In a timely piece in Renewal last year, John Houghton set out the 'ideological importance of housing'. In this, he proposes principles for a new consensus on affordable housing, built around correcting the failures of the market and reasserting the role of the state to ensure that 'everyone has access to a decent home' (Houghton, 2008). This article, while endorsing the general case made by Houghton, will argue that the proponents of reform should not underestimate New Labour attachments to market solutions and the political pressures that underpin current short-term thinking.
First, here is a brief review of Houghton's main arguments:
New Labour's housing policy broadly operates within the ideological confines it inherited in 1997, namely that housing need can be delivered largely through the market a decade on, it is widely recognised that there is a severe shortage of affordable housing exacerbated by the price boom promotes a series of alternatives to current thinking built around achieving a greater balance between state and market and increased awareness of environmental and social need New Labour's housing legacy will be determined by how it responds to the current crisis. There is more to the argument, but the general position is clear enough. Market solutions cannot deliver a recovery to the housing sector and renewal will only take place if a new consensus rejecting the principles of the past emerges.
New Labour and the housing market
Figures from the debt organisation Credit Action recently revealed that a property in the UK is repossessed every eleven and half minutes (Credit Action, 2009). Shelter estimate that that up to two million people in England struggle to keep a roof over their heads (Shelter, 2009) with many shackled to large mortgages reflective of a price boom that saw average prices triple in value over the last decade. Even with prices lower than at the market's peak, many remain 'priced out' with research from the Chartered Institute of Housing (2009) showing that two thirds of young people (18 to 24 year olds) no longer aspire to own their own home. The pattern and consequences of another UK housing boom to slump is playing itself out for another generation.
As John Houghton notes, New Labour thinking on housing has broadly mirrored that of the past in the promotion of home ownership as a policy goal. Labour's 2005 election manifesto set a target for home ownership of 75 per cent by 2010, targeting excluded first-time buyers and key workers with a series of shared equity schemes (Labour Party, 2005). New Labour shared the view of previous governments that home ownership contributed to stability and a sense of personal wellbeing and prosperity.
In the wake of the current fall out from the correction in the housing market--different price surveys reach different conclusions but average price falls have reached up to twenty per cent from peak levels--it is worth interrogating New Labour attitudes to the staggering price rises of the last decade. The government clearly benefited from the billions of pounds of proceeds from increased Capital Gains, Stamp Duty and Inheritance Tax revenues, creating a financial incentive to keep the boom going. There was also the political benefit of the 'feel good' factor encouraged by the sense of increased prosperity that house price inflation encouraged within key sectors of the electorate, as profits from a rising market were recycled back into the economy helping consumer spending, employment and economic growth. As the party in power, New Labour benefited from all of this.
More fundamentally, we can now see that New Labour's faith in the permanence of high UK house prices was built on key well-rehearsed assumptions. First was the government's belief that the 'sound fundamentals' of the UK economy--low inflation, low unemployment, low interest rates--would prevent any return to 'boom and bust'. Second, the chronic under supply of housing, when set against rising demand for home ownership, would underpin prices. As recently as January this year Ed Balls conceded that 'there was a pretty strong view, which may in part still be true that real levels of house prices had gone up because there was more demand and less supply' (quoted in The Times 1.01.2009). In other words, rising house prices were not primarily about the availability of cheap credit but a reflection of Britain's small geographic size, low levels of house building and rising population.
This is not the place to detail the unravelling of New Labour's promise of 'no return to boom and bust' in the teeth of the credit crunch (though see Turner, 2008). But the supply/demand argument is worth exploring briefly because its logic clearly still informs government thinking. The view that at its heart, the boom of the last decade was centred around the lack of new house building when set against rising demand was the main argument of the 2005 Treasury commissioned Barker report into housing. The report recommended tackling the 'affordability' problem by significantly increasing the building of new homes together with a liberalisation of the planning system to facilitate increased development on greenfield...