Housing Finance and Economics Evaluating New Labours Housing Policy - Coursework Example

? Housing Finance and Economics – Evaluating New Labour’s Housing Policy (2702 words) The idea behind social housing refers to a system of housing which is affordable. This permits people to on low rents and with security. The system is need based where the claimant earns points as per needs. These accommodations are provided by the non profit organizations or housing associations. (Shelter, 2011) Hence the main purpose of providing social housing is to provide houses which are within the range of affordability for the individuals with low income levels. This segment is monitored such that rents are kept at low levels. This sector is different from that of private landlords where the choice of the later dominates. Here, houses are allocated according to needs and the social landlords state in advance the criterion on the basis of which the allocation is done on a rational ground. They might have a policy of alteration at any time as per the decision of the landlord. The New Labor administration brought about the issue of housing within the jurisdiction of social inclusion. During the policy statement titled ‘Quality and choice: A decent home for all: The way forward for housing’ the government announces its goal of providing each citizen “the opportunity of a decent home and so promote social cohesion, well-being and self-dependence” (DETR, 2000, p.3). Since now the aspect of housing has been incorporated into social inclusion, the outcomes of housing as a meter of performance evaluation has become more complex as the recognition of particular input to housing sector has also become difficult. Several questions have come up in this respect. For example, the resources allocated to New Deal might be categorized as housing spending despite the fact that a large proportion of the same goes towards development of the community and promotion of integrated thoughts and action. Then the question arises with respect to allocation of housing to people who cannot be lived next to and whether they are incorporated in the allocation process of social housing. ‘Residualisation’ takes place when some people or a group of individuals move from one place to another in search for better opportunities and leave behind some vacant houses and lands which are feasible to be accommodated for people having no roof to stay. (Williams, 1999) When an estate is not under maintenance and also in a dilapidated condition, the council is more inclined to allocate them to people are socially inadequate or inefficient. Here social residualisation also becomes economically unproductive since the resources in the region are not optimally utilized and the rest of the residents feel entrapped and isolated which keeps them away from participating in the economy. This leads to immediate convenience but short sightedness. For instance, people who claimed ownership houses keeping in view the Right to Buy are deceived and their period of wait goes to vain. At this juncture a social dilemma arises with relation to the exclusion of people through the housing framework or from the same. This is due to residualisation and ‘spatial concentration’ of the system. The paper brings forth the economic evaluation of the housing policies of New Deal after 1997 considering alongside the economic factors influencing the housing system after the coalition administration came to power since 2010. Achievements of the New Labour’s Housing Policy When the New Labor came to power, things were against the favor of social housing system. This was especially due to the Thatcher’s Right to Buy system which decreased the number of accommodations available for social housing. In this context, Cooper observes, “In the last year of the Conservative government which lost to Mr Blair, Great Britain suffered a net loss of 16,257 homes…The number of homes built by councils and housing associations plunged from its peak of 110,000 in 1980, the second year of the outgoing Conservative government’s 18-year tenure, to just 34,860 in 1996, its final full year. Things could not have looked worse for housing” (Hill, 2010). According to the Labour Party itself, manifold achievements have been made during the recent past especially from 1997 onwards. They have been able to address the challenges of the housing system of Britain adequately. A recess of around ?19 billion left behind by the Tories has been dealt with. The Labor Party claims to have brought about major improvements in conditions of social housing system and reducing homelessness by two thirds. The party is determined to help the borrowers in every possible way in order to bring about sustainability in the housing scenario. (Great Britain: Parliament: House of Commons: Communities and Local Government Committee, House of Commons, 2009) They framed the Homeowner Mortgage Support Scheme and other steps in order to avert repossessions of property. They have made arrangements such that the local housing associations can provide affordable houses to the new claimants and also improve different aspects to assist the construction market. Some of the notable successes have been discussed as follows. First, the Decent Home Scheme has aided in providing above ?20 billion as investments in order to improve the social housing framework. This has improved the conditions of above a million families from the cold and poverty stricken conditions of roof they were confined to. Around three-fourths of the new real estates were developed on the Brownfield