Housing: The Breaking of a Social Contract
Many Britons have lost hope of buying a house, trapped in a system of high rents and high prices. Why?
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Loss of Hope
According to a recent YouGov survey, 17% of Britons don’t think they’ll ever own their own home. This accounts for over a third of those who don’t already own one, a shocking lack of hope for a better future. The responses were sharply divided along class lines, 26% of all working-class respondents having no expectation of ownership compared to 11% of all middle-class respondents. There was also a significant intergenerational gap (22% of millennials vs 15% of Generation X and Boomers). Together, this represents a sharp contrast to the home-owning aspirations of the postwar and Thatcher years, the result of a social contract being broken over four decades by successive governments through supply and demand failures, justified by an ideological commitment to a small state and, in some cases, the electoral needs of governments.
Neoliberal politicians, or at least those opposed to a large state, have taken the government out of the house building market (believing the state to be inefficient in catering to consumers’ demands) while retaining an interest in home ownership (because of a commitment to individual aspiration). In doing so, they have shortened supply while increasing demand through policies like right to buy: and their solutions to the crisis that has followed have only made things worse, particularly for young and working-class people.
The Postwar Social Contract
John Locke, a seventeenth-century liberal political thinker, describes, in his Two Treatises on Government (1689), a ‘social contract’ between government and governed: the people give up powers and rights in return for protections and provisions from the government. For decades after 1945, inspired by increasing home ownership and aspirations pre-war (the vast majority of Britons having rented prior to the 1930s), and the possibilities of reconstruction the Blitz offered, Britain’s social contract included mass house-building projects. 1.2 million houses were built under the Attlee government from 1945-1951 including over 400,000 houses for purchase, the Wilson governments from 1964-70 and 1974-1976 famously oversaw the construction of ‘New Towns’ and provided tax relief for low income earners seeking mortgages, as well as 100% mortgages (which didn’t require a deposit), and Harold MacMillan, in his capacity as Housing Secretary from 1951, built 300,000 homes a year, including many private homes to buy as well as council housing. These long serving premiers of 1945-’79 were wedded to this aspect of the social contract, situated as they were on the big state side of politics – whether as socialists in Labour or as One Nation Tories. They were committed to the state’s involvement in housing – specifically, that governments should build houses en masse to provide for mass home ownership.
Thatcher Moves Things Forward…
Government commitment to home ownership was then taken further by Margaret Thatcher’s Conservatives in the 1980s. Their ‘Right-To-Buy’ policy helped those living in social housing to buy out the council for their home at a lower-than-market rate: home ownership spiked precipitously as a result, peaking at 71% in 2003. Thatcher transformed the home ownership aspirations of millions by turning the majority of houses built since the war into a potential private home. Popular at the time and a policy designed to enable ordinary people to achieve their aspirations (this was a key draw for Lee Anderson in switching from Labour – the Conservatives as an aspirational party), this was not initially a bad idea.
… And Breaks the Social Contract
This marked the end of the house-building consensus, however. Social housing stock was not replaced, defended by the same facade used for most austerity programmes – to ‘save money’ – while, in reality, pushing an ideological commitment to a small state. As we have seen with the latest public services scandal, the lack of refurbishment of RAAC concrete in schools, underfunding to save money in the short term actually creates greater problems and expenditure down the line. So, right-to-buy houses weren’t replaced: hundreds of thousands of social houses were sold with no obligation to replace them, and housebuilding declined 67% in the five years after the policy was introduced in 1980. Combined with requiring councils to use the sales receipts to pay down debt rather than invest in construction from 1989-2012, this helped precipitate a crisis of supply in the long term that has seen homeowning drop in the last two decades. This has been most keenly felt among the young, with under 40s half as likely to own a home as their parents at that age.
Further, not replacing stock was not the only flaw in right-to-buy. As of 2017, 40% of former council housing was owned by buy-to-let landlords and 26% of the nation’s income currently goes on rent, with as much as 40% in the capital. As with any loosely regulated industry, which is what former social housing has evidently become, monopolies have been created on this housing supply. Initially designed to give individuals the opportunity to fulfil their aspiration of home ownership, an ideologically-driven light touch has done just the opposite in the long-term, chronically haemorrhaging supply to private landlords while demand has stayed relatively constant.
