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John Perry is a policy advisor at the Chartered Institute of Housing
Our subsidy report shows the mess of government intervention in housing
The real question from Chartered Institute of Housing research this week is how the system can be changed to meet the housing priorities of all those in need, writes John Perry
Which housing tenure receives the most subsidy? Inside Housing readers know that the question isn’t a simple one and that the obvious answer – social housing – isn’t necessarily correct.
The quest for a full analysis has just been boosted by housing finance experts Peter Williams and Steve Wilcox, whose report for the Chartered Institute of Housing – Dreams and reality? Government finance, taxation and the private housing market – looks not just at support for housing investment but at all the other ways – benefits, taxation, tax relief and regulation – by which government interacts with the different sectors.
Since the global financial crisis, successive governments have felt compelled to intervene in the housing market but instead of seeing the main problems as being an overall housing shortage and a crisis of affordability for those on modest incomes, recent initiatives have tried to tackle the weaknesses of the private market and the decline in homeownership.
As a result, policies which were already distorted in favour of homeowners have been added to with Help to Buy equity loans and Individual Savings Accounts (ISAs), new tax reliefs for first-time buyers and many more.
Past weeks and months have seen a belated recognition of the need to boost affordable housing, with the prime minister promising a further £2bn from 2022 onwards and also lifting the borrowing caps on council housing.
“Recent initiatives have tried to tackle the weaknesses of the private market and the decline in homeownership.”
Does this mean that the weight of subsidy has now shifted away from the private market? When Dreams and Reality was completed, capital subsidy for private housing totalled £39bn and for social housing about £11bn over the five years to 2020/21.
By the November Budget, which enabled us to look further ahead to 2022/23, support for the social sector had grown to about £15bn.
But the Budget also extended Help to Buy equity loans to 2022/2023 at an extra cost of over £8bn.
These and other changes mean that the total aimed at the private market has grown to around £55bn over this period. So, and surely this is by chance, the split remains about the same. Private housing still gets an almost 80% share of what is now an even bigger subsidy cake.
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Of course, as Dreams and Reality goes on to argue, the full picture is much more complicated once housing benefit, tax reliefs and regulation are taken into account.
Tenants and their landlords receive about £23bn annually in housing benefit, of which a bit more than one-third is spent in the private rented sector.
The ‘safety net’ for homeowners via support for mortgage interest payments is now very small. But homeowners benefit hugely from tax reliefs, paying tax of about £10bn but receiving reliefs worth some £39bn. In contrast, private landlords pay net tax of at least £8bn.
The report concludes that the overall subsidy to owners was running at around £34bn annually before the last Budget, while social housing was getting £20bn to £30bn (depending whether or not the economic benefit of below market rents is taken into account).
On balance, private landlords and tenants were unsubsidised, getting around £8bn annually in housing benefit but paying out a similar amount in taxes. Its conclusion is therefore that homeowners are the most favoured tenure, followed fairly closely by the social sector and with private renting a poor third.
What the report really does, however, is begin to unravel the mess of government intervention in housing that stretches back for many decades.
“If the government were starting to work out its policies on spending, tax and regulation in housing from scratch, it certainly wouldn’t design a system that looks anything like the present one.”
Often policy changes have been made in response to short-term problems (such as buy-to-let expanding too quickly) which have no regard to the bigger picture of how intervention favours one sector rather than another. Nor does the government usually look at the long-term impact of a new initiative (such as changes in tax reliefs).
The clearest message from Dreams and Reality is that if government were starting to work out its policies on spending, tax and regulation in housing from scratch, it certainly wouldn’t design a system that looks anything like the present one. The challenge is whether we can reshape it to better reflect the housing priorities of all those needing a house they can afford, not just those of budding homeowners.
John Perry, senior policy advisor, Chartered Institute of Housing
