[Source: My extrapolation British Polling Council [rights reserved]
The average rental property in the UK costs £687 per month. For someone on the minimum wage that is 80% of their salary. For them, life is an unbearable tale of poverty. If only they were a little poorer, perhaps unemployed then fortune might favour them with the granting of social housing. But as long as they continue with the foolhardy quest of providing for themselves they are consigned to a life of cramped and over crowded misery in shared accommodation. This for me is the greatest shame of New Labour. They fed these people the drug of aspiration and watched them rack up personal debt just to keep up a semblance of a middle class lifestyle. Hell, the poor buggers probably sip on cocktails at bistros just to delude themselves that they are middle class. Antonio Gramsci called this false consciousness. As private rented accommodation is soon to overtake social-housing as the second biggest provider what hope is there for these people caught on the wrong side of the banking collapse?
Since 1997, these people have punished Labour time and time again for our abandonment of them. About a half of those from the rented sector who voted red in 1997 did so in 2010. To be precise 48% of our Private Renters deserted us. Considering that less than a quarter of those renting social housing left Labour it is possible to observe the effect that this extra financial burden of renting privately has had on people's voting behavior. Regular readers will know that this is not my first article on this topic. I view it as fundamentally central to Labour's re-election hopes. Ed Balls is right every time he identifies this as a problem facing Britain. Bury the politics of aspiration folks, for it would make good foundation stones for the homes of a new generation.
This graph shows the year on year drop in the portion of rental voters choosing Labour. It is interesting that they lost more than a third of these voters within the first term of a New Labour Government.
This chart assess where the voters went to. The others category is the most interesting. There has been a 200% increase in the portion of private rental voters choosing to vote for none of the big three parties in the last thirteen years.
Those renting privately make up 17% of the housing market, and constitute more than 3.5million homes. Their rental costs are exorbitant with the average rent sitting at £8,112. This figure actually masks a higher annual rent for those on short term tenancies of less than 3 years. Their annual rent is £500 a year higher.
I have refined my research since I last tackled this problem to take account of those in receipt of Housing Benefit. In fact, 24% receive some assistance that cuts their costs by about £500 a month. However, the vast majority do not receive a penny piece from housing benefit. The costs are real folks, these people get no help.
The graph above shows in percentage terms how the head of household in each of these dwellings makes a living. as you can see about 60% work full time with a further 9% working part time. But 30% of these residents many not in receipt of housing benefit do not have a waged income. This is hidden poverty exposed before your very eyes.
I have also since refined my study to take account of the household composition. Perhaps as some argued it was the case that multi-occupancy relieved some of the financial burden. Well that is not straightforward. With on average 1.2 persons working per household nearly 1.4 million of the households are in fact occupied by only one adult. A similar figure of households are occupied by couples more than half a million of whom are raising children in these accommodations. The evidence of multi-occupancy to split on the renting costs is actually very sparse. Just over half a million of the homes contain two adults or more sharing who are not in a relationship.
This graph shows the household size of these private rented accommodations. Some critics had suggested that a two bedroom home was no reflection of the 21st century rental market. In fact, it is. The average private rented home in England on rounding has just 2 bedrooms. 2.2 million of the homes have just one and two bedroom occupancy.
The majority of people who rent privately are below the age of 34. considering the great numbers of children involved and the high percentage of people who are of couple status, I think it is fair to conclude that the demographic make up comprises of a large portion of young families, struggling to pay the rental bill because they receive little or no help from the state.
So what do we now know?
1. Private rents are double the cost of social housing.
2. Three quarters of renters receive no help from the state.
3. The houses are small, and cater mostly for young single people or couples with children.
4. We know that most private renting homes barely have 1 full time wage coming into them.
5. We know that the homes are small often with just one or two bedrooms.
6. 31% of these homes are deemed unfit for habitation
How has this happened? How have these people been allowed to hide away in squalor struggling to make ends meet? Who is to blame for this and how do we fix it? Well, I lay the blame squarely on Margaret Thatcher and Tony Blair. On their watch, the nation stopped building social housing. (see below)
When Thatcher came to power we had 5.3 million social homes. Today we have just 3.7 million. This has led to a growth in the private rental market, where most of the exploitation is taking place. Allowing the nation's housing stock to dwindle at a time of increased demand both fueled a property boom that catapulted millions into poverty, and condemned a generation trapped between social housing and owning their own homes. Perhaps if you are still not convinced this might persuade you, 48% of private renting voters deserted Labour. That equates to roughly 700,000 people. By condemning these people to a life of misery we paid the price. I have revised my plan and costing for affordable housing and I will publish it later. The nation needs to start building homes again.
Herein, I am laying out the case for a not for profit privatized housing scheme. I propose that the government set up an independent co-operative housing body to take responsibility for a share of the privatized rental housing sector. The aim of this scheme is to help the millions of young couples, families are just individuals who have been struggling to make rental payments in the private sector. These homes would not be for purchase, but instead set rental prices at a fair rate of £4,000 per year rising with inflation. They would only be available for people who were not eligible to receive housing benefit and who had demonstrated a willingness and ability to pay private rental market prices for the previous 12 months. This scheme would not prejudice any other housing scheme in which the government and social housing sectors participate. It is exclusively for hard working individuals or families who cannot afford to buy their own home. To be eligible the proposed HRP would have to demonstrate that previous rental costs comprised of more that 40% of the household expenditure. They would have to demonstrate that they were ineligible or unable to attain social housing Frozen out of that sector, and unable to enter the home owning sector it is the states job to protect them from exploitation in the private rental market. This would take up some start up costs which I will publish later on today but for now, I should wish to point out that one home's rental income per year would be £4,000 which means that it would pay for itself within 17 years. Year on year the initial start up cost would be repaid. The new body would also be allowed to borrow on the back on its assets and rental income. I am currently double and triple checking my costs before I make them known. It is hoped that Co-Operative housing could become a significant player in the private rental market, and that it would through time pay its initial start up funding back to the government. The plan is to have the body self financing within 10 years.
