Lessons from history: A century ago, the Tories accepted that only councils could solve the housing crisis

A London family with all their possessions in the street following eviction from a slum, c1901. Image: Hulton Archive/Getty.

Nothing symbolises the perversity of the contemporary housing market better than the surfeit of luxury accommodation in central London postcodes, much of it contained in a rash of high-rise developments along the Thames.

As homelessness and overcrowding rise, social housing waiting lists grow, and millions of families face the high rents and permanent insecurity of the private rented sector, developers have nevertheless managed to over-supply the demand for high-end living in the capital.

This misalignment of priorities in housing feels like a peculiarly modern phenomenon: a symptom of London staking its place to be one of the world’s premiere cultural and financial centres, not to mention a playground for the rich. But many of the dynamics of today’s housing market – particularly its chronic failure to cater not just for the poor, but for the average working family – would have been familiar a century ago.

For years, politicians and the press had been wringing their hands about the housing conditions of the working classes in Britain’s industrial towns and cities, particularly London. Rents were high; overcrowding was severe. Conditions were so appalling that “the housing question” was regarded, first and foremost, as a public health consideration.

It would be too much to suggest an equivalence between the squalor of the 19th century slums and the housing plight facing many Londoners today. But it is no exaggeration to say there are very clear parallels between the way the housing market operated then and now, which should give today’s policymakers pause for thought.

First, housebuilding failed, year after year, to keep up with demand. It proceeded in fits and starts, dictated not by the constantly rising need for homes (due to the rapidly expanding population), but by wider economic conditions and their impact on house prices. Whenever prices fell, builders reduced their output.


Second, housing costs were punishingly high – rents in London absorbing for many up to half their wage – and the vast majority of people could not afford to buy their own home. Private landlords, offering hardly any security of tenure, controlled about 90 per cent of the housing stock.

Third, attempts by philanthropists and the earliest housing associations to provide for the poor were heroic but ultimately futile. The cost of land meant that they were consistently crowded out by private builders who wanted to construct homes for people of greater means.

Fundamentally, the housing system provided for the better off, and ignored the poor. By 1914, politicians of all stripes had begun to see the situation for what it was. Tories and Liberals just as much as the small band of Labour MPs had begun to despair that the private sector builders would ever provide all of the homes the country needed.

By the First World War, politicians were beginning to realise there was only one way out of this mess. What was missing, as today, was a meaningful programme of public sector housebuilding to bypass the private developers.

In 1913, a Conservative Party pamphlet concluded that the housing problem would be “irremediable” without state support for local authority housebuilding. The following year, on the eve of war, the then Liberal chancellor David Lloyd George told the Commons:

“You cannot provide houses in this country by private enterprise. I do not care what party is in power: whatever party it may be, I predict it will have to realise the fundamental fact that the builder for years has gradually been passing out of the field in the building of houses [for the poor] — he has been passing on to something which he finds more profitable.”

As soon as the First World War was over, the government would stop relying on speculative private builders to meet the country’s housing needs, and order councils to make up any shortfall between supply and demand. What the private sector did not build, councils would – and the Treasury would pick up the tab.

The massive council housebuilding programmes of the 1920s and 1930s, and then after the Second World War in the 1950s and 1960s, transformed the housing market and improved the living conditions of millions of people. Supply got ahead of demand, prices relative to incomes levelled out or even fell. Owner-occupation grew, and decent provision was made for those without the means to buy their own home.

Since the 1970s, and the collapse of public investment in housebuilding, things have come full circle. The housing market is prone to speculation, building fails to keep up with need, housing costs are rising, and a new generation of private landlords is coming to colonise the housing stock. As ministers grapple with these issues, they could do worse than look back to their early 20th century forebears for inspiration.

Daniel Bentley is editorial director at the think tank Civitas. His latest report, “The Housing Question: Overcoming the shortage of homes” can be read here.

 
 
 
 

High streets and shopping malls face a ‘domino effect’ from major store closures

Another one bites the dust: House of Fraser plans to close the majority of its stores. Image: Getty.

