heseltine, sums up the Green Paper most succinctly ...
‘A half of it is a package which abandons the main doctrinal obsessions of the left wing of the Labour Party ... and the other half embodies the policies of the Conservative Party as set out in The Right Approach.’
Much of the information in this Briefing is contained in an excellent pamphlet Profits against Houses produced by Community Development Project, price 50p. The interested reader is urged to consult it for further horror stories.
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