A Tale of Two Britains

by George Hatjoullis

Two articles in the digital FT appear juxtaposed such as to scream ‘A Tale of Two Britains’. The first, ‘Working but homeless‘, highlights the plight of employed (mainly young) that have nowhere affordable to live. The other, ‘Bull markets need fresh blood‘, speaks to the concern of people (mainly older) of how to generate income from assets. If there had been one about the plight of pensioner landlords then the set would have been complete. What struck me as most interesting was how the articles seem to speak to separate worlds, different countries, and most certainly, different realities.

There is full employment in the UK. It had been relieved by EU workers moving in but that process is now going into reverse. Getting a job is not the issue for the young. Finding somewhere to live that is affordable and close enough to the place of employment is a big problem. The failure of the benefits process designed to assist the working poor has made matters much worse. Housing benefit is no longer fit for purpose and this has rendered many working poor homeless. There is something seriously out of balance when employed people cannot afford somewhere to live near their place of work. Commuting is not a solution since what is saved on rent is lost in commuting costs, pecuniary and non-pecuniary.

Meanwhile, in a country, far, far, away, old people with homes containing large amounts of equity, and with liquid assets, struggle with the new found responsibility for deriving an income from such assets. The demise of the defined benefit pension and the collapse of annuity rates (largely because we will all on average live longer) has thrust the older generation into the rentier class. Many of these rentiers are life long Labour voters that still mouth the usual contempt for rentiers apparently unable to grasp that they too are now rentiers. The lucky ones have defined benefit public sector pensions so have been bailed out by the tax payer but still have the audacity to rail at the rentiers.

The two stories are connected by the missing article about landlords. One response of the rentiers to the need to generate income was buy-to-let. A new class of amateur landlords has emerged. These are often people using rental property as a means of generating income in retirement. These amateur landlords have scooped up the very properties in which the first time buyer might normally have expected to start their home. The first time buyer is now a renter and subject to market rents. There are not enough affordable properties for rent where there are jobs. This is the failure of housing policy.

Blame has typically been placed on everyone but the Ministry for Housing. Yet what is the purpose of such a ministry if not to formulate and implement a housing policy? And what other primary objective can there be for a housing policy than affordable homes near jobs? The Tory government has left the solution to market forces and ignored the huge externalities involved. It has divided the country between property owning and renting classes. It has created a new rentier class. It has created a class of working poor and homeless. There has been a redistribution of wealth from the young to the old.

Two new policy initiatives are desperately needed. The first is a state backed national housing association. This should have as an objective the provision of homes near jobs. This is a complex problem since jobs wax and wane in specific localities. It is however a problem with several solutions and there is plenty of evidence from successful states such as Germany that it can be managed. It will require innovative ideas and a new attitude to property ownership but is clearly required. The second is a state backed national pension provider. This reflects my oft expressed view that the best way to deal with externalities is to set up a state backed entity to compete with market based responses. The state institution can set the standard and the private sector can either match it or cease, leaving provision to the state.

The end result of my suggestion may well be sole state provision of some services but importantly it does not eliminate market solutions where they have a role. The same approach could be applied to say banking or energy provision. Set up a state owned energy provider and compete. Customers will either move to the state provider or not. Similarly, set up a state bank (convert NS&I) and compete. This is an alternative to nationalisation, the favoured method of the marxist.

There is a huge potential for state enterprises to compete against private enterprises. The state has the advantage of tax-payer backing for finance. The private sector may, as is often claimed, be more efficient. Making the two compete will evolve into the optimal structure. Typically one or the other will dominate in a sector. And policy is set through the corporate objectives of the state provider. Nothing is nationalised. Nothing is banned. Yet the state sets the tone.