Housing Policy in Britain and Europe

Gavin McCrone, Mark Stephens

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138102323
• eBook ISBN: 9781351594288
• Topic: Business
• Subtopic: Business General
• Index: Business

Originally published in 1995. A comprehensive survey of housing policy throughout Europe, anchored in a thorough analysis of the UK, this book is a text for students of housing at the undergraduate and graduate levels. The book considers housing tenure types and looks at standards of living, housing stock, housing allowances and subsidies and European funds. There are separate chapters for France, Germany, Spain, The Netherlands and Sweden. The later chapters focus on Britain and look more in depth at population issues and economics and address regional policy.

CHAPTER 1

Introduction

There are few matters that affect the quality of life for the bulk of the population so much as the condition of housing. It is therefore a subject of concern to all democratic governments. Nevertheless, the shape of housing policy differs greatly from one country to another; although all countries of the European Union have found it necessary to subsidize housing by one means or another, this has been done in a wide variety of ways. Some provide support to each of the tenures, and in certain cases it is an objective of policy to be tenure neutral. Others have concentrated support on one or two tenures, with no attempt at equality of treatment. There is a choice too between subsidizing the buildings (this is generally referred to as bricks and mortar subsidy), and support to individuals in the form of personal housing allowances (known in Britain as Housing Benefit). Most countries provide a mix of both types of support, although, as later chapters show, the balance over time has tended to move towards the latter. Most countries also have a social rented sector, in which subsidies are applied to enable rents to be below their economic cost. But again the sector varies widely between countries, not only as regards the extent to which rents are subsidized but also the chosen institutional arrangements. The size of this sector obviously depends on several factors, not least the extent to which other sectors are subsidized and therefore able to cater for the less well off.

In Britain there has never been any attempt at tenure neutrality in policy and the three main tenures have therefore been treated quite separately. In the social rented sector, by far the largest part of the stock has been in the direct ownership and management of local authorities and various agencies of central government. Although the proportion of such stock is reduced today, it is still a feature of the British housing scene that is all but absent in most other western European countries. Britain has also assisted the owner occupied sector and now has one of the highest proportions of owner occupied housing in EUrope. By contrast, the private rented sector has been largely unassisted, subject to a very long period of rent control and regulation, and is now extremely small; yet in the early years of the century it accounted for about 90% of the housing stock in the UK, and it still plays a major part in Germany and many other European countries.

In all countries, regardless of the average standard of living, there is a large section of the population that cannot afford the full economic cost of what would generally be regarded as an adequate or tolerable standard of housing. This is a feature of the economics of housing. As a result, in Britain in the nineteenth century, and in many poorer countries today, a substantial part of the population has to live in accommodation that is seriously substandard, such as shanty towns or slums. But as economic advance has provided the means to improve social conditions, so by one means or another the State has assumed responsibility for ensuring that the population is adequately housed. In most western European countries, in the absence of such intervention, something of the order of a quarter to a third of the total population would be unable to pay the full economic cost of the housing it occupies.

It might be thought that such a problem would cure itself as a country becomes richer and the general standard of living rises. No doubt the proportion of the population unable to afford an “adequate” standard of housing is now less than it was, say, at the beginning of the century. But perceptions of an adequate standard have also risen. There is therefore no European country, no matter how advanced, where it is considered that housing can be left completely to the free market without State subvention in some form; and it would be unwise to assume that this will change with rising living standards. It may be that the reason for this is that housing costs tend to rise faster than those of many other goods in the economy. Housebuilding is a labour intensive industry and, as an economy advances, the output of labour intensive industries becomes relatively more expensive, because the rise in wage rates is not fully matched by the rates of productivity increase available in some other sectors. In addition, building materials have risen more rapidly in price than many other goods, at least in recent years, and the scarcity of prime sites, coupled with planning constraints, ensures escalating land prices. The result is that, although in the countries of the European Union average incomes are many times higher than they were at the end of the Second World War, public subventions are still necessary if affordable housing of an adequate and acceptable standard is to be provided for all sections of the community.

Although there is much variation in the detailed measures applied across EUrope, there is a good deal of common ground in the choice of principal instruments. In the owner occupied sector, most countries have made wide use of tax reliefs: mortgage interest tax relief or depreciation allowances, exemption from capital gains tax, and exemption from owner occupier’s imputed rent that would balance the tax paid on rent by landlords. In some countries there has also been widespread use of grants for investment and low interest loans.

