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An introduction

The global financial crisis of 2007-08 was triggered by sub-prime mortgage mis-selling in the US and the global sale of these debts as new bonds.

Austerity programmes are designed to reduce the borrowing that governments undertook to stabilise failing banking systems but the UK’s Coalition government is using ‘austerity’ as a cover to dismantle the welfare state. Housing is at the forefront of these changes. Mortgages and rental costs are rising as ‘the market’ dictates them, while people with low incomes now receive substantially less financial help from the welfare state.

In this much-needed text by an experienced author with a policy background, current housing finance issues (and their history) are linked with broader social policy and political themes. It covers the finance of building and refurbishment, managing and maintaining property for all the different tenures (owner occupation, council housing, housing association and private renting), and discusses whether current arrangements are sustainable. Written for housing, social policy and politics students and staff, it is also accessible to anyone concerned about housing in Britain today.

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Although some form of housing is needed by everyone in the UK, the ways in which it is provided and paid for often remain a mystery. People complain about rent increases or worry about rising mortgage costs, but what thought is there about how these are calculated and whether they should be challenged? The numbers of properties built each year, whether they are available to rent or buy and the costs of maintenance and longer-term improvement are also rarely considered. Instead, newspapers laud recent signs of increasing house prices as if these were a positive sign for the future. In reality, they signify fewer first-time buyers and increased mortgage debt.

Having been thoroughly distracted by New Labour consumerist ‘choices’ up to the 2010 general election, UK citizens are now facing Coalition austerity measures. These stigmatise and penalise the poor for being poor and ‘squeeze’ the apparently more deserving ‘middle’. The wealthiest have been left to continue creating wealth that will ‘trickle down’ for everyone’s benefit at some point in the distant future. Politicians have done better than this in the past. They can do better than this in the future, but only if pressure for progressive change is exerted by the electorate.

This chapter focuses on the influence that politicians may exercise on the financing of housing, tenure changes and housing costs. It looks at:

  • the influence of formal politics on the funding of different housing tenures, showing the changing balance between state and ‘market’ housing solutions;

  • the way in which the balance between different housing tenures has shifted over time, considering whether the growth of owner-occupation represents ‘modernisation’ and what the prospects might be for a resurgent council housing sector;

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Following the 2010 general election, a coalition of Conservative and Liberal Democrat politicians came to power. They have a markedly different approach from New Labour to handling the long-term effects of the 2007–08 global financial crisis and subsequent recession. The circumstances that led to the global crisis and how the turmoil in financial markets was handled by the New Labour government will be considered first. This is important, as senior Coalition politicians claim that the country’s financial deficit is simply due to New Labour’s financial mismanagement, when clearly it is not. The first part of the chapter will consider:

  • New Labour’s approach to the economy and financial management;

  • the effects of deregulation of the banking system on UK mortgage lending and the role of the financial regulator;

  • sub-prime mortgages in the US and the effects of mixing these with tradeable bonds;

  • poor financial management in UK banks, leading to nationalisation and recapitalisation.

The chapter will then move on to look at the impact of the global financial crisis on New Labour’s spending plans laid out in the 2007 Comprehensive Spending Review (CSR). It will consider how additional government investment in rented housing and tax foregone were used as strategies to encourage economic growth in the face of the recession that followed the upheaval in the international banking system and money markets.

The way this issue was dealt with in the 2010 general election is then considered. The Coalition government continues to downplay the global financial crisis and chooses to blame New Labour for the financial deficit that it inherited.

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Housing advice, homelessness services including temporary housing, housing support services, strategic work across the area and the maintenance of housing standards in the private sector are all important, locally provided local authority services. The local authority also can undertake or support a range of building and improvement work associated with these housing services.

Local authorities in England are more reliant on central government for funding than their European counterparts, so the impact of austerity measures is particularly severe. The Labour leader of Birmingham City Council remarked in 2012 that the £600 million that has to be cut from that authority’s budget up to 2017 marked ‘the end of local government as we have known it’. This chapter will explore this view from the perspective of housing services and will discuss:

  • the range of housing services provided through the General Fund and their main sources of revenue funding;

  • funding issues connected to three important services: the homelessness service, the Supporting People programme and the housing benefit service;

  • possible sources of capital funding for new building and improvement work, including funding to achieve the DHS in any retained council housing.

