Privatising UK social housing won't work – just look at Europe

Article taken from The Guardian, 24th November 2015

The UK government has made it clear that it wants to move housing associations, reclassified as public bodies in October, off the public books as soon as possible. It also wants to encourage the building of more new homes for sale, rather than for rent.

But will these plans help solve the UK’s housing deficit, or create an even bigger problem?

The UK population’s average annual growth is 0.7% : double the EU average and one of the highest growth rates in the EU. The UK housing construction rate, however, is 2.5 homes per 1,000 people. That means the population increased by 4.5 million, or about 2 million new households, between 2004 and 2014. With only 1.5 million new homes built in the same period, the deficit is obvious – a shortage of 500,000 homes.

It is no wonder housing costs have increased. Normally, this would hit low income households, young families, first-time buyers and migrants hardest. But even middle-class households in London and other metropolitan areas are being priced out of the market and forced to live in commuter zones far from work.

Is the free market the right tool to revitalise the industry and create affordable housing? Many people believe in this liberal approach and that supply and demand balance themselves, with demand driving the supply.

However, many European countries have already gone down this path – and many wish they hadn’t. During the 1990s, central and eastern European countries embraced the free market route. Governments in Hungary, Slovakia, Macedonia, Romania, Armenia and elsewhere sold their stake in housing and left it to the private developers and tenants associations to take care of construction and maintenance costs. Today, these countries boast above 90% private home ownership – as high as 98% in Armenia – according to a recent Habitat for Humanity report. They also boast a new class of owners who cannot afford to maintain their properties. In Romania, 40% of homes are in need of renovation according to UN estimates. In Ukraine 10% of homes need to be reconstructed or replaced, while 9% of Russian homes should be demolished, according to our report. Is the free market helping? No: the owners are locked into their decaying homes, they can’t sell them and, if they do, they can’t afford new ones.

Germany is often held up as a model for social housing privatisation. But its public housing was sold to international investors, such as Deutsche Annington, and Vonovia, Cerberus, Fortress and commercial banks. The sale and resale of the same properties on the market ended in a race for profits and an increase in housing prices. There are a million fewer social dwellings than there were prior to privatisation.

According to the FT, privatisation of social housing will reduce the public debt by more than £100bn in the UK, but there is little evidence to suggest the move will increase housebuilding and decrease the housing deficit in the long run. The Habitat for Humanity report, published on 19 November, states that, right after privatisation in 1990s, most of central and eastern Europe experienced a drop in housebuilding; this gradually picked up until the mid-2000s but plummeted again by 70-80% after the global financial crisis.

A free market approach is more vulnerable in times of crisis: in 2008 foreclosures affected markets with a high share of private stock and less so countries that rely on a mix of private and social models, such as Germany, Netherlands or Austria.

If the UK doesn’t want to see its citizens emigrating in search of a decent place to live, it might want to consider not selling its stake in housing associations and instead, managing it better.

It could also look for other ways to revitalise housebuilding. Austria has operated limited profit housing associations and given public subsidies to brick and mortar producers to stimulate construction. Today, its public expenditure on housing is less than half that in the UK, subsidies and allowances included – while construction output is twice as high.

Dr Wolfgang Amann is head of the Austrian institute for real estate, construction and housing and co-author of Habitat for Humanity’s 2015 housing review.