"Right to Buy" Is to Blame!

The "Right to Buy" policy introduced in the late 1980s (early 1990s?), or rather the implementation of this policy, has a lot to answer for. I argue it is the single biggest reason for the terrible state of housing provision in England.

Here's why;

Let's build a house in the year 1995, maybe it cost £40K to acquire the land, build the house and allowing profit for the builder.

Public Ownership

The 1ocal council (or another non-profit organisation but government should be able to borrow cheaply) borrows the money to purchase the house and it remains in their ownership.

Interest on the loan is 5% so the public body has to pay £2K a year to service the debt. Maybe the rent is £2.5K a year to allow for maintenance, etc. Other than inflationary increases in the cost of maintenance this level of rent can remain unchanged indefinitely.

Private Ownership

If the same house is owned privately things start off much the same except the landlord would expect some margin, let's say they have to charge a rent of £3K a year.

After some time, let's say 5 years, the landlord wishes to cash in the increase in the property value. To keep things simple we will assume the value also grows at 5%. The property is now worth approximately £51K. The new owner has to borrow £51K, and now the rent must rise significantly.

Indeed, even without selling the original owner might look at the property market and raise the rent accordingly - unless there's sufficient supply of publicly owned properties going at a much lower rent.

In the Big Picture

There problem with "Right to Buy" is that it altered the balance between the number of private and public rental properties. Over time, private landlords have been free to charge higher and higher rents without the "brake" effect of public competition.

The general principle behind "Right to Buy" seems reasonable and indeed popular. The problem with the implementation is that the public owners were forced to sell at a discount, and the proceeds were not re-invested. All very well to give the right to purchase the home you have lived in for years but why was done at a discount? Other then to cynically buy votes!

Competition over Housing

The other day I was listening to a radio programme about the conflict between immigrants and communities in the northern working towns. One of the biggest points of contention was the priority given to immigrants in the allocation of housing that is in very short supply.

After the show I thought to myself, what would happen if there was enough housing to go around and why couldn't it be done? As a basic necessity we really ought to be doing better in this regard.

Elsewhere the development of property is a good investment. Why can't councils develop affordable housing or use the planning process to enable it? The economics of this situation is twisted. It appears we would rather let some slum landlords rake in all the profits, artificially constraining the supply to keep rents up.

Invest by Employing

It seems clear now that we are going to have to grow our armed forces. There are many good reasons to support this if done right;

1. Grow the headcount, especially in the Army. Of a £100 paid in salary about £30 comes back to the government in direct taxes straight away. Ordinary working people do not save much of their income. Almost all goes back into the economy in mortgage payments, energy bills, food, etc

2. Where possible, buy British or at least European.

3. The Army recruits primarily from working class neighbourhoods that are suffering through the loss of traditional industries. The Army has always been a great way for working class boys and recently girls to get an excellent training.

A similar argument can be applied to employment of people in other sections of the state such as local government.