Property

‘Affordable Housing’ – More Subsidies for a Dysfunctional Market

After many years of waiting for the housing market to adjust to something which I might consider affordable, my partner and I decided to buy a home of our own. An unaffordable home, or one barely affordable. This is the housing market as it currently stands in the UK, caused by banks’ unconstrained credit creation directed into residential property. This is why houses are unaffordable, not because the constraints of supply the media would have you believe. In Australia and the USA where supply is not constrained, house prices will boom just as much as in the UK, if people have access to cheap credit from the private banking sector to keep bidding up the prices.

So, like it or not, the UK economy is based on what I would call the ’Property Ponzi’ model. You cannot escape it, if you live here, you are paying more that you need to for a roof over your head. You’re either paying your mortgage, or someone else’s. The Ponzi scheme is funded by bank mortgage debt, and rising prices brings billions of pounds of foreign investment into the UK, much of which goes to developers who build these properties. They always seem to be doing very well don’t they? This Ponzi scheme is so fundamental to the UK economy (we have nothing else to offer but our ‘debt services’), that it must be upheld at any cost. So we have government schemes to bring new entrants in at the base of the Ponzi scheme, even though it is now unaffordable to do so. Help to buy, right to buy, are two such schemes, where subsidies prop up the market. You can add to this list ‘affordable housing’.

Meanwhile in the real world, twenty and thirty somethings grit our teeth and knuckle down. It’s not going to be pretty, but it’s just not practical to raise a family in a rented home, and we’ve put this off for long enough. So we purchase an overpriced property, we make ends meet, but make no mistake, those of us coming into the bottom of the pyramid scheme are not happy about giving away up to half our disposable income (1) to fund a roof over our heads. We have better things to spend our money on, like our offspring.

So last week we found ourselves in the Norton village hall, Tewkesbury, being presented with a scheme to provide ‘affordable housing for the village’ presented by the council and their developer friend. Why? Well, Tewkesbury council had sent out a questionnaire in 2013 to ‘the people of Norton’, the aims of which were vague, and the results from which were even vaguer. One young man on the front row who has been living in the village for 15 years didn’t receive one. He wasn’t very happy. Not because he wanted affordable housing, but because he didn’t want affordable housing. Interesting. Not a very scientific survey, it seems, and not the most auspicious start given what was about to unfold.

Having identified 9 people who ‘wanted affordable housing’ the council prompty handed over to the developer. A smooth talking, tall, tanned chap in his late 30’s stood up and presented his scheme. He was knowledgeable, professional and highly polished. A good salesman.

The developer had been asked by the council to come up with ’an affordable housing scheme’. Local landowners had been approached to see whether they would be prepared to sell their land at a reduced price for affordable housing to be built. The nine houses initially suggested had, he told us, become 12, and to these were added 10 more ‘market’ houses, which would be used to subsidise the affordable ones. I roll my eyes.

The thought of rich people being required to pay for the poor people is not really a step in the right direction. Subsidy is not the road to a sustainable housing market, I mean just look at the mess we’re in with QE. Apparently the government used to fund affordable housing through the homes and communities agency (HCA), but this funding has been withdrawn, leaving councils with targets for housing, and looking for alternative means to provide it.

As a free marketeer, I cannot begin to tell you how much I disagree with this whole mindset of providing ‘affordable housing’ via the private sector. Even the statement ‘affordable housing’ is symptomatic of a totally dysfunctional housing market and a dysfunctional planning policy at both national and local level.

‘Affordable’ Housing

Let’s begin with the term ‘affordable housing’. What on earth does this mean? If houses weren’t affordable, then surely people wouldn’t buy them, and if people didn’t buy them, then developers wouldn’t build them. So what is an ‘affordable house’? According to government bumf, it is making houses available for sale or rent at below market prices. Great. So similar to the ‘help to buy’ scheme, ‘affordable housing’ – rather than letting the market adjust to suit the participants – introduces a load more subsidy to keep house prices artificially high.