The management of any council housing will be discussed in Chapter Five. The limitations of space are such that this chapter is focused mainly on England.

Central government has exercised considerable influence at local government level in recent times. Practically, this has been to maintain a firm control over public expenditure. Overall, local authority General Fund expenditure (of which general housing services form a part) accounts for 25% of total public expenditure in England and Wales.

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In 1914 about 10% of the population owned or were buying their home (Malpass, 2005, p 49). For a short time, in 2001, this figure peaked in England at 70% (74% in Wales, but less in Scotland), although by 2012 it had declined to 65% and looks set to decline further (see Table 1.2). The New Labour government, believing that 90% of the UK’s adult population ‘aspired’ to ‘the dream of home ownership’, had planned to extend owner-occupation even further down the income scale than had the Conservatives before them (DETR/DSS, 2000, p 30). New Labour wanted to enable lower-income households to build up ‘wealth’ through property ownership. They would benefit from ownership and their asset (that is, their home) would open the door to ‘asset-based welfare’ opportunities through opportunities for additional borrowing. The financial crisis of 2007 put paid to this prospect, but the astonishing growth – and more recent decline – of owner-occupation will be explored in this chapter, while Chapter Eight will focus on the implications of ownership for lower-income households, a solution to housing problems that the Coalition government continues to pursue. A range of institutions with varying degrees of influence have been involved in the story of owner-occupation over the last 100 years. These include: private landlords, speculative house builders, building societies and banks, central and local government. Relationships between these bodies have waxed and waned over that time. Wider economic concerns have also played an important part: the rate and nature of formal employment; the availability of mortgages, and interest rates on loans; the extent and nature of financial regulation; and the development of transport links beyond the more central areas of towns and cities.

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The number of local authorities that own and directly manage council housing has declined dramatically since 1997. About 200 local authorities in England, Scotland and Wales now own and manage council housing. In Northern Ireland, the Northern Ireland Housing Executive manages all the council housing there on behalf of local authorities, but changes to this arrangement are likely too. The focus in this chapter will be on England, given the limitations of space.

The most significant feature of council housing in recent years is its numerical decline from 4.9 million properties in 1976 to 1.7 million in 2011. From a tenure that represented 29% of the housing stock in England in the late 1970s (and higher in Scotland), it now represents less than 7.6% of the total. This chapter will explore how politicians have set in motion the processes that have led to this situation, not least establishing the right to buy and large-scale stock transfers. Neither of these processes could have happened to the extent that they did if the reputation of the sector had not declined too. Years of under-investment, enforced by tightening government control of local authorities’ HRAs, produced a situation where councillors were often responsible for council property that had increasing problems of disrepair, outdated fixtures and fittings, and poor local facilities. Council tenants saw landlord services decline year on year, despite paying their rents. At the same time, tenants were not immune to the attractions of the right to buy. Wanting to own your own home was promoted as natural and profitable.

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The term ‘housing association’ covers a wide range of organisations. It can include small associations and housing trusts (like York Housing Association), large-scale voluntary stock transfer organisations (like New Charter Housing Trust) or, increasingly, groups of associations that appear to be independent of each other but that are in fact linked. For example, Your Housing Group has resulted from the merger of Arena Housing Group (with six subsidiaries) and Harvest Housing Group (which included seven other associations in its group structure). Associations may be small: 30% have no paid staff and 80% have fewer than 100 homes to manage. A relative few are very large: 1% have over 10,000 homes. Stock transfer associations (or companies) are likely to be big, with more than 500 staff. In the late 1980s there were approximately 475,000 association homes for rent. Now the figure is just over two million.

The work of housing associations will be considered by looking at:

  • some key financial features of associations and the tension between commercial and welfare-oriented values;

  • housing management in Leafy Glades Housing Association (Leafy Glades HA) – a medium-sized housing association working in 2011/12;

  • financing new rented homes and the changing relationship between public grant and different kinds of private finance or private contribution.

Until 1988 many associations occupied a semi-public position, working closely with local authorities, but Conservative Prime Minister Margaret Thatcher wanted them to become part of a new ‘independent rented sector’. Following the Housing Act 1988, which enabled associations to use private finance as well as public grant to develop housing, the Conservatives’ ‘independent rented sector’ was made up of housing associations and private landlords.

