Public Land and Social Housing

by George Hatjoullis

Housing policy has been a mess as long as it has existed. One of the problems is the obsession with ‘ownership’. Now we see Sadiq Khan proposes to sell a piece of public land at below market provided 50% is dedicated to social housing. This means some arbitrary group of citizens will get cheap property (a subsidy on the mortgage costs). If they are later allowed to sell at market then they will also get a windfall on the capital value. Very nice if you are one of the lucky few. This kind of nonsense is part of the problem.

The need is for more quality and well maintained social rental accommodation. Renting has a bad reputation because of security of tenure and often appalling living conditions. Both are easily dealt with in a social context. The council house was a good idea in principle but fixed people to specific locales and created administration and financing problems for local councils. It is very inefficient for every council to need to replicate the same structures to manage council housing. Moreover, the fixation with linking people to the ‘parish’ was reminiscent of the ‘poor law’ mentality. The need is for national organisations organising public rental accommodation. They already exist.

Housing Associations (HA) perform many public and social housing functions across the UK. They are not-for-profit organisations. As with all such organisations their expense ratios need to be scrutinised and regulated but this is not a very demanding exercise. The HA offer a model for organising social rental accommodation across the nation. Local public land should be leased to HA with restricted covenant that it can only be used to provide accommodation (and ancillary services) on a rental basis. Ownership of the land remains with the original public body. The lease can be indefinite allowing the HA to build and let property on an indefinite basis. The terms of the lease can ensure the HA behave as required.

The objective of not-for-profit organisations is to provide services at cost. The rents are set to cover debt servicing, maintenance, and administration. The standard of accommodation can vary and the rent may vary with standards. There is no reason why different standards and types of accommodation cannot be provided. Moreover, the ambition should be to provide to anyone that wants such accommodation and not just a lucky a few. The ambition should be to become the dominant provider of rental property.

The main advantage of this model is flexibility. If you live in Glasgow and need to move to Manchester for reasons of work it is possible to do so. You do not stay in Glasgow because you can never get a council flat in Manchester. The HA predict demand and manage their stock in order to make such flexibility possible. Their function is to provide such flexibility. The HA can also ensure minimum standards of accommodation for all needs. They can provide hostels for ‘vulnerable’ people (as they do) and houses for families. This is how affordable rental accommodation can be provided.

The problem with such organisations if of course efficiency and corruption. This is not an insurmountable problem. It does require proper audits and incentives. It does require regulation. It can be partly dealt with by forcing the HA to borrow in the open market with no government guarantee. The corporate bond market will then provide some scrutiny and incentives. Poor administration, corruption and such will soon result in higher borrowing costs and even an unwillingness to lend. Regulatory intervention would then become necessary but corporate bond holders are quick to respond.

If Sadiq Khan wants to help young Londoners (all young Londoners and not just those he deems worthy) he would do better to lease public land to HA and let them provide properties to let.