Affordable housing is a government sanctioned subsidy to build homes that otherwise would not be built. What grates so much is that these homes are often added as a section 106, a concession of the house builder to give back to the community, when the community is unlikely to want those kind of houses around it in the first place.

Rather than letting the housing market be a housing market, the government sticks its oar in and thinks it knows better. There is only one way to make homes affordable, and that is to leave the market alone. The more government intervenes, the more subsidies it throws at ‘the housing crisis’ (which it caused, by the way) the worse off we will all be in the long run.

But what about the poor people, don’t they deserve housing?

Certainly, people should have access to the free market, including property. But home ownership is not a right. If houses are unaffordable, then the market should adjust until they are. For people to ‘move up the property ladder’ new entrants are required to free up the rungs below. And if they can’t afford to do this, prices must fall. So there’s no reason the market can’t provide for all income brackets.

Developers have a greater agenda than do-gooding, they seek profit first and foremost. The government used to prop up the poor by building and owning council housing stock. This asset has now been privatised – outsourced to the private sector – which is instructed to build affordable houses in its mix of property types. But is this really necessary? Should we ever be encouraging subsidising living costs?

If you can’t afford to live somewhere, you should go and live somewhere else. If you receive subsidies for your lifestyle and location, then that money is coming from the rest of us who are not subsidised, but subsidising. Find your way in the world, find your place, where you can afford, and accept your lot, for now. If we subsidise, we skew. For example, subsidise earnings with a minimum wage, and you pull in workers from the rest of the EU who are entitled to work here, creating the opposite effect to that desired. Subsidise and things get out of balance.

I live in a nice house. It’s not my dream house, but it is perfect for us right now. In ten years time, when my means have increased, I don’t doubt I will be living in a larger property. I don’t demand that I should be able to live in a house above my means, now. That is socialism at work, and I abhor the concept. I don’t believe the rich owe me anything, and I think that subsidies to help the poor actually make the rich even richer. No, I accept my place and I look forward to the future.

Any time you add subsidy to a market, you are skewing its functionality. If you subsidise housing for the poor, you are suppressing wages, you are taking money from wealthier individuals (usually the middle classes), all the while keeping the poor individual in a mindset of poverty, a mindset of hand outs and not being able to pay one’s own way in the world.

The free market will provide for individuals if we will let it, but when the market is given handouts by government (which has unlimited money supply) and when banks are allowed to fund a property pyramid scheme, thereby boosting prices, the market becomes top heavy, and prices cannot come down to the affordability levels that so many seek. So the mid doe classes end up paying twice; once for the ‘poor subsidy’, and once more because our own living costs are higher than they might otherwise be. Want to know why the middle classes are being squeezed? Look no further.

If developers built unaffordable homes, these homes would languish, and the developer would lose money. What ‘affordable housing’ meant in our village hall last evening was that a developer would be able to build homes locally, under ‘local exemption’ to planning rules because some of the housing is deemed ‘affordable’, and would be providing a need for ‘local village people’. Sounds dodgy to me. Having started out saying that the houses were for villagers, the lady from the council (Erin I think her name was) spilled the beans, and told us that people from all over Tewkesbury borough would be eligible to live in them. Great! So they aren’t even local to Norton.

Certain types of housing lend themselves to certain types of settings. Beautiful rural locations lend themselves to expensive houses, because the land there has greater value and so people are prepared to pay higher prices to live on it. There are also constraints in what can be built in the countryside, which makes the land (and the surrounding countryside) more valuable. Having paid the premium, local villages are having affordable housing schemes thrust upon them, under the planning radar. I am not surprised that the hall was full of angry people.

If you want to build cheap dwellings, you need to build them on cheap land, and build upwards. The cost of the land is what matters, not the cost of the house. The developer takes a piece of land and fills it out with as many houses as he can get away with. This maximises his profit, maximises the delivery of dwellings (which the council wants) and makes the most use of the developer’s ability to install infrastructure. Cheaper housing is built in cheaper locations, and it is typically built up. This is why traditionally the young live in cities and towns until they have the means to live in nicer areas, which include those parts of the countryside. We have all had to put up with it, so why should it be any different for anyone else?