In the private rented sector, there has also been some use of tax reliefs, grants and subsidized loans, although the incidence has varied greatly from one country to another. There has been widespread use of rent control and rent regulation, commonly adopted in time of war to prevent unscrupulous profiteering from the ensuing shortage of accommodation, but which usually turns into a forced subsidy from landlord to tenant, with severe implications for the supply of rented dwellings. In some countries, apart from Britain, there have also been subsidies to this sector to enable it to cater for the less well off tenant and which therefore blur the distinction between this sector and the social rented sector proper.

The social rented sector is usually, but not always, distinguished by non-profit making landlords, whose purpose is to provide rented accommodation below the economic cost and who receive a subsidy to enable them to do so. Such a subsidy may be in the form of either a one-off capital grant or low interest loan, to meet part of the cost of the investment, or as a recurrent subsidy that may be adjusted year by year to achieve an acceptable level of rent. In this sector, the effects of inflation can be particularly important: even where social landlords appear to receive no subsidy at all, rents can be far from economic levels, in the sense of covering costs and providing a return on capital in real terms, because outstanding debt has been eroded by rising prices.

Finally, there are housing allowances, now available in most countries for individuals whose incomes are not sufficient to enable them to pay their current housing costs. Such allowances may apply to all sectors or be restricted to rented accommodation only. Unlike the other subsidies, they are targeted on at individuals and are related to both to their means and their housing needs, rather than being tied to a particular house. For the government there may be a “trade-off” between the two kinds of support: with given levels of income, lower subsidies to bricks and mortar require greater expenditure on housing allowances, and vice versa. But support through personal allowances is more sharply focused on those in need and would therefore not normally cost as much as general subsidies to bricks and mortar. There will always be some in receipt of a subsidy on their house, who in its absence would not qualify for a personal allowance.

The contributions made by governments, and therefore by taxpayers, are very large in the European countries. The cost of support ranges between 1% and just over 4% of GDP, but it is difficult for at least two main reasons to calculate the true cost of all the various types of intervention accurately. First, the scale of housing assistance depends at least in part on the generosity of other forms of social provision. The better pensions and unemployment relief are, the less need there is for housing subsidies. Secondly, an accurate assessment would require a comparison to be made with a hypothetical situation in a free market. Because of such factors as the erosion of housing debt through inflation and the effects of rent control and regulation, the expenditure by central and local government is not necessarily a complete measure of the extent to which housing costs to the individual differ from their economic level. Nevertheless, housing policy is a major item of expenditure for all governments in western EUrope. In Britain it cost about £20000 million in 1992/3, well in excess of the expenditure on roads or on industry, but less than is spent on defence, education, health or social security.

However, in few European countries could it be said that the expenditure is well targeted to achieve value for money, if the objective is to achieve an adequate standard of housing for all sections of the community. Policies have developed over a long period, and in most countries they contain an inheritance of measures, whose purpose may have relatively little to do with the central objective of housing policy but which are politically difficult to change. Sometimes governments have themselves applied measures to meet secondary political objectives and have tended to lose sight of what housing policy is really for. In addition, some countries for many years deliberately adopted a policy that made support general and non-discriminatory, as it was for other social services, rather than related to the circumstances of the individual. As a result, tax relief or, in some cases, grants and subsidized loans have been received by many people who could well afford the economic cost of housing. The costs of such an approach are making these policies increasingly difficult to sustain, and the effect of such general intervention may at least partly feed through into higher house prices. If so, it may do little for those most in need. The rationale for the various measures therefore needs to be properly thought through, even if changes do require political courage.

This book is concerned with the instruments of housing policy, the measures employed by governments, and their respective merits in achieving their objectives. Its focus is economic rather than social and therefore it does not attempt to cover such problems as deprivation and social exclusion. Nor is it a study of housing conditions, a subject that requires detailed local knowledge and which has been tackled by other authors (e.g. Emms 1990, Power 1993). Its purpose is twofold: to compare Britain’s housing policy with that of other European countries and to consider how far the increased economic integration stemming from the Single European Act, and from the movement towards economic and monetary union, will require changes. Will the present widely differing national policies be able to continue or will there be pressure for some kind of convergence? Will member States, learning from the experience of others, see advantage in adopting similar policies, even if they are not obliged to by the process of integration?

Housing policy is not formally within the competence of the Commission or the Council under the treaties, and at first sight it might seem to be a good example of a subject that can be left to the unfettered discretion of national governments. But even in policy areas where the Commission does not have competence, the process of economic integration can have implications. It is the contention of this book that this will be the case with housing. There are a variety of ways in which this may arise:

•  the effect of liberalization of capital movements and the attempt to achieve a single financial market on the provision of mortgage finance

•  fiscal and monetary harmonization, and the attempt to meet the convergence criteria for economic and monetary union set at Maastricht, will have implications for public expenditure, including expenditure on housing policy

•  freedom of movement of labour and the need to attract investment, while avoiding inflationary pressures, require a housing market that is flexible, and policies that facilitate mobility

•  in the European market, instability in the housing market may adversely affect economic prospects if it contributes to the destabilization of the economy. There is clear evidence that this has been a feature of Britain in the recent economic cycle.

