Housing, Markets and Policy

Peter Malpass,Rob Rowlands

• Publisher: Routledge
• Year: 2009
• ISBN:
  9781135217082
• Edition: 1
• Topic: Architektur
• Subtopic: Stadtplanung & Landschaftsgestaltung

This book of specially commissioned essays by distinguished housing scholars addresses the big issues in contemporary debates about housing and housing policy in the UK. Setting out a distinctive and coherent analysis, it steers a course between those accounts that rely on economic theory and analysis and those that emphasize policy.

It is informed by the idea that the 1970s was a pivotal decade in the second half of the twentieth century, and that since that time there has been a profound transformation in the housing system and housing policy in the UK. The contributors describe, analyze and explain aspects of that transformation, as a basis for understanding the present and thinking about the future. The analysis of housing is set within an understanding of the wider changes affecting the economy and the welfare state since the crises of the mid 1970s.

1 Introduction

Transformation and change in housing

Peter Malpass and Rob Rowlands

In Britain it is the run on the Northern Rock Bank, one of the country’s top five mortgage lenders, in August 2007 that symbolises the start of what turned out to be a global financial crisis of epic proportions. But in reality Northern Rock was just a little local casualty of a gathering storm that had begun when the boom in the American housing market peaked in 2006 and began a rapid slide towards slump. The bursting of the American housing market bubble, inflated by aggressive lending to sub-prime (i.e. unusually risky) borrowers, quickly brought the entire world banking system to the brink of collapse. The nationalisation of Northern Rock was ultimately overshadowed by the sheer scale of the international crisis, the demise of much bigger and apparently stronger institutions and the size of the rescue packages hastily assembled by governments around the world in 2008. But Northern Rock remains important as a reminder of how much the British housing market has changed, how significant housing has become in the economy and how interconnected national economies are in the present period.

The credit crunch and its aftermath have changed the political and economic landscape, undermining the hegemonic position of the theory that deregulated markets produce the best outcomes, and challenging policy-makers to rein in the excesses of the free market. The crisis has raised the profile of housing in a number of ways, implicating mortgage-lenders, bringing mortgage-lending to a virtual halt, and as a result lowering output of much-needed new homes. This in turn has raised questions about the achievement of government’s housing production targets and about what other policy options might need to be considered. On a wider perspective it raises questions about the wisdom of an economic policy that relies so heavily on rising house prices to sustain credit-based consumer spending, and on the accumulation of wealth through home ownership as an alternative to adequate public services.

The aim of this book is not to focus exclusively or even mainly on the post-2007 crisis, but it is intended to explore and analyse the big issues in contemporary debates about housing and housing policy in the UK. The crisis may have changed the way we think about these issues, but it did not manufacture them from nothing: the housing system as we know it today has been a long time in the making. The theme linking the various contributions is that the 1970s was a pivotal decade in the second half of the twentieth century, and that since that time there has been a profound transformation in the housing system and housing policy in the UK. In the period up to the late 1960s UK housing policy enjoyed a period of political priority and administrative coherence. The problem facing the country was understood in terms of two main dimensions: a serious gross shortage (compounded by the Second World War); and a problem of poor-quality housing—also partly due to the impact of the war, but mostly a product of a much longer-term failure to maintain, modernise and improve houses in line with changing expectations. For 25 years policy was primarily focused on addressing these two problems through high levels of house-building, and replacement of worn-out dwellings. The 1970s saw the weakening or abandonment of assumptions previously taken for granted and marked the boundary between postwar housing policy and the emergence of a period of privatisation and deregulation (Murie, forthcoming), leading to the establishment of a new orthodoxy by the end of the twentieth century. Subsequent chapters describe, analyse and explain aspects of the transformation of housing and housing policy, as a basis for understanding the present and thinking about the future. The purpose of this opening chapter is first to show how and why the 1970s were so important, to identify the dimensions of change and transformation since that time, and then to outline the scope and structure of the book as a whole.

The 1970s: ‘Crisis, what crisis?’