lands which were developed in the past. This was an increase from 56 percent as in 1997. As per their estimates homelessness is at the trench considering the period starting from 1980s. “Rough sleeping” has declined by more than 66.67 percent. With the assistance of shared ownership schemes stamp duty was destroyed for the people who were ready to buy properties. According to Labour, “We have extended the stamp duty holiday on properties under ?175,000 to the end of 2009” (“Labour Policies: Labour Housing Policy”, 2010). Government funds were employed to purchase houses which were not sold in order to provide affordable housing to those in need. Labour supported industry by raising “?400 million of government spending to deliver up to 5,500 new social rented homes over the next eighteen months” (“Labour Policies: Labour Housing Policy”, 2010). Local Authority Housing Companies have been set up to provide monitoring over the affordable housing provision. the ones who are purchasing for the first time declared a fund of ?1 billion to assist the first time purchasers and owners of home such that the former could find the equity assistance. During the Budget declaration of 2009, around ?600 million funds were packed to construct greater number of homes by exploring the places which were till now lying undeveloped. These claims of the New Labour show that a considerable balance has been maintained to meet the demand with existing and new productions. (“Labour Policies: Labour Housing Policy”, 2010; New Labour because Britain deserves better, 2001) One might say that the policy looked forward to clean up the inventory stock first and then move on to produce more stocks. This facilitated better space utilization and utilizing the existing scale economies for people demanding or seeking a roof. In fact the last counting revealed 86 percent of social homes attained the decent benchmark promised as compared to less than 50 percent in 1997 (Hill, 2010). Once the already existing vacant Brownfield properties are renovated the poor people with low incomes could find a home, a condition better than where they lived before. There is a note of discrimination for good in the process of allocation. The allocation was done on need based approach which permitted an economic response to demand. When economies of scale persist, cost of inventory purchased by the government at low price, developed and let to the people with low incomes as per nature decreases. In this case the vacated houses (inventory) on Brownfield lands were of demands. Since this is a need based approach, subject to their budget, therefore it is not necessary that all those who need a house will be provided. The allocation will be done on grounds mentioned in advance as pre-requisites (Powell, 2008). The following diagram might help us associate inventory management within the demand supply framework with the social housing system. In the above diagram we find that demand and supply intersect at E where supply equals demand going by market forces. The equilibrium price is P and quantity Q0. However price is to be kept lower than the market price in order to promote affordable housing. Say, for instance the price is at P1 (below P). Here there is an excess demand of (Q2-Q1) which cannot be met by the existing suppliers. Here comes the role of the scale economies existing in the market, that is, the inventory which is of low cost to the government (Powell, 2008; Whelan, & Msefer, 1996). The administration builds the existing properties on Brownfield lands after possessing them and rents them out at low prices to the families with low income. The supply will be brought down to Q1 at point C such that the inventory might be cleared first. The existing lands serve as the inventory stock. This is how the economies of scale are utilized and thereafter, new constructions are supported. Once this excess demand is cleared and the demand reduces along DE (comes to point E), supply will also be raised to meet the demand at the higher price until the market equilibrium price is reached. As long as existing inventory is more than desired inventory, the prices are kept low. However, the housing associations kept on working to generate scale economies by procuring lands and properties at low cost and giving them out on rent to the families with low incomes. Criticisms of the Housing Policy The housing policy however might be criticized on certain grounds. First, the criteria for performance established by the New Labour are often unclear and usually projected in terms of outputs instead of consequences. Although the “way forward for housing” promised affordable rents, no precise description of affordability is given. It is also difficult to valuate the efficiency of the housing policy because it might be unfair to blame the governments while the direct involvement lies with the local agencies for delivering the “housing outcomes” (Powell, 2008, p.110). In fact the target for new homes was increased from 2 lakhs to 240000 annually by 2016 along with a target of 3 million by 2016. Eco-towns were built to increase accommodation and 224680 residents were established while the “number of social homes built outstripped those lost through right to buy” (Hill, 2010). Despite this measure towards revolution in the supply of housing, the fall of the financial market was brought about when the banks stopped lending. The housing market crash was however brought about in three stages. In the first stage the purchasers are careful and as prices increase, the buying spree increases. In the next