Traditional retail is in the centre of a storm – and British department store chain House of Fraser is the latest to succumb to the tempest. The company plans to close 31 of its 59 shops – including its flagship store in Oxford Street, London – by the beginning of 2019. The closures come as part of a company voluntary arrangement, which is an insolvency deal designed to keep the chain running while it renegotiates terms with landlords. The deal will be voted on by creditors within the month.

Meanwhile in the US, the world’s largest retail market, Sears has just announced that it will be closing more than 70 of its stores in the near future.

This trend of major retailers closing multiple outlets exists in several Western countries – and its magnitude seems to be unrelated to the fundamentals of the economy. The US, for example, has recently experienced a clear decoupling of store closures from overall economic growth. While the US economy grew a healthy 2.3 per cent in 2017, the year ended with a record number of store closings, nearly 9,000 while 50 major chains filed for bankruptcy.

Most analysts and industry experts agree that this is largely due to the growth of e-commerce – and this is not expected to diminish anytime soon. A further 12,000 stores are expected to close in the US before the end of 2018. Similar trends are being seen in markets such as the UK and Canada.

Pushing down profits

Perhaps the most obvious impact of store closures is on the revenues and profitability of established brick-and-mortar retailers, with bankruptcies in the US up by nearly a third in 2017. The cost to investors in the retail sector has been severe – stocks of firms such as Sears have lost upwards of 90 per cent of their market value in the last ten years. By contrast, Amazon’s stock price is up over 2,000 per cent in the same period – more than 49,000 per cent when considering the last 20 years. This is a trend that the market does not expect to change, as the ratio of price to earnings for Amazon stands at ten times that of the best brick-and-mortar retailers.

Although unemployment levels reached a 17-year low in 2017, the retail sector in the US shed a net 66,500 jobs. Landlords are losing longstanding tenants. The expectation is that roughly 25 per cent of shopping malls in the US are at high risk of closing one of their anchor tenants such as a Macy’s, which could set off a series of store closures and challenge the very viability of the mall. One out of every five malls is expected to close by 2022 – a prospect which has put downward pressure on retail real estate prices and on the finances of the firms that own and manage these venues.

In the UK, high streets are struggling through similar issues. And given that high streets have historically been the heart of any UK town or city, there appears to be a fundamental need for businesses and local councils to adapt to the radical changes affecting the retail sector to preserve their high streets’ vitality and financial viability.


The costs to society

While attention is focused on the direct impacts on company finances, employment and landlord rents, store closures can set off a “domino effect” on local governments and businesses, which come at a significant cost to society. For instance, closures can have a knock-on effect for nearby businesses – when large stores close, the foot traffic to neighbouring establishments is also reduced, which endangers the viability of other local businesses. For instance, Starbucks has recently announced plans to close all its 379 Teavana stores. Primarily located inside shopping malls, they have harshly suffered from declining mall traffic in recent years.

Store closures can also spell trouble for local authorities. When retailers and neighbouring businesses close, they reduce the taxable revenue base that many municipalities depend on in order to fund local services. Add to this the reduction in property taxes stemming from bankrupt landlords and the effect on municipal funding can be substantial. Unfortunately, until e-commerce tax laws are adapted, municipalities will continue to face financial challenges as more and more stores close.

It’s not just local councils, but local development which suffers when stores close. For decades, many cities in the US and the UK, for exmaple Detroit and Liverpool, have heavily invested in efforts to rejuvenate their urban cores after years of decay in the 1970s and 1980s. Bringing shops, bars and other businesses back to once derelict areas has been key to this redevelopment. But today, with businesses closing, cities could once again face the prospect of seeing their efforts unravel as their key urban areas become less attractive and populations move elsewhere.

Commercial ecosystems featuring everything from large chain stores to small independent businesses are fragile and sensitive to change. When a store closes it doesn’t just affect employees or shareholders – it can have widespread and lasting impacts on the local community, and beyond. Controlling this “domino effect” is going to be a major challenge for local governments and businesses for years to come.

Omar Toulan, Professor in Strategy and International Management, IMD Business School and Niccolò Pisani, Assistant Professor of International Management, University of Amsterdam.

This article was originally published on The Conversation. Read the original article.