The Domino Effect ( Idea )


1980 Housing Act

In 1980 the Conservative government headed by Margaret Thatcher passed an act that entitled occupiers of council owned housing to purchase their home, and to do so at a discount.

A political and economic theory

This was done to provide a wider range of people a chance to get on the property ladder, and to free up the free market. The right to buy has proved to be an enduring policy that has not been substantially altered by any government since it's enactment, and as of now, none of the mainstream political parties have put forward any further plans to look at the act.

The Dodge

One stand against the wholesale disposal of council housing was for some local authorities to place what little stock they had left into a non profitable organisation, these are called housing associations. This, and negotiating with builders to make a few affordable houses has been he last refuge of Nye Bevans social housing project.

Both Sides

As far as I understand the theory behind the right to buy act, the intention was to allow people a chance to invest in their own home. A property investment. The free market was in need of a change to the rules, and local councils did not wish to be responsible for housing.

Selling off a lot council housing at a massive discount, pumped a lot of money into the economy. Pump enough money into the economy and you get rising inflation To combat rising inflation you raise interest rates. Raising interest rates raises the volume of mortgage defaults. More homeless people, and less council housing, gave the private rented accommodation market a reason for expansion.

The banking sector suddenly had a lots of cash to invest in a whole new market. Couple this with some financial deregulation, the realization that common sense need not stand in the way of making unbelievable fortunes, and you have the recipe for a continuing series of housing bubbles. Unfortunately, as a nation we see each one individually, but not as a whole.

What Now ?

2010 /2011

The latest housing bubble, due to some creative financial thinking is slightly more complex than the last few. The exposure to the sub prime portion of the market in the UK, Europe and in America, has led to a rather dramatic banking crisis.

The fact that some governments have been less than prudent with their budgets, and the international money market is quite willing to drive a country into bankruptcy, is also a consideration.

Add the strength of the Chinese economy, the disorganization of the American economy, and you have some very big numbers to deal with.

As of yet the UK housing market is still inflated. Held up by unaffordable government subsidy, ever increasing amounts of personal debt, and a really low volume of affordable house building.

What Next ?

If the UK is to change the way it deals with a boom and bust economy, the housing market is the obvious place to begin. There are at least two ways to deal with this.

1/ Legislation. This is a long, slow process, which will be forever tinkered with, probably full of inequalities and resented by everyone.

2/ Competition. Rescind the right to buy council housing, and start local authorities building like mad. Keep the rent on these properties well below the market rate. To compete with this new affordable housing supply, the private sector will have to reduce the cost of its own housing supply.

There is also the law of unintended consequences,

Affordable housing means market growth. More houses sold, more furniture and other goods sold. More jobs, Less people on benefits, more people paying tax.

The Question Is ?

Do we let a 1980's political theory stand in the way of a practical solution to a lot of our current and future problems ?

Any points of view, or refinements ,comments or similar ideas are more than welcome.