We need to arrest the shift from building homes to subsidising rents
By Graeme Cooke

—Promoting homeownership and defending social housing have dominated the politics of housing within the Labour party since the 1990s. Often seen as separating ‘Old Labour’ and New Labour, both are now perilously placed. Rates of homeownership have been falling since 2005, with few reasons to think they will be reversed any time soon. At the same time, the dynamics of social housing mean it serves an ever-narrower group of people, leaving it vulnerable to political attack. Both trends create forces for segregation in our society.

It was not always like this. In the postwar decades millions of ordinary families gained the opportunity for homeownership, while social housing was central to a majoritarian welfare state which helped those on low-to-middle incomes get on and put down roots. Both were agents for integration, enabling people of different classes and backgrounds to live alongside each other. This settlement has partly been disrupted by powerful economic and demographic forces: changes in household formation, population growth and rising inequality. But policy has often made things worse.

Recent efforts to help people own a home have been bedevilled by initiatives that benefit tiny numbers. These have done much more to inflate prices than increase housebuilding, which is essential to spreading sustainable homeownership. Inadequate supply has also led to access to social housing becoming increasingly restricted, but so too have allocation and tenure policies. Motivated by good intent, the overwhelming priority given to immediate need and lifetime tenancies have locked in a dynamic of segregation. Access is tightly drawn and turnover is severely limited.

Not unconnected to these trends has been the increasingly dominant role of housing benefit in housing policy. Thirty years ago four-fifths of public expenditure on housing was capital investment, with just one-fifth cash allowances. Since then there has been a gradual but dramatic shift away from building homes to subsidising rents. Over the current spending review period £4.5bn of public money will be spent on supporting the construction of new affordable homes, while £94bn will be channelled through housing benefit.

This switch is not an accident. The right favours an individualised financing system, while the left values a safety net entitlement. But now that public spending is falling, the major weaknesses of this approach are being exposed. The housing benefit bill is being driven up by market pressures, such as private sector rents and the squeeze on homeownership (plus unemployment), but delivers little impact on housing output. In response, the government is simply seeking to hack back costs, while failing to address the reasons they are rising.

With housing policy effectively stuck, a forthcoming IPPR report argues for a new strategic direction. This would involve institutional innovation to make possible a shift in expenditure, over time, towards building homes – while giving local government the power and responsibility to shape their local housing market and meet local need.

To those ends, we propose the introduction of affordable housing grants for local authorities, which would combine housing benefit and capital expenditure for their area over a period of years. Councils would be able to use those resources to improve access to affordable housing in their area, striking a balance between capital and benefit spending. This could enable them to invest in affordable housing, get a better deal from private landlords and reduce demand for expensive rent subsidies. In addition, local authorities should have full control over the allocation of social housing, offering fixed-term tenancies where appropriate, alongside steps to ensure greater security for families in the private rented sector who want it.

On the current trajectory, we are heading for a spending review in 2013 with further cuts to housing capital and housing benefit – plus more initiatives and no strategy. In this context, there is a duty on Labour to do more than just defend. It must think creatively about how it can advance its goals in light of fiscal and institutional constraints. This should be driven by the desire to spread sustainable homeownership, focus public money on building new homes, recast social housing as a mainstream tenure, stand up for the public interest in the private rented sector and restore real democratic power to local government.

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Graeme Cooke is associate director for family, community and work at IPPR

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Photo: Dom Stocqueler