Housing Policy in the Developed Economy

The United Kingdom, Sweden and The United States

Bruce Headey

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9780367681272
• eBook ISBN: 9781000299304
• Edition: 1
• Topic: Social Sciences
• Subtopic: Environmental Law
• Index: Social Sciences

Originally published in 1978, this book analyses three main approaches to national housing policy in the 20th Century in Sweden, the UK and USA. It reviews policy developments and considers the impact of policy on the housing conditions and costs of different sections of the community. A major theme is that British and American governments, contrary to their stated objectives, have actually increased housing inequality by allowing homeowners tax concessions which are more generous than the housing welfare programmes available to tenants. The political pressures which produced this outcome in Britain and the USA, but a quite different and more egalitarian outcome in Sweden, are carefully discussed. Throughout the book, policy making is regarded as involving trade-offs between what is politically feasible and what is operationally feasible. This framework enables readers to view policy making from the perspective of politicians and civil servants as they react to diverse demands and pressures and seek to devise housing programmes which embody incentives to which housing financiers builders and consumers will respond.

1

HOUSING POLICY – WHAT IS AT STAKE?

Arguments about housing policy are usually based, implicitly if not explicity, on different conceptions of equity or distributive justice. In the first section of this chapter we review four conceptions of equity endorsed by proponents of different political ideologies. The second section illustrates the gap between ideology and practice. Using British evidence, we find that government housing policy operates as if it were based on a conception of equity requiring that more assistance be given to the rich than to the poor. Since no political party in Britain officially endorses any such conception this finding is both surprising and disappointing. A major question running through the book concerns the pressures which in Britain and the United States, but not Sweden, have led governments to redistribute housing services and costs in such a way as to confer greater benefits on middle and upper income owner-occupiers than on lower income tenants.

Housing Policy and Conceptions of Equity^*

Economists and others who advocate the ‘free’ play of market forces in the housing sector do so primarily for reasons of efficiency rather than equity (that is, because they regard the market as the best means of allocating resources and of ensuring that the maximum supply of housing is produced for given inputs of land, capital and labour). However, a certain concept of liberal equity often underpins their arguments. Market arrangements, it is said, allow each household to spend the proportion of its income it chooses on housing and, in principle, ensure that each unit of private expenditure will secure an equal amount of housing service.¹ Public expenditure ‘distorts’ the market and offends against a hardline liberal conception of equity by causing some households to obtain better housing than others for similar private outlays. In practice, it should be noted, almost all housing liberals accept the value of programmes designed to increase supply. Others, too, accept limited governmental intervention to achieve, inter alia, slum clearance, because they recognise the ‘external’ costs of inferior housing; the costs to society resulting from delinquency, disease, an unprepossessing central business district and so forth.

^* I would like to thank Sverker Gustavsson, University of Uppsala for ideas and discussion on which this section is based. See also Frank S. Levy et al., Urban Outcomes (Berkeley: University of California Press, 1974) chapter 4.

The traditional Social Democratic or Labour view has been that governments should intervene in the housing sector in order to ensure decent basic standards of housing for lower income families. ‘Weaker’ versions of Social Democratic equity only require assistance to the ‘house-poor’; to households too poor to afford decent accommodation without paying an excessive proportion of their income (over, say, a quarter or a third) for it. ‘Stronger’ versions of Social Democratic equity have inspired some Western governments, including the Swedish one, to provide good quality neighbourhoods and land use planning as well as satisfactory housing for the entire population, and to embark on programmes designed to bring about significant redistributions of these services in favour of lower income groups.

Two further conceptions of equity will enhance our perspective; one is widely endorsed in principle but never implemented, the other is universally rejected in principle but widely implemented. The Marxian concept, which prefigures conditions if and when the final stage of communism is achieved, requires that resources be distributed ‘from each according to his ability, to each according to his needs’. So far as one can judge, it has had little impact on housing programmes in Eastern Europe.² A final formulation, which no one could be found to defend, is that ‘to him that hath more shall be given’. Indefensibly regressive and élitist as this principle is, there are housing programmes in all three countries which operate as if they were based on it; programmes which systematically confer additional benefits on households which are better off in the first place.