The reason I think that affordable housing should be scrapped is because a subsidy like this just makes the whole market more unaffordable for every one.

Local Homes for Local People

There is a concept which follows the Affordable Housing moniker, one that I fundamentally disagree with for the same reasons. Why should local people be prioritised over non-locals. We’re not talking about illegal immigrants here (perhaps this is where it has come from). It should be down to affordability. There is a reason that parents can afford to live in a nice setting while their children can’t, it’s called wealth, income and assets.

Older people have more of these than younger people. This is life. Undoubtedly there will be cheaper places to live which lie nearby, perhaps not in the village but in a nearby town where housing is cheaper. Just because my parents have a house in Sloane Square, doesn’t mean I am entitled to live in the borough of Kensington and Chelsea, if I meet certain criteria. If market prices have driven me out, then I need to move away to somewhere I can afford. And when I find another area which is more affordable, I might consider buying my next place to safeguard my future home.

My favourite part of the evening came when the ruddy faced lady from the housing developer decided that the time was right to ‘tell you a story’ (her words). propaganda alert. Her story didn’t begin with the words “once upon a time there was a foolish village” but for all the morals it contained, it might as well have.

What followed was essentially a fable about a village similar to ours which rejected a scheme like the one the developer was proposing, which ended up regretting their decision, as a much bigger scheme of many more houses was built nearby. She didn’t explain what the moral of her story was, but reading between the lines, what she was basically saying was: ‘We are going to build houses on your village, so you can either give in now and have a little pain, or you can give in later and have a lot more pain, but there’s no point trying to fight the inevitable, you’re going to get built on.’ Charming.

Considering the affordable housing scheme was introduced at the top of the evening as being about providing affordable houses for a local housing need, the story turned out to be more revealing than anticipated. Interestingly at no point up to this were the locals (who this was all apparently about) consulted in what this scheme might look like. No wonder we voted for Brexit. We’re so fed up with having government policy thrust upon us.

I have long complained about the UK property market. The government has not helped but rather hindered matters in continuing to kick the can down the road. Tewkesbury Council seems to think Norton is a service village (which I would question) and that as a result it will be the target of house building. If you mean it has a sports pitch (section 106 from the collection of houses I live in) an oversubscribed primary school, one bus an hour, and a pub you have to drive to, then yes, Norton is indeed a service village.

Developers want to build in the countryside because it’s easier than towns, and individuals who can’t afford ‘market houses’ would like a foot up, but what about everyone else playing by the rules? What the developer wants to do, by adding 22 more ‘units’ is to turn countryside into suburbia. But we want the cows, the pheasants the newts, the foxes and the hedgehogs. We seek the serenity of nothing but the fields the trees and the strong south westerlies. This quiet, this lack of mental chatter, this is why I moved to the countryside. So why no dialogue? Why are we not consulted? I certainly don’t have rights over someone else’s land, but if you’re going to dress up your proposal as being ‘for the good of the community’, you need to back up your words with some action, or we’ll smell a rat and call you a bunch of liars.

So that’s a lot of words about what I don’t want. So what is it that I do want?

I want to be wealthier so I can buy the land around me and do as I wish with it. I want government to get its sticky beak out of markets; the property market and the stock market (an end to QE for the banks and some QE for the people would be good). If government wants below market housing, it should fund and build such property, in line with current planning rules. I want the UK government sanctioned property Ponzi scheme to come to an end. No more help to buy, no more right to buy, or any such nonsense. Let the market decide what the price should be. The biggest thing I want is for the banking sector to stop funding the whole Ponzi scheme with unlimited credit. Sort that one out and housing will become more affordable for all.

(1) https://www.theguardian.com/money/2015/jul/16/tenants-in-england-spend-half-their-pay-on-rent

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