stage known as the Greed stage, buyers flow in profusely and this has been the case with the period 2003 to 2007. The first hint of breakdown occurred at the Denial stage when the expectations rise while price of assets actually falls. This takes place as the market reaches saturation. Customers increasingly seek for loans with the help of mortgages from the banks. At the final stage, the market crashes and prices start falling. (Roberts, 2008, pp. 112-116; Laperriere, April 10, 2006; O’Donnell, August 29, 2008) Going by economic efficiency, marginal benefit equates marginal cost and demand equates supply. This very basic concept has been used to point out the problems in the eco-towns system. Barker observes that poor supply of housing might lead to lack in labour market flexibility. So while the social housing system demands utilization of the vacant estates for affordable housing, it is also required to increase the market supply. In fact, as per the plan, even if eco-towns produce 2 lakhs extra residents, the requirement of three million housing by 2020 was unlikely to be met. (Manns, 2007) The effect of low supply of housing at every stage could therefore bring about a fall in the affordability benefits both nationally, regionally and locally. This is due to increase in price and the rising interest rates in 2007. As per analysis, unless supply could be increased to equal demand affordability in the long run was bound to fall (Ferguson, 2006). Besides the slow growth in economy, growth in income along with increasing demand from the rise in number of families will lead to persistent rise in prices compared to income. (Department for Communities and Local Government, 2008) A delivery system governed by the administration is supposed to initiate affordability benefits with the help of authoritarian system. According to critics therefore the sustainability promise could not be maintained by the eco-towns. Another illustration as below shows how a loss in welfare is brought about by undersupply of housing. (Department for Communities and Local Government, 2008, p. 11) The above illustration shows that increased prices imply a rise in the level of housing supply and increased prosperity of the builders as they can project their stocks at this higher rates. When prices are low, it signifies greater affordability and therefore raises the demand for houses. S’ shows the supply has to be limited to the level below the market standard. When supply is reduced externally, a general welfare loss is brought about. The cost here is borne by the housing market and also the economy represented by areas B and C. the regions A and B stand for loss in consumer surplus resulting from lesser number of families getting allocation of housing and by people who are compelled to pay a higher price than the market. Overall welfare loss is brought about since lesser number of families will now gain from housing and the owners and builders will incur fewer amounts of revenues, thereby bringing down the total earnings and welfare. Coalition Government’s Housing Policy The Budget report of 2010 reveal that the coalition government aims at increasing homelessness to be very precise. The Local Housing Allowance rates will be raised on the grounds of Consumer Price Index instead of local rents. The consumers seeking for Jobseeker’s Allowance will continue getting the same for a year after which it will be reduced by 10 percent and shall be entitled to full benefit only after working for a certain period (Paskini, 2010). The immediate issue in the 2010 election was the status of the present economy. The essential job resting with the Chancellor Cameron was dealing with the fiscal deficit which rose up to 11.1 percent of GDP during 2009-2010. The crisis period carried on for more than two years. The deficit had to be reduced and also the economy would need to grow adequately. The tax rates especially for carbon taxes was structured such that the poor families would contribute more than the richer ones. However in order to avoid rebellion, the Labour Party’s tax agenda would be more lucrative as it will reduce the pressure on the middle class. Concluding Remarks According to different analysts, the new coalition government will herald a new age of alteration which might affect the housing market. The Welfare Reform Bill will help in shoving the individuals from benefits towards jobs. The local communities will now have more control over the housing and planning related affairs. From the above study it is also clear that the demand side in social housing sector will go beyond supply and economic advantage and chances are scattered non-uniformly across Britain. Social housing has played the role of a welfare agent in standing beside the poor sections. When one thinks in terms of revenues, this sector signifies a very worthwhile source – “Gross Book Value of the sector’s assets standing at ?94.6 billion and turnover for the sector standing at ?11.6 billion in 2009” (Thornhill, 2010, p.8). The coalition government has placed the tenants with a better job and willingness to move to other parts of the region on the top of the list on priority basis. In fact the coalition government’s scheme supports the people with economic and social priorities instead of medical reasons or problems of homelessness. The programs undertaken by the government was led by financial and economic motives rather than social cause though the existing tenants are promised more fairness and satisfaction. References 1. 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