The social cost of housing market failure

So infatuated is New Labour with imposing market "solutions" on everything from education to climate change, that it has actually managed to create a series of market failures. Nowhere is this more apparent than in housing. Its policies have helped drive house prices beyond the reach of most people, put large numbers of people in housing debt and added to homelessness. Even the banks are pointing out how bad things have got. Today the Halifax revealed that public sector workers such as teachers, nurses, and firefighters cannot afford to buy homes in seven out of 10 UK towns. It said property was most unaffordable in London and South-East England but property costs were also racing away from wages in other parts of the UK. Of 517 towns and local authorities surveyed by the bank, 363 (70%) were deemed unaffordable. Halifax defined a town as unaffordable if the average price of a house was more than 4.46 times the average wage of the workers. In 2002, just over a third of towns were beyond the means of public sector workers looking to buy property, last year that figure rose to 65%. This reflects a rapid rise in house prices, which have doubled in the last five years. In the past year alone, according to both the Nationwide and Halifax, average UK house prices have risen by about 10%.

Unions point out that prospects for public sector workers are grim. "Health workers are effectively being given a pay cut and the idea that they can get on the property ladder is a non-starter for many," Anne Mitchell, spokeswoman for the Unison trade union said. "There is a real shortage of accommodation, both to rent and to buy, as hospital trusts have sold off a lot of on-site nurses' accommodation." A key factor in this market failure is the drying up of affordable social housing to rent, the result of New Labour’s decision to cut back on investment. The Tories started the rot by allowing councils to sell off their best stock – and then preventing them from using the money to build replacements. New Labour has gone one better. Where the Tories at least encouraged housing associations to build homes for rent for those on lower incomes, the Blairites have compelled many in this group to enter the housing market by way of "shared ownership" and other half-baked schemes. For example, in London in 2004, housing associations built or acquired more than 8,000 homes – but a third of the total was directed towards home ownership schemes. Nationally, the trend is worse. In 1996/7 the last full year of the Tory government, housing associations in England built 24,630 homes. By 2002/03 this total had slumped to just over 13,000. Last year, completions totalled over 18,000. But when you take off the numbers built for sale, the output for renting is probably nearer 12,000 – less than half the number that the Tories built! What are the consequences for ordinary people who can’t afford to buy, either on the open market or through housing associations? Well, in London there are over 62,000 households (150,000 people) in temporary accommodation. Of these, there are more than 48,000 families, containing around 85,000 children. The capital also has a rising level of overcrowding, with over 150,000 overcrowded households (more than half of the national total), of which some 61,000 are severely overcrowded. In terms of mortgage debt, nationally one in four people could enter retirement still owing money on their homes, while the number of people behind with their repayments has risen sharply. The Council of Mortgage Lenders reported in February that 17,000 people had their homes repossessed during 2006 — the highest number since 2001. Oh, the joys of the market!

Paul Feldman, communications editor