On subsidy

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There was a bit of a twitter spat this week between a couple of Inside Housing journalists and a few SHOUT supporters about the use of the word “subsidy”. You can read it here.

In a nutshell the journalists were arguing that £4.5 billion of grant paid to housing providers would be viewed by the wider public as a “subsidy” and that we would face an uphill struggle to persuade them otherwise. Perhaps we will, because the writ of the Daily Mail clearly runs wide and deep, but one of the key ambitions of the SHOUT campaign is to challenge this lazy stereotyping.

Taking my cue from James Murray, the OED definition of subsidy is:

“Money or a sum of money granted by the state or a public body to help keep down the price of a commodity or service, or to support something held to be in the public interest.”

I would argue that decent affordable housing is a bigger fish than a mere “commodity or service” and it’s why many of us have argued that housing should be put on a par with infrastructure. But let’s look at the facts. The global accounts for housing associations show historic grant of £43 billion, which amounts to less than £20,000 per home, a small fraction of the open market value. Council housing’s historic “subsidy” has been devolved to local authorities and the sector has been in profit since 2008. In both cases the variance between historic grant and current rent levels cannot be explained by the input of grant alone. So the rents are not “subsidised” in full, as some believe. There is much more to it than that. As I’ve written in this case study on the Boundary estate (see photo), built by the LCC in 1900, whatever level of public grant was applied back then is minuscule compared to the current value of the asset and the fact that it has provided a public good for the past 115 years. The Boundary estate has paid for itself in full many times over. That’s because investment in bricks and mortar is unlike any other form of public investment.

In his 2010 report “Making Housing Affordable” for policy Exchange, Alex Morton made the ludicrous, unchallenged claim that the gap between social housing rents and market rents, if scaled up, amounted to a global subsidy of £6 billion a year. Of course this is nonsense, there is no payment of £6 billion a year being made to housing providers. The gap of £6 billion is the result of decades of sound investment in homes, and the fact that no shareholders have creamed off the profit from rents, all of which has been siphoned back to support new homes. The original public investmant has become insignificant as property prices rise. If social rents were increased to market levels the hit on to the taxpayer would be much higher. Even Policy Exchange accepts that social housing rents save £3 billion a year in housing benefit costs.

If we took a random sample of public-funded services – the M20, the RNLI, National Parks, the NHS, the coastguard service – would we describe them as subsidised? I doubt it. In the public mind, they form an essential part of the fabric of the nation. If you start to take the Gradgrindian view that any investment in public goods is innately an evil subsidy then we would still be living with turnpikes and boys up chimneys.

Yet in the case of social housing, which provides an equally essential public role, we have allowed the notion of “subsidy” to become embedded. It’s the result of years of bile from parts of the tabloid press, and the TV poverty porn of recent years, but the sector has done little to challenge it, which is partly why SHOUT was set up. Words are important. Look at the poll tax and the mansion tax – these policies were doomed to fail as soon as their nomenclature was established in the public mind. That’s why we try to avoid words like subsidy and grant and use investment instead.

Of course the real beneficiaries of subsidy, as John Perry has so eloquently pointed out, are homeowners, the lucky recipients of Right to Buy, and Buy to Let landlords, and in all three cases there is little or no public benefit. Perhaps Inside Housing’s enterprising journalists could launch an in-depth investigation into this national scandal and expose who really benefits from housing subsidies. You never know, they could even sell it to The Daily Mail.

(First published at Inside Housing 8th July 2015)

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