There are therefore several issues related to housing policy that need to be considered, some of which may affect the operations of the economy in a more closely integrated European market. But there are also lessons to be learnt from the policies pursued in other European countries, which may enable British policy to be improved. Even if there is no case for a European housing policy and everything to be said for continuing with policies that most closely meet national circumstances, the increasing dialogue on economic policies generally requires greater awareness of policies pursued in other member States. It would be surprising if States could not learn from each other in the housing field as much as in other aspects of social and economic policy.

The chapters that follow in Part 1 set out the national housing policies in Britain and a selection of five other European countries. Some explanation is necessary for the way in which Britain has been handled. Most books on housing policy in Britain or the UK concentrate on policy in England, since that is by far the largest constituent country, and they leave the reader to assume that policies in the other three countries of the UK are broadly similar. But this is far from correct, as there are considerable variations. The present study makes no attempt to describe policy in Northern Ireland, where the differences both in circumstances and policy are greatest. For this reason it is described as a study of policy in Britain rather than the United Kingdom, which would include Northern Ireland. Occasionally, however, the UK is referred to, mainly for statistical purposes. Nor does the book deal explicitly with Wales, where the policy is very similar to that followed in England. But it does attempt to describe policy in Scotland as well as England, since there are some important distinctive features in Scottish housing policy that are of interest in a comparison with other countries. The other five countries include: France and Germany, because of their importance in the European Union and also because there are aspects of their policies that are of particular interest in Britain; the Netherlands, because its policy has been strongly socially orientated and it has also built a high proportion of its housing stock since the war; one Scandinavian country, Sweden, which has had a policy both strongly socially orientated and closer to being tenure neutral than in any other country; and one Mediterranean country, Spain, which is also among the four less well off member States in the Union. An effort has been made to follow the same layout for each country chapter, so that measures can be compared and, where appropriate, the differences highlighted.

But the perspective of the book is British, as is the experience of the authors. This will be particularly evident in the discussion of the European issues in Part 2. Some important conclusions for the other countries arise from these chapters and, where they do, every effort is made to draw them out; but it is with the lessons for Britain that the book is mainly concerned. Although major changes have taken place in British policy over the past 15 years, the authors’ view is that it cannot yet be said to be achieving the objective either of a well housed population or of assisting rather than hindering the performance of the economy in an increasingly integrated EUrope.

CHAPTER 2

The housing situation in Europe

A wide variety of factors play a part in shaping housing policies, notably population growth and migration, levels of income, climate, and of course the political objectives of governments. The purpose of this chapter is to set out this background using available statistical material to draw contrasts across western EUrope as a whole, but concentrating particularly on the six countries chosen for more detailed study in the rest of the book. The chapter starts by setting out factors that influence housing demand: population, including growth and migration, and comparative standards of living. This is followed by the national characteristics of housing supply: the size of the housing stock, its age, quality, composition and cost. The second half of the chapter contrasts the national patterns of housing tenure, a particularly important aspect of housing supply which has been much influenced by the policy measures described in the subsequent country chapters.

Statistical material on housing in EUrope is collected by national governments for their own purposes and is therefore not always on a comparable basis. However, in 1991 the Dutch Ministry of Housing, Planning and the Environment published housing statistics covering the 12 member States of the European Union for the meetings of European housing ministers, and in 1993 this work was undertaken for the first time by the European Commission and extended to include Sweden and Austria (VROM 1992, CEC 1993). Comparative statistics on this subject are therefore still at an early stage of development; and, as always with such material, it is difficult to take adequate account of definitional or qualitative differences between the countries. This is especially important when trying to analyze the quality of the housing stock. Some factors ca...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Acronyms and abbreviations
• 1 Introduction
• 2 The housing situation in Europe
• 3 Housing policy in France
• 4 Housing policy in Germany
• 5 Housing policy in the Netherlands
• 6 Housing policy in Spain
• 7 Housing policy in Sweden
• 8 Housing policy in Britain
• 9 The Single Market and European integration
• 10 A single market in mortgage finance?
• 11 Housing and labour mobility
• 12 The economics of European integration
• 13 The future of British housing policy
• References
• Index