1. Costing of 1.8 million homes
It would cost £120,000 to build an affordable home per year. This price includes materials and labour as well as planning costs. The figures are independently supplied by the Housing Federation. The HF also state that each home built creates 1.5 jobs per home and 4 further jobs in the wider employment field. Thus to build one home, the HF calculate that 5.5 jobs are created. All of these figures are independently supplied and not my own. Based upon these figures I have calculated the cost of setting up a Co-operating housing body that would build 1.8million homes making up the shortfall in social housing lost since 1980. Once the 1.8 million homes are completed this plan does not cater for any more being built. The cost to build 100,000 homes every year over 18 years which should in theory, by today's prices cost £216 billion pound. It is planned that the government would commit to paying for half of these costs (£113bn), while the Co-op would be allowed to borrow a further £43bn over an 18 year period. The Co-Ops rental income would make up the shortfall. I calculate that this would in fact result in a net benefit of £40bn to the Treasury as savings in the benefit system due to increased employment and increased tax take would leave the Treasury £8.5bn a year better off. Based upon the rental agreement outlined in my previous post namely that £4,000 is generated per home per year, I calculate the net rental benefit to Co-Op housing to be £66.6bn at the end of the 18 year period. This excludes running costs of the Co-op housing which I estimate to be £100m per year. The generated rental income by 2055 would actually exceed the entire costs of building the homes. Thus the homes would then be net assets to the Co-op company. The Co-Op company would then benefit from a rental income of £7.1bn per year, and valuing each home at £120,000, the company would also enjoy property assets of £216bn.
It is proposed that the government pay the initial start up costs of £12bn to complete the first 100,000 homes. Once completed, they would generate £400m of rental income per year, but £100 of those would be retained for running costs. To complete the next year's 100,000 homes it is proposed that the Co-op be granted borrowing powers. It would, in this said year, borrow £5.7bn declining at a rate of £400m annually thereafter. The government would provide 18 annual £6bn pound payments until the 1.8million homes were completed. The Co-Op would borrow from years 2 to 18 after which it will be no longer necessary for the government to spend or for the co-op to borrow. From this date the £7.1bn surplus rental income could be used to pay back borrowing. This would not be a PFI initiative. The Co-op would be with the aid of the government allowed to raise capital on the back of its own assets. Given that the assets grow £12bn per year, and that the borrowing required would decline every year, there is little doubt that this credit facility for the Co-op is achievable. Co-Op housing would remain a not for profit organisation.
[See below for projections as to when borrowing will be exceeded by rental income (accumulated)]
[to enlarge simply click the graph or chart]
2. Benefits to GDP, Tax take, and reduced benefit payments
If 750,000 people are employed as a result of this, it means that they do not have to a) claim benefits and b) they can now pay taxes. One unemployed person on average claims £82 a week in Housing Benefit. They also claim job seekers allowance of £67.50. Both these are modest estimates. Evidence shows that many claim other benefits in addition. But I have omitted these from my calculations. In terms of Child Tax Credit, I assume that those eligible as unemployed will still be eligible when they get a job, so I have omitted CTC savings. WTC tends to climb in a gradient as the CTC element decreases. This mostly has the effect of cancelling the other out. Once over a threshold the total CTC & WTC decreases but I have not factored in these savings. Thus, I repeat, these are conservative calculations.
Having explained the caveats, I calculate based upon 2011-2 tax and benefit system that this would save the Treasury £8.5bn a year in reduced benefit payments and increased tax take. Note that the Treasury would be investing initially £12bn (year 1) and £6bn thereafter. Thus, these saving above are not net. In fact from year two the total savings to the Treasury would be £.25bn on the year. As I said, housebuilding would cease after year 18. From that point, the net benefit to the Treasury would be £8.5bn a year as no expenditure would be required.
Thus, deducted investment costs from Treasury benefits, and the Treasury would gain £40bn over an 18 year period rising by £8.5bn thereafter. In addition, net rental income from the Co-Op housing scheme would total £66,6bn after an 18 year period. All of this would be ploughed back into rebuilding more homes, which would year on year reduce the borrowing costs. In the end it would be necessary for the government to spend £113bn on building the 1.8 million homes. But during this period, £153bn would be added to the treasury's coffers though reduced benefit payments and increased tax take. Once the debts have been paid to private lenders, the Co-Op could conceivably run at a profit of £7.1bn with assets of £216bn. Since the Co-op would be by law forbidden from making a profit, the government or indeed the Co-Op could discuss how to proceed with arrangements thereafter. The stated goal of this policy is to halve the annual rental costs hard working couples, families and individuals on low income are paying in the private rented sector. A secondary goal which I will discuss at an alternative date is to reduce volatility in the construction sector that forces labourers to live a life of seasonal employment.
The stated goal of this policy is to create 1.8 million homes available for private rent only to hardworking families, couples, and individuals who are ineligible for social housing. These people have been paying £8k per year to rent privately. I discuss the demographics of this group at length in my earlier article today. A secondary goal is to create stable employment in the construction sector for hundreds of thousands of workers who live a volatile life of seasonal employment. If you have any questions I am happy to try and answer them. I apologise for the complexity and obtuseness of the article.
