Ten myths about council housing – and one ask

The New Era Estate, Hoxton. Image: Getty.

A Labour councillor and the executive member for housing & development at the London Borough of Islington on what we get wrong about council housing.

Everyone seems to agree that we have a housing crisis in London and that we need to increase the supply of genuinely affordable homes. And everyone, including the Prime Minister, seems to agree that a big part of this must be building more new council homes.

So the question is, how do we get council homes built in sufficient numbers to start addressing the housing crisis? To begin, we need to correct some widely-held, but inaccurate, views on council housing. Let’s do some myth-busting.

1. Council housing is subsidised

It isn’t. Far from it.

Here in Islington, most council housing blocks were built decades ago and tenants have been paying rent on their properties ever since. Council housing is administered through an account that is separate from all other local authority spending, the Housing Revenue Account, which has to remain solvent.

Council housing pays for itself either through rents or by the building of some new private homes for open market sale. This is what many councils have to do in the absence of government funding.

2. Housing Benefit covers the majority of Council tenants’ rent

It doesn’t. Households who claim housing benefit to help pay their rent live in all kinds of tenures in both the private rented and the social rented sectors.

Between 1995-96 and 2015-16, the UK’s housing benefit bill increased by 51 per cent – with the largest increase being in the private rented sector, which has seen a rise of 57 per cent over the past two decades.

Housing someone in the private rented sector costs an average of £110 per week in housing benefit compared with £89 in social housing, an extra 23 per cent. Far fewer people would be reliant on housing benefit if they were able to access council housing in the first place, and the government’s housing benefit bill would also come right down – freeing up more funds annually to spend on building new council homes.

3. Council rents are too low and most people can afford the Government’s new “affordable” rents

They can’t. “Affordable Rents”, under the government’s Orwellian definition, are set at up to 80 per cent of market rent in any given area. In Islington, this is completely unaffordable for most people. The median rent in Islington is £1733 per month. With the median gross monthly salary in the borough at £2713, many private rents are around two thirds the average income.

4. Councils don’t care about council housing anymore – they spend their time building private housing

We do care – and we get little government support to build.

In Islington this year, we are building more new council homes than at any time in the last 30 years. But we are forced to build some private housing as part of our new developments to help pay for the new council homes. We do not have the funding to do it any other way.

5. Right to Buy is fine because it replaces any homes that are lost

It doesn’t. Under the current rules, local authorities only receive 75 per cent of the proceeds of any property that is sold under Right to Buy. The rest goes to the government.

But government red-tape means that this receipt is only allowed to be used to pay for one third of the build costs of a new council home: we still need to find the other two thirds.

Right to Buy proceeds are also not allowed to be combined with any other grant funding, so many councils are struggling to spend them in the time allowed by government.

6. Yes, but the Government gives out grants for councils to build new homes

This has been cut massively and doesn’t fund the cost of building council homes.

In London, councils can obtain grants of £60k per new council home from the Greater London Authority, but this generally doesn’t cover any more than a third of the build costs of a new home and it cannot be combined with Right to Buy receipts. Government spending on building new homes fell from £11.4bn in 2009 to £5.3bn in 2015 – from 0.7 per cent to 0.2 per cent of GDP.

7. Then councils should just borrow more to build more

We’d love to, but we can’t. Sadly, councils can’t just borrow to build. The government caps the amount that local authorities can borrow through the Housing Revenue Account.

In our new developments in Islington, the current split between council housing and private housing is around 60:40. If this cap – what we like to call the ‘New Home Blocker’ – was lifted, we could make it 85:15, immediately converting hundreds more new private homes into council homes.

8. Why not just borrow to build homes outside of the Housing Revenue Account then?

We can’t.

Non-housing spending is administered through a local authority’s General Fund. But in an absurd quirk of the rules, councils would be permitted to borrow to invest in commercial property anywhere in the country through this fund, but not to invest to build self-financing council homes for local people that would reduce the housing benefit bill.

9. Councils should rebuild existing estates and use a more efficient design, creating new council homes for the existing residents and more council homes for new residents

Sounds good on paper, doesn’t it? In Islington we’re building new council homes out of old garages, on unused parts of estates, and on top of existing council blocks.

However, unlike new council homes, there is no grant funding available for replacing existing council homes. The bottom line for Islington is that any project must create more council homes than we had before – otherwise, why do it? So larger scale rebuild projects are impossible for us under the current rules.

10. The problem is the bureaucracy of the planning system

Ah, that old chestnut. Conservative peer and Chair of the Local Government Association, Lord Porter, has said that, “The truth is that councils are currently approving nine in ten planning applications, which shows that the planning system is working well and is not a barrier to building.”

The noble lord is also refreshingly succinct when it comes to how we can get more homes built. “The last time the country delivered 300,000 homes which this country needs each year, in the 1970s, councils were responsible for more than 40 per cent of them and it’s essential that we get back to that. In order for that to happen, councils have to be able to borrow to build homes again.”

So I have one ask of the Government: cut the ‘red tape’ around building new council homes

Scraping the New Home Blocker would immediately allow us to build hundreds of new council homes in Islington alone, and would free other councils across the country to do the same.  

Ending the restrictions on the use of Right to Buy receipts and grants would also help councils to build more new council homes.

There is no lack of political will in local authorities to build council homes – but the government needs to stop stacking the system against us.

Diarmaid Ward is a Labour councillor and the executive member for housing & development at the London Borough of Islington.


Thirty years after reunification, divisions between East and West Germany persist

The Berlin Wall falls, November 1989. Image: Getty.

The ghost of the Berlin Wall lives on 30 years after its collapse. It sweeps through the statistics on immigrant populations (higher in the west) and on poverty, pensioners and electoral support for the Left Party Die Linke and for far-right parties (all higher in the east). Persistent east-west division intersects with class divides, as well as historical and present forms of institutional racism. This provides the backdrop for the particular success of far-right parties in Germany’s eastern provinces.

In the years that followed unification, eastern Germany slipped from being one of the most industrialised regions of Europe to one of the least. Average productivity had long been lower than in the west. In 1945 the zone that became the German Democratic Republic (GDR) was occupied by a weak and war-ravaged superpower, the Soviet Union, which plundered its industries and infrastructure.

In contrast, the Federal Republic of Germany (FRG) was pulled into the US sphere, with its much larger markets. It benefited from immigration flows – including from the GDR – and from self-reinforcing logics of agglomeration, whereby increased investments attract further capital and skilled workers, and so on in a virtuous circle.

The GDR also suffered from the general crises of the Soviet bloc. The Soviet system that took shape in 1928 had enabled Russia, an abysmally poor society, to industrialise rapidly during the interwar era. But with globalisation from the 1960s onward, Soviet bloc enterprises were handicapped by their weaker ability to internationalise sales and operations. In the 1980s, crisis hit the region and the Soviet bloc’s trade networks collapsed.

Economic divide

On unification, the conservative government of Helmut Kohl set the exchange rate of the Ostmark to the Deutschmark at 1:1 – a 300-400 per cent increase in the value of the Ostmark. Profitability