Thatcher’s big idea was to increase the country’s home ownership aspirations while removing the state’s obligation to build. One of the policy’s enduring legacies, however, has been to return much of the country to its pre-war state – relying on expensive and often poorly kept rental homes, without much hope of owning them. The entirely foreseeable result of shorting supply while spiking demand.
Supply and Demand, Again
The situation was made worse when, in 2013, the Cameron government introduced ‘Help-To-Buy’. Recognising the growing house price crisis, the government introduced a scheme where it would match savers 1:1 on money for a deposit in specific bank accounts. Akin to Wilson’s tax relief for mortgage savers, both being commitments on the government’s role in enabling home owning, this was not, in itself, a bad policy. However, with the house building aspect of the social contract broken, and Thatcherite-inspired Cameron hardly aiming to return the larger role of the state in building, this spiked demand while doing nothing to supplement supply. This was the result of trying to solve the situation without investing or reforming on the supply side – either through building through government investment, or reforming planning legislation to make it easier to build denser, higher and on more land. The Conservatives were more motivated by small-state politics, short-sightedness and Conservative electoral politics rather than repairing the social contract.
During the same decade, ‘Nimbyism’ became a prominent tribe in British politics. ‘Not In My Back Yard’ politics represents a disinclination towards development in one’s local area, often in the name of conservation. Particularly prevalent in the Home Counties and other Tory strongholds, this has been a major factor in the lack of housing development in the past decade or so, especially on the obsession with only developing ‘brownfield’ sites, seen most recently in the opposition to housing on the Green Belt around London (hardly a national park). This has not exactly helped the growing crisis of supply.
Contract Broken
Together, this short-sightedness has helped create an enormous house price increase over the past two decades, the final nail in the coffin of the social contract – in both house building and home ownership terms. Real property prices have jumped by 173% since 1997 in England, and since 2003 rates of home ownership have fallen by 7%. The latter statistic may not seem high, but given just 6% of over-65s privately rent, this fall in home ownership is disproportionately spread towards the young and those without capital. The result? That same disproportionate lack of hope referenced earlier – many young and working-class Britons have no expectation of owning a home.
Those Great Beasts: Quantitative Easing and Interest Rates
Conservative mistakes on supply and demand are only half the story. A post-financial crisis decade of low interest rates and high Quantitative Easing has led to a spike in the value of capital in Britain, much of which is held in property – both in terms of housing and land. This, combined with successive supply and demand failures since 1980, has caused the current housing bubble. But this is intimately connected to the social contract’s destruction. A prioritisation of private property and the individual over the state, and therefore the idea the state should stay out of house building, is also the justification for low levels of taxation on capital locked in the form of housing and other property. Across the board, the root cause of the housing bubble, therefore, is a commitment to the classic neoliberal mistake – that the state can stay away from social issues like housing, hoping a market solution will materialise. What neoliberals don’t admit is that when it inevitably goes wrong it's the state – using taxpayers money – which must pick up the pieces of a broken contract.
A Moral Failing
The absence of hope for a third of non-homeowning Britons is not the fault of one government alone, therefore. Yes, Thatcher stopped building houses and introduced a poorly planned right-to-buy policy, and this has been much maligned in causing the housing crisis. But successive governments, whether Conservative, Labour or Coalition, have, since then, consigned housing to a secondary priority out of ideological commitment or electoral calculation, confirmed by their inaction as house prices increased by over 200% in parts of the country, including the capital. This is the result of an ideological belief in the market’s ability over the state, and the electoral fruits which price increases guarantee. As such, governments removed the state from the housing supply chain in seeking to cut costs and raise efficiency in the housing market. But housing is consistently in high demand, and governments like Thatcher’s breaking the social contract on house building, especially without providing for private replacements through planning reform, broke the rules of supply and demand. In seeking an efficient market, they created one of high prices and monopolies. The result is clear as day.