‘Crisis, what crisis?’ was a newspaper headline-writer’s interpretation of the British prime minister’s attempt to play down the severity of the situation facing the country in the so-called ‘winter of discontent’ of 1978–9. The word ‘crisis’ is too easily applied to situations that are merely difficult, and there were certainly plenty of those during the 1970s. But if the word is applied in a stricter sense, to mean a genuine turning-point, then there are good grounds for arguing that the decade as a whole deserves to be seen in this way. It was a tumultuous decade of political and economic turmoil, both domestically and internationally, the outcomes of which included tectonic shifts in politics and in economic and social policies. Two events of global significance were: first, the collapse in 1971 of the Bretton Woods agreement of 1944 governing international exchange rates, allowing inflation to rise and exposing the weak British currency to speculative attack; and second, in 1973, a brief Arab—Israeli war that was followed by a quadrupling of world oil prices as the producing countries flexed their economic muscles. This alone was enough to send shock waves through the world economy, but oil prices doubled again between 1978 and 1981. Keynesian policies of economic demand management that had underpinned the long postwar boom in much of Europe, Japan and the United States were abandoned, with inevitable consequences for unemployment, which in Britain rose to levels not seen since the 1930s. The post-war ascendancy of liberal and social-democratic ideas began to be effectively challenged by a resurgent conservative ideology, and a global crisis of capitalism became also a ‘fiscal crisis for the state’ (O’Connor, 1973). In particular, the expanded volumes of state expenditure on various welfare services since 1945 were blamed for at least part of the economic crisis, with severe consequences for future spending and service provision. The era of welfare capitalism (sometimes referred to as ‘Fordism’), which had lasted since 1945, came to an end in the global economic crisis of the mid-1970s. In the years that followed a new phase—post-industrial, post-Fordist, post-welfare—was established, in which governments became less confident of their ability to manage national economies in the face of globalisation. Market forces were given freer rein generally and state welfare provisions developed in the previous era were cut back or modified, in ways that often mimic the market, placing emphasis on consumer choice and responsibility rather than on collective provision for individual needs, prompting references to ‘post-welfare states’. The retreat from the high point of collectivist social policy in the postwar era and the rise of choice-based personalised welfare is a defining feature of the period since the 1970s. Housing has played a key role in this process, as subsequent chapters reveal.

In the UK the decade began with the election of a Conservative government, which confronted problems of rising inflation and unemployment, industrial unrest and a resurgence of nationalist rhetoric in Scotland and Wales. The Northern Ireland Troubles, which had begun in the late 1960s, were in a particularly florid and violent phase. These were times of increasing political polarisation, with conflicts centred on controversial legislation such as the Industrial Relations Act of 1971. Polarisation became explicit in early 1974 when the prime minister, Edward Heath, in the midst of an industrial dispute with the miners, called an election on the theme of ‘Who governs Britain?’ In view of the way that British political debate has been recast in more recent times, it is important to recall that in those days the conflict between capital and labour was still prominent.

The UK economy seemed to be particularly adversely affected by the consequences of the oil price rises, and inflation rose to 25 per cent in 1975. This, together with a falling pound and vanishing reserves, led to a humiliating request for assistance from the International Monetary Fund, whose rescue package of loans came with conditions demanding cuts in public expenditure. ‘It was the economic crisis of 1976 that finally broke the continuity in the social policies of the postwar era’ (Glennerster, 1995: 167). Arguments that the welfare state was a burden that the economy could no longer carry gained ground, and debate shifted from expansion to retrenchment. The crisis of the welfare state did not necessarily imply its destruction, but it did imply that it should be something smaller and different. Housing, as the most market-based of the main welfare state services, was in the forefront of change.

In housing the 1970s was a time of change for reasons going beyond the immediate crises affecting the economy and the welfare state. These crises intersected with other processes of change that were already in train within the housing system. A long-term perspective on the housing market and housing policy suggests that a process of market modernisation had been under way since the early part of the century, shifting from the predominance of private renting in 1900 to individual home ownership as the modernised form of housing provision (Harloe, 1985; Malpass and Murie, 1999). It was at the start of the 1970s that the proportion of households that were home owners passed 50 per cent. This was a fact not lost on politicians aware of what it meant in terms of votes and electoral politics.

Overlying this deep process was the impact of the two world wars: by 1970 the UK housing system had been affected by the direct impact of war or recovery from it for more than half a century. The wars had short-term impacts in terms of very low levels of new building, equally low levels of repair and maintenance activity, and, in the Second World War, substantial losses and damage due to bombing. Making good the accumulated shortages took many years, and it is arguable that at least some of the clearance and redevelopment activity in the 1930s and from the mid-1950s onwards, together with physical modernisation of the remaining pre-1914 stock, would have been dealt with by normal market processes had it not been for the effects of the wars. Moreover, the wars had considerable implications for the politics of housing, initially in the form of demands for rent controls (which had the unintended consequence of providing landlords with an excuse for not maintaining and improving their properties). And the knock on effect of rent control was that the state became heavily involved in subsidising the production of council houses.