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The private rented sector was in decline for most of the 20th century. The Housing Act 1988 and deregulation of the financial services sector are being claimed as the keys to its apparent phoenix-like recent growth. Some commentators are now focusing on private renting and identifying potential for it to play a significant role in housing low-income households, as the Coalition government wants. But is this new private rented sector any different from the old one, which was notable for badly managed, poor-quality and expensive housing? This chapter will examine this in a number of ways:

  • rent control and selective decontrol: the decline of private renting in the 1930s;

  • early 1950s London: the problems of decontrolled rents and uncontrolled landlords;

  • the 1960s and the ‘fair rent’ solution for a ‘regulated’ market;

  • the Housing Act 1988 and the ‘independent rented sector’ with rents and tenancies that are now ‘assured’;

  • a focus on growth: buy-to-let mortgages and homeowners renting out their home because they cannot sell;

  • 25 years of deregulation – expensive rents, poor living conditions and limited security. Can private rented housing provide a long-term home?

The idea of rent control – administratively fixing rents in private lettings at a particular level rather than allowing the landlord to do so – has been discussed in Chapter One. There have been different forms of rent control. Their impact has been much exaggerated. Rent control or, most recently, rent regulation, has affected private rented housing in different ways depending on the landlord arrangements (resident or non-resident), type of letting (furnished or unfurnished) and/or the rateable value of the property.

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Political discussion about owner-occupation has usually focused on the supposed positive attributes that ownership brings: a sense of independence, security and feeling of ‘paying your own way’. Margaret Thatcher was fond also of asserting that citizens needed a stake in society, hence she promoted the right to buy with the idea of the ‘property-owning democracy’. In turn, Tony Blair and Gordon Brown believed that extending homeownership would spread ‘wealth’. There can be no denying that owner-occupation is popular in the UK, but the attributes claimed for it are not universal across the tenure. The positive view needs to be tempered with an awareness of the financial implications of extending owner-occupation down the income scale at a time when the ‘safety net’ for owner-occupiers who run into difficulties paying their mortgage is minimal.

Different aspects of owner-occupation at the margins will be considered in this chapter in order to demonstrate this darker view, as well as wider points. These are:

  • moving into owner-occupation: first-time buyers and the implications of large deposits; shared ownership and equity sharing as a way into owner-occupation; council tenants and discounts under the ‘right to buy’;

  • staying in owner-occupation: paying for repairs and maintenance;

  • leaving owner-occupation: ‘prime’ owner-occupation, mortgage rescue and the likelihood of repossession; sub-prime owner-occupiers and the likelihood of repossession; ‘spending the home’ on long-term care.

First-time buyers have found it increasingly difficult to buy. In the early 2000s, the price of property increased by over 60%. However, before 2007 it was possible to obtain 100% mortgages or mortgages with a very high ‘loan to value’ ratio, generated from calculations of four, five or even six times the household income (see Box 2.2).

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Landlords see rents as income and, consequently, as a most important part of housing management. Tenants often have a more complicated view, especially if they are tenants of local authorities and housing associations. Yet in some past protests about expensive rents the interests of tenants have seemed very similar, whoever the landlord.

It is easy to see the issue of rents in a completely ahistorical way, devoid of political and economic context. In this chapter, the issue of rents will be examined more broadly than usual, identifying where conflicts over rents have led to change. Rent strikes and campaigning are largely ‘hidden from history’ in housing finance. This chapter is an attempt to begin to redress the balance. Arguably, this perspective will be most relevant in the years ahead.

This chapter moves from general points to looking at the different ways in which rents have been established in the private sector, local authorities and housing associations. It ends with consideration of ‘rent convergence’ between local authorities and housing associations and the likely prospects for more expensive ‘affordable rents’. In this chapter the themes are:

  • what is rent? – from the landlord’s and tenant’s perspective;

  • the private rented sector – from controlled to market rents;

  • local authority rents – from independence to rent restructuring;

  • housing associations – cost rents, fair rents, assured rents, ‘affordable rents’?

  • rent convergence between local authorities and housing associations;

  • changing principles for rents over time;

  • the ‘affordable rent’ and its prospects.

‘Rent’ is a financial sum that is set by the landlord for a flat, a house or a room in a house.

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