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Privatizing Housing: an Assessment of U.K. Experience

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Privatizing Housing: an Assessment of U.K. Experience Housing Policy Debate • Volume 4, Issue 1 101 © Fannie Mae 1993. All Rights Reserved. Privatizing Housing: An Assessment of U.K. Experience Christine M. E. Whitehead London School of Economics and Political Science Abstract This article describes the way in which the government of the United Kingdom has implemented the policy of privatization with respect to housing since coming to power in 1979. It details the main elements and diversity of the policy; it evaluates the results in terms of tenure change, allocation of housing services, prices, and in- vestment; it examines the emerging problems of affordability and access; and it sug- gests that there have been considerable benefits from both privatization and deregulation in terms of greater efficiency and responsiveness. However, it also stresses the extent to which government involvement in housing, although undoubtedly shifting away from direct provision, has reemerged through both income-related and supply subsidies to other landlords. The article concludes that in the United Kingdom, unlike the United States, the provision of adequate housing for all is still regarded as a government responsibility. Introduction In many ways, the United Kingdom is the country from which the closest parallels with the United States might be drawn. The basic structures of the legislative framework in terms of how property rights are defined, the development of the taxation system, the emphasis on markets for allocating re- sources, and even the general approach to social values stem from similar sources—at least compared with other countries represented in this series of lectures. Neverthe- less, many of our housing experiences, especially in the sec- ond half of the 20th century, have been quite different. To a significant degree, these differences result from our differ- ent perceptions of the nature of housing. These differences are clear even in the generality of political rhetoric. In the United States, the preamble to the 1949 Housing Act states, for instance, that the national housing goal is to pro- vide “a decent home and suitable living environment for every American family.” The equivalent in the U.K. context is the 1945 White Paper (Ministry of Health 1945), which states that “the 102 Christine M. E. Whitehead government’s first objective is to afford a separate dwelling for every family which desires to have one.” The distinction is clear: In the first case, it is a general aspiration; in the second, while there is no suggestion that the objective will be achieved, it is clear that the responsibility to provide the housing lies with the government, although the choice of a separate dwelling lies with the individual family. The history of implementation of these general goals is also very different. In the United States, commentators argue that the stated objectives have been seen as little more than congressmen talking to themselves and that there is no true political will to generate viable policies. On a more fundamental level, in the United States, housing has always been regarded as a private good that should be bought and sold on the market, with tax re- lief for investment, regulation of some of the principal actors (es- pecially in the field of finance), and some income assistance to make housing more affordable for poorer households (Grigsby 1990). In the United Kingdom, however, throughout the postwar period there has been political agreement that housing should be re- garded as a social, and indeed a merit, good (Cullingworth 1979; Whitehead 1991). In other words, it has been generally accepted that it is the government’s responsibility to ensure that the objec- tive of a decent home for every family is achievable and that gov- ernment funds are made available to achieve this aim. As a result, general aims have been developed into more specific and meaningful goals. The Housing Policy Review published in 1977, for instance, started by reiterating this general aspiration: “The Government believe[s] that all families should be able to obtain a decent home at a price within their means” (Department of Environment 1977). This general objective was then broken down into eight distinct elements, including standards, the balance be- tween new investment and rehabilitation of the existing stock, housing costs, special needs, and tenure choice. The review also specified a time limit of a decade in which to attempt to achieve these goals. Perhaps most important, U.K. policy has always recognized that acceptable housing standards cannot be achieved unless the housing provided is affordable for the households concerned. Dif- ferent parties have placed different emphases on how to do this— the Conservatives putting more emphasis on choice and the Labour party putting more emphasis on public provision—but there remains a basic agreement that it is the government’s Privatizing Housing: An Assessment of U.K. Experience 103 responsibility (Department of Environment 1977, 1987). This is not to deny that housing should be provided by the market when the result is adequate standard housing at affordable prices—as in the United States with generous tax relief and relatively tight regulatory controls—but it should be provided and allocated by government to those who cannot achieve acceptable standards, either because of lack of income or because of lack of market power. What has happened since 1979 is that the government’s view of the nature of housing has been changing rapidly from seeing it inherently as a social good to seeing it as a private good where there are important market failures and distributional problems that must be addressed (Whitehead 1983, 1984). As a result, pol- icy has been turned upside down with the emphasis shifting from public to private provision, from directly allocating ade- quate housing to those who cannot afford it to increasing choice, and from directly ensuring that rents are affordable to the vast majority of households to the provision of income-related housing benefits for those who cannot afford cost or market rents. This shift in basic policy attitudes about housing has evolved partly because of rising incomes—and therefore both a wish for higher standards and greater freedom of choice on the one side and greater overall investment on the other. However, it has mainly resulted from a change in ideology away from an empha- sis on administrative control toward a view that public provision is inherently inefficient and unresponsive to demand and that greater productivity and consumer satisfaction can be achieved only through privatization and liberalization of markets (Veljanovski 1987). On the surface, this view is similar to the one held in the United States. Yet the underlying emphasis re- mains very different because the change in attitudes concerns the most efficient way of achieving given goals, rather than the nature of these goals. The Conservative government’s attempt to change basic attitudes with respect to the role of the state was perhaps the fundamen- tal attribute of Thatcherism. The whole idea of large-scale privati- zation was conceived in the context of housing policy and was only later applied more widely to nationalized industries and the social services (Forrest and Murie 1988; Ray, Mayer, and Thompson 1986; LeGrand and Robinson 1984). Privatization made Thatcher world famous and has been applied across the world—notably in developing countries and in the suggested reforms for Eastern Europe. But at home, especially in the 104 Christine M. E. Whitehead housing field, many commentators saw it as a move toward American-style policies and American-style problems (Maclennan and Williams 1990). U.K. commentators, especially on the left, are therefore inclined to regard some of the aspects of the situ- ation in the United States as an awful warning about what might happen in the United Kingdom in the 1990s (Ball, Harloe, and Martens 1988; Forrest and Murie 1988; Merrett 1991). Even so, there are undoubtedly lessons to be learned in both directions. The aim of this article is to provide an overview of the ways in which the Conservative government has restructured the housing system in Britain with respect to provision, allocation, and pric- ing, and particularly the role played by privatization in that re- structuring. To do so it is first necessary to provide some background about the situation in 1979. The next three sections concentrate on the Conservative government’s objectives with re- spect to privatization and housing; the mechanisms by which the policies were implemented; and the results to date. The conclud- ing section presents some lessons for the United States based on both negative and positive findings with respect to U.K. policy. The policy framework in 1979 In 1979, all sectors were highly regulated and tenures were very strictly de1ineated.1 Most households were owner-occupiers (see table 1), but more than 30 percent of the stock (and indeed over 70 percent of the rented stock) was owned by local authorities; about 2 percent was owned by nonprofit housing associations, leaving about 12 percent that was rented from private landlords. The main constraint on access to the owner-occupied sector lay in the way the finance market operated. Mortgage finance was provided by specialist retail finance institutions that supplied funds at below-market interest rates and therefore could pick and choose their mortgagors. Funds were rationed by income, the security of that income, wealth in terms of the capacity to pro- vide a down payment, and type of dwelling. The relationship of these institutions with the central government was fairly close, 1 For a detailed description of housing conditions, see the chapter on housing published annually by the Central Statistical Office in Social Trends. See also the Annual Report published by the Department of Environment for the first time in 1991.
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