It is interesting that the two world wars had a greater disruptive impact on the house building industry than did either of the full-blown economic crises in the early 1930s or the mid-1970s. The consequence was that by 1970 local authorities had built nearly 6 million houses and flats, mostly aimed at reducing the overall shortage and not targeted on the least well off. It was at this point that a number of things came together to precipitate change: the growing pressure on welfare state expenditure coincided with ministers arguing that the end of the overall housing shortage was within sight, and the housing market restructuring process was reaching a stage where some difficult strategic decisions were implicitly (if not explicitly) required. One of these concerned council rents policy and another was the question of the sale of council houses. It has been shown (Malpass, 1990) that the system for setting council rents and subsidies was losing coherence and effectiveness by the late 1960s. Kemeny (1995) has referred to this as a maturation crisis—as councils accumulated stocks of houses over many years so the average cost of debt repayment per dwelling fell, especially in inflationary conditions, with the effect that those councils with older stocks could charge low rents and still cover costs. As governments began to argue for less new building by local councils this would have the effect of increasing the number of localities where rents at well below market levels became feasible, without Exchequer subsidy, making council housing increasingly attractive to tenants as compared with other tenures. What made this into a maturation crisis rather than a boon was that there was a powerful coalition of interests supporting the private market, especially the further growth of home ownership. On this view council housing could not be permitted to emerge as a viable competitor, offering good quality accommodation at below market rates. The response of the Labour government in the late 1960s had been to carry out a review of rents and subsidy policy, but to take no action. The incoming Conservative government pressed ahead with controversial and mould-breaking legislation to facilitate the withdrawal of subsidies and to force council rents to rise substantially, beyond what would be required to cover costs (Malpass, 1990).

The question of the sale of council houses came onto the agenda in the 1970s partly for party political reasons. Council estates were seen as enclaves of Labour voters, and the Conservatives reasoned that the opportunity to buy their homes (at discounted prices) might make them more likely to vote Conservative. Margaret Thatcher was later to claim that the promise of the right to buy at the 1979 general election did indeed persuade thousands of council tenants to vote Conservative for the first time (Malpass and Murie, 1990: 88). But the sale of council houses was also partly a response to pressures that had been building up over many years in the context of the modernisation of the housing market. Harloe (1985) has argued that public housing is only likely to embrace the better-off fraction of the working class in times of political and economic disruption, especially in the aftermath of major wars. The long-term role of public housing in normal times, he argued, was likely to be residual, accommodating the least well off and others who could not find or afford suitable homes on the open market.

As Britain, and in particular the housing market, continued to recover from the Second World War two factors came into play to suggest a smaller council sector. First, living standards were rising throughout the 1950s and 1960s, creating a kind of golden age for home ownership and making it more affordable for a wider proportion of the population. So home ownership was brought within the financial reach of many of precisely that group of better-off workers who had benefited most from both the postwar economic boom and the opportunity to rent a good-quality council house at a subsidised rent. To some extent it was the success of postwar full-employment policies and increased affluence that undermined council housing as a broadly based tenure.

The second factor at work by the 1970s was that, although the growth of home ownership, which had been an increasingly important objective of housing policy since the early 1950s, had been boosted by transfers from private renting, the supply of attractive dwellings from this pool was declining. Council housing therefore represented a second source of additional supply, ideally suited to deliver suitable and affordable homes to the better-off working class, the group most likely to aspire to buying a home of their own. They were also precisely the group that needed to be drawn into home ownership if it was to spread to increasing proportions of people on lower incomes. It is important to remember that British housing policy has always been based on the assumption that the market would provide for most people most of the time. From that point of view, a public sector of over 30 per cent could easily appear to be overgrown, especially when there was a demonstrable overlap between the incomes of many first-time buyers and those of better-off council tenants. Higher rents and discounted sales, therefore, can be seen as two linked parts of a strategic response to this situation.

Before leaving the 1970s there are two further points to make. First, it was a decade when there was a decisive shift in the relationship between central and local government, as illustrated by both rents and sales policies. Hitherto, local authorities had enjoyed considerable freedom to determine their own policies on both these issues, but the Housing Finance Act, 1972, was a major assault on local autonomy in the area of rent-setting, and by 1980 the right to buy had removed local discretion in that area too. Meanwhile, actions initiated by the Labour government of 1974–9 had begun to reduce local authorities’ freedom to determine their own capital expenditure programmes. Second, the really radical housing policy measures were associated with the Conservative governments in power at either end of the decade (council rents and subsidies in 1972 and the right to buy, and then rents and subsidies again in 1980). The mid-70s Labour government initiated a fundamental review of housing finance in 1974 but the eventual outcome was certainly not the radical reform that had been anticipated at the start (Malpass, 2008a). The review endorsed the existing arrangements for assisting home owners, and proposed a new system for paying subsidies to local authorities in a...