The great social housing sale: Nice idea, shame about the magpies

Yesterday’s Policy Exchange report proposing that valuable social housing be sold off to pay for more housing in cheaper areas caused a predictable furore.

Opponents quickly united around the claim that the idea would lead to social segregation. Proponents pointed out that social segregation is exactly what’s currently experienced by many of the 1.8 million families on social housing waiting lists.

Hyperbole aside, any balanced interpretation of the idea must recognise that there are valid concerns on both sides of the debate. Selling all valuable social housing would indeed exacerbate social segregation, and no reasonable person wants to create social housing ghettos. But that’s not sufficient reason to be against the idea in principle. Tying up billions of pounds in property in central London to allow a few families to live in places that nobody else can afford, while millions of families are denied housing, surely doesn’t serve anyone’s social priorities. The principle advanced by Policy Exchange is therefore entirely reasonable – the debate we should be having is how far to take it.

There are at least two ways to maximise the benefits of the policy and minimise any segregation effect. First, councils needn’t be as gung-ho as the Policy Exchange proposal to recycle the value in the top 21.8% of houses. The savings from the idea most clearly outweigh the segregation effect at the top of the distribution: selling a £1m house in already segregated Knightsbridge is a better idea than selling a £600k house in, say, more socially mixed Islington.

Second, the geographic level at which the policy is implemented matters. While operating the policy at a regional level could lead to the creation of Parisian-style Banlieues, with social housing reallocated to the edges of the capital, recycling housing within smaller areas would ensure that major cities remain mixed. Reallocating cash within so-called ‘Broad Rental Market Areas’ – of which there are three in Hammersmith & Fulham, for example – would guarantee that even central boroughs would increase their stock of social housing. So in theory there’s a lot to be said for the idea and ways it could be introduced to avoid the side-effects.

But while it might be good in principle, there is a flaw in the plan. With the next spending review looming, departmental settlements look set to be at least as tough as those set in 2010, when capital budgets for housing were cut heavily. If the Policy Exchange plan were to provide councils with an income stream, it’s inconceivable that Treasury magpies wouldn’t spot it and adjust the capital budgets from central government accordingly. The result would be the sale of some social housing with the proceeds effectively appropriated for other purposes – be they public spending elsewhere or taxes lower than they would otherwise be. Economists can dream up clever plans, but politics has the final say.


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