In Steve’s trenchant critique of the proposals by Frank Field and David Davis to boost the right buy, he raises the ever-topical issue of whether social housing is ‘subsidised’ and, by implication, the wider question of whether other sectors are, and if so by how much? This is an issue regularly addressed by the annual UK Housing Review, and armed with a sneak preview of this year’s edition I’ve been checking it out. (Unpaid advert on behalf of authors Steve Wilcox and Hal Pawson – it will shortly be available here).
Let’s start with the sector that’s really cushioned by the government. Yes, that’s right, it’s you owner-occupiers, especially if you have paid off your mortgage. How so? Well the benefits to mortgage payers were wiped out when tax relief ended in 2000, but all owners enjoy capital gains tax relief now worth £5bn (net). Those with no or only small mortgages also benefit from not being taxed on the value of their home (as used to be the case through Schedule A). This is worth an astonishing £11bn. Add back in the taxes that owners do pay, and the net subsidy is a romping £12bn. Even if you dismiss the tax on the imputed value of a home as an academic notion which shouldn’t enter the balance sheet, then the outcome is that owners pay no net taxes at all. But as Steve Wilcox points out, the existence of these tax advantages means that house prices are far higher than they might otherwise be, benefitting existing owners and adding to the hurdles faced by first-time buyers.
Private landlords don’t enjoy the same tax advantages as homeowners but they benefit from a less restrictive regulatory regime, which means they can access interest-only mortgages. Furthermore, the recent growth in numbers of landlords who own only one or two houses is undoubtedly fuelled by homeowners who can afford a deposit to buy another house to rent out. Taken together, Wilcox argues that the effects of the tax and regulatory regimes benefit existing owner-occupiers most, then landlords, with first-time buyers (especially those who can’t afford a deposit) at the bottom of the pile.
Let’s turn to subsidy for renting. All tenants, of course, are eligible for housing benefit. The average HB payment for private tenants, at £114p.w. inEngland, compares with £82 for housing association tenants and £73 for council tenants. Obviously, this is largely a function of higher rents. But those who claim that social housing is ‘subsidised’ because it charges lower than market rents often fail to point out the costs that then fall on government through the HB budget.
How much is the economic subsidy due to lower social rents actually worth? Well, quite a lot, given that social rents run at about 60% of market levels: some £7bn annually. But again as Steve Wilcox points out, the gap will close (slowly) as the government’s ‘affordable’ rents kick in. And this will in turn have a knock-on effect on HB costs.
It could however be argued that the ‘economic subsidy’ for social housing is as artificial as the implicit tax reliefs for homeowners, given that no (sensible) government would raise social rents to full market levels. But, oddly enough, those who go on about this subsidy to social housing don’t tend to draw attention to the similar one for owner-occupiers.
But surely social housing gets direct subsidy? We are all aware of the social housing grant for new homes and historic subsidy for council housing, but as Steve Hilditch pointed out much of this has been paid off, given that average council debt is now only £17k per house. And council housing has now been making a ‘profit’ since 2008, recognised by the handsome payment to the Treasury implied by the debt settlement that will take place when council housing gives up all future subsidy on 1st April this year. Council housing in Scotland has meanwhile been running without direct subsidy for years, and Scottish councils have been building lots of houses recently, partly from their rental income. As will increasingly happen in England, Scottish council tenants are themselves cross-subsiding new tenants.
And finally, we shouldn’t forget to add into the reckoning the direct subsidies to homeowners. They get renovation grants, support for mortgage interest (for owners who lose their jobs), right to buy discounts and shared ownership schemes, together worth a princely £1.7bn in 2010.
This all means that the only straightforward answer to the question ‘who gets subsidised housing?’ is that everyone does, from the Queen downwards. Singling out council and housing association tenants as ‘subsidised’ may be politically convenient to the likes of Field and Davis, but it doesn’t square with the facts. As I’ve argued here before, let’s argue for the introduction of self-financing in England on 1st April as the date on which everyone should stop calling council housing ‘subsidised’.