There’s a simple way to solve the ‘housing crisis’, says ANDREW FISHER: build homes for the many, not investment opportunities for the few
Private renters in London are typically having to spend almost 40 per cent of their income on rent.
Wages may be higher in London, but housing costs are significantly more than in the rest of England, where according to figures from the Office for National Statistics, published last month, rent takes up 23 per cent of private tenants’ incomes.
Of London’s 32 boroughs, Croydon is actually one of the more affordable, with a one-bed flat costing a “mere” 35.6 per cent of a private renter’s pre-tax pay, compared to 40.6 per cent in nearby Lewisham, and 49.8 per cent in neighbouring Lambeth.
There are around 33,000 households in Croydon renting from private landlords. Between them, they are paying around half a billion pounds – £500million – in rent each year.
Given public sector workers had a pay freeze imposed on them last year, and social security claimants suffered a years-long benefit freeze under Tory Chancellor George Osborne, why shouldn’t the government impose a rent freeze on landlords? A freeze on rent increases could save Croydon households between from £15million to as much as £36million next year – money that would mostly be spent in our local economy.
Regrettably London – unlike dozens of major cities around the world – has no powers to regulate rents. It’s a free market free-for-all which only benefits landlords. London Mayor Sadiq Khan has asked the government to legislate to allow him and other metro mayors to establish rent controls in their cities. His pleas have fallen on deaf ears.
During the pandemic, the government offered stamp duty cuts which subsidised private landlords as they hoovered up more of London’s property market, while keeping first-time buyers locked out.
Landlords who hold properties in a limited company can offset 100 per cent of their mortgage interest against profits, while landlords that hold property in their own name can offset just 20 per cent. In 2020, there were 41,700 new buy-to-let incorporations, up by 25 per cent on 2019.
As the number of homes available for social rent – whether council houses or through housing associations – have reduced drastically in number, so private landlords, backed with tax subsidies under successive governments, have taken advantage of the market conditions.
The difference in rent is huge; the average council tenant in Croydon paid just £122 per week in 2019.
If just one-third of Croydon’s private renters were renting council homes, they would have an extra £100million in their pockets.
More money going to landlords means less available to be spent in the real economy, creating jobs and maintaining local businesses – and the accompanying tax revenues that that brings for the Exchequer. For the government, this dependency on the expensive private rented sector also increases the cost of housing benefit.
Building council housing is no easy task though.
Successive governments have devastated our council housing stock. The sale of council housing – through Right to Buy or wholesale stock transfer – has left more tenants paying more, and often for inferior or worse accommodation. Despite promising to empower working-class tenants, Right to Buy has more often benefited private landlords: 40 per cent of ex-council properties that have been sold under the scheme are now owned by private landlords.
It’s worth noting that housing funds are effectively ring-fenced – in the Housing Revenue Account – and so while Croydon Council’s day-to-day finances may be subject to extreme pressures, the housing budget is not.
For many years, though, councils were not allowed to borrow to fund the building of new council housing, meaning that in the last 40 years the proportion of households living in a council home has fallen from around 1 in 3 to just 1 in 10.
To get around the borrowing rules, in 2015 Croydon Council established Brick by Brick to build homes. Ludicrously, the government rules meant that while the council could lend Brick by Brick £200million, it was not allowed to use the same borrowing to build housing directly.
One of the few positive moves made by Theresa May when she was Prime Minister was in 2018 to remove the borrowing cap on councils borrowing against their Housing Revenue Account. This meant councils could once again borrow to build council housing – rendering the artificial structure of Brick by Brick unnecessary, as the council no longer needed the company to get around the rules on borrowing.
Whatever the management failures of Brick by Brick – and a report a year ago by PwC found the company had “significantly underperformed” – the upside is that the council, having underwritten the venture, will soon be acquiring 104 new homes (44 one-beds; 57 two-beds; and three three-bed properties).
If we are to make housing more affordable in Croydon, there are precious few options but to build and acquire more council housing. But that cannot be done by the council alone.
All previously successful periods of council house-building in this country have been backed by national policy from central government, whether under Labour or Conservative administrations.
Building council housing, ensuring fair rents and clamping down on landlordism are they keys to ensuring housing is built to provide homes for the many, not investment opportunities for a few.
Croydon resident Andrew Fisher (pictured left) has worked as a trades union official, researcher and writer, and served as Director of Policy of the Labour Party under Jeremy Corbyn from 2015 to 2019. He is the author of The Failed Experiment – and how to build an economy that works
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