The Housing Shortage in 1992

Meeting the demand for housing

by Dick Barry

The recent call by the head of Nationwide, the country’s second biggest building society, for the phasing-out of tax relief on mortgage interest is an indication of the desperate state of Britain’s housing market. Tim Melville-Ross estimates that it would save the Government about £6,000m this year, enabling interest rates to be cut. He has also suggested that we need a series of additional measures which address all of the housing problems and which are consistent with the Government’s desire to have a more rational housing policy. These measures include a means-tested benefit for home-buyers with low incomes, an increase in tax relief for first-time buyers for a limited period and a revival of the private rental sector.

As far as I am aware, Melville-Ross made no reference to the high level of homelessness, 145,800 last year according to official figures, nor to the drastic decline in local authority housebuilding. The connection between the two is obvious but it appears to have been ignored. Current attention is focused on the owner-occupied sector where record numbers of repossessions and mortgage arrears are evident.

A number of housing commentators have called for a doubling of the present ceiling of £30,000, which is eligible for mortgage interest tax relief. If this was restricted to the first time buyers for a limited period of, say, six months, it could help to stimulate the housing market, but it would do nothing for existing mortgage holders. Housing demand is linked closely to the state of the economy, so any real stimulus will only come from a reduction in the interest rates (and hence mortgage rates); and as the Government has ruled this out, there is little chance of an upturn in housing demand.

Melville-Ross’ call for the phasing out of tax relief is a principled as well as a practical solution to Britain’s long-term housing problems. We should aim, ideally, for financial equity across all housing sectors. However, it is difficult to envisage he present government adopting such a policy, given that it would be extremely unpopular. But now, shortly after a general election, rather than later, is the time to effect such a change.

In addition, we need a boost to public sector housebuilding, particularly by local authorities. Under the 1985 Housing Act local authorities have a duty to house certain categories of homeless people, but the collapse in local authority house building, coupled with the loss of about 1.4 million council house through the right to buy, means that this is virtually impossible. The £7,000m in capital receipts held by local authorities, if released gradually, would make real inroads into the housebuilding programme. Government policy in recent years, however, has been directed at encouraging housing associations and reducing the role of local authorities to that of enablers, rather than providers of social housing. Housing associations provide an essential service to people with special needs, but it is unlikely, indeed it is admitted by the associations themselves, that they could become major providers of social housing in the future. The size of the problem requires a joint effort by all social agencies, with a key role for local authorities.

The government also secs the private rental sector as playing an increasingly important role in meeting housing need. The sector has collapsed from a high of 90% of Britain’s housing stock in 1914 to around 7% today. The 1988 Housing Act was partly designed to reverse this decline through incentives for landlords to let property, including higher rents and fewer rights for tenants.

Since then further measures have been introduced, including a ‘flats over shops’ initiative in October 1991, whereby housing associations can nominate homeless families and provide the money to pay rents to landlords to release accommodation. So far, however, the incentives have failed to make more than a marginal impact.

There are over 600,000 empty properties in the private sector and their owners will only make them available if the cash incentive is attractive enough. This means either higher rents or a straight subsidy from the government. Alternatively, the absentee landlord part of the sector could be purchased by local authorities or housing associations to let for rent. As an added measure, the government could introduce a rents to mortgages scheme for existing tenants where the property is purchased by a social agency, such as a local authority or housing association.

There is an increasing problem of empty homes in rural areas where, according to a report by the Rural Development Commission, there are almost 15,000 homeless people. The homelessness problem has arisen because of the opposition to green-belt development and the increase in the number of second homes in rural areas, which lie empty for much of the year. Both factors have forced up house prices making it difficult for young, local, people to buy for the first time. Rising unemployment in rural areas adds to the problem and forces many of them to seek work elsewhere.

In the main the increasing demand for more housing can only be met by releasing more land. However, land is a finite resource. In a small island like Britain, itis in short supply. The choice lies between making use of scarce land within urban areas, building on land encroaching on existing villages (in rural areas) or developing green field sites for small estates or new towns.

It is probably more sensible to develop land adjacent to existing villages and towns, unless it forms part of an environmentally sensitive area. The main advantage of this is that use can be made of existing services. On the other hand, the development of open, green field sites away from existing villages and towns not only eats into areas which ought to be left for recreational and other uses but also, once developed, may encourage further housebuilding.

Releasing land for the building of new homes, however, is not just a question of meeting demand. It is also essential as a means of giving a new lease of life to the construction industry which has experienced high levels of unemployment for a number of years.

Given the government’s determination to keep a tight rein on public spending, we are unlikely to sec any major changes in housing policy, leading to a rapid rate of housebuilding. We will just have to wait for the economy to take off. And that could be a very long wait indeed.


This article appeared in September 1992, in Issue 31 of Labour and Trade Union Review, now Labour Affairs.  You can find more from the era at and