The liberal, Social Democratic, Marxian and élitist conceptions of equity are too abstract to be used empirically as a basis for reviewing national policy programmes. In subsequent chapters we shall in the first instance evaluate programmes in terms of their vertical and horizontal equity. Vertical equity means the degree to which programmes benefit households at different points in the income distribution. A progressive programme differentially benefits lower income households, a regressive programme benefits wealthier households and a proportional (neutral) programme does not alter the distribution of benefits. Horizontal equity, on the other hand, refers to the extent to which households at the same point in the income distribution are treated equally. It should be obvious that horizontal and vertical equity are not necessarily achieved together by the same housing programme. We shall find, for example, many programmes that have benefited a small proportion of the poor and not helped wealthier households at all. Such programmes manifestly lack horizontal equity but promote progressive vertical equity.

Linkages between the empirical concepts of vertical and horizontal equity and the more abstract ideological concepts of liberal, Social Democratic, Marxian and élitist equity are easy enough to make. Liberal equity would be manifested in a low level of governmental intervention in the housing market and such programmes as were enacted would be horizontally and vertically neutral. Social Democratic conceptions of equity would be reflected in programmes of progressive vertical equity benefiting lower income households. Horizontal equity might or might not be achieved. (Social Democratic parties favour horizontal equity in principle but, in practice, opposition to means testing has often reduced the extent to which they have actually promoted this objective.) Programmes which were progressively redistributive throughout the income distribution and also horizontally equitable would be consistent with a Marxian conception of equity. Last, self-confessed élitists (if any could be found) would favour programmes which were vertically regressive. They would presumably be indifferent to the impact of their measures in terms of horizontal equity, at least in so far as low to middle income groups were affected.

Table 1.1 Linkages Between Ideological and Empirical Conceptions of Equity

Horizontal equity	Vertical equity
	Progressive	Neutral or regressive
high	Marxian	laissez-faire liberal
moderate or low	Social Democratic	élitist

In addition to assessing individual programmes we shall also attempt to evaluate the overall vertical and horizontal impact of each nation’s housing programmes. This will inevitably be something of an exploratory venture and will require some fairly sweeping assumptions. However, the attempt is necessary if we are to understand the central directions of policy and the opportunities and constraints which affect policy-makers.

Owning versus Renting: ‘To Him That Hath More Shall Be Given’

In a market system (i.e. a system based on a laissez-faire liberal conception of equity), housing inequality would faithfully reflect income inequality. Politically this is unacceptable. So one of the stated objectives of all Western governments has been to subsidise the housing of low income families in order to ensure that they live in better accommodation than they could otherwise afford. One might expect, then, that the result of governmental intervention would have been to redistribute housing services and reduce housing inequality. Not so. Governments in most Western countries (though not, as we shall see, in Sweden) have wound up subsidising all sections of the community but have actually been more generous to upper income home-owners than to lower income tenants. Housing inequality has therefore increased.

The subsidies home-owners receive in fact come from both governmental and private sources. Government subsidies are in the form of tax concessions which are available to home-owners but not tenants.³ In most Western countries home-owners do not pay tax on income used for mortgage interest payments. Nor do they pay capital gains tax on the increased value (if any) of their houses between time of purchase and time of sale.⁴ The third and largest tax break owner-occupiers receive is not widely understood. Logically, all owners of dwellings should pay tax on the rental income they receive from tenants. Private landlords of course do so; and, as far as possible, they pass the cost on to tenants. Owner occupiers are not, however, taxed on the imputed rent they receive as owners from themselves as tenants.⁵ In all Western countries non-taxation or only token taxation of imputed rent constitutes a very significant subsidy benefiting mainly middle and upper income groups.⁶ In recent years these governmental concessions to owner-occupiers have been supplemented by private mortgage lenders (by building societies in Britain and by savings and loans associations in the USA). Interest rates on mortgages have always compared favourably with rates on other types of loan, but in recent years they have actually fallen behind inflation. So many owner-occupiers are now...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Table of Contents
• Tables and Figures
• Acknowledgements
• Dedication Page
• Introduction
• 1. Housing Policy – What Is at Stake?
• 2. A Framework for Analysing Housing Policy
• 3. Housing Politics and Housing Conditions in Sweden
• 4. Swedish Policy: The Development of a Socialist Market
• 5. Housing Politics and Housing Conditions in the United Kingdom
• 6. British Policy: The Welfare Approach to Housing
• 7. Housing Politics and Housing Conditions in the United States
• 8. American Policy: Stimulating Private Enterprise
• 9. Sweden, UK, USA: Explaining Differences in Housing Policies and Housing Conditions
• 10. Housing Equity – Problems and Possibilities of Reform
• Appendix: Political Cost-Benefit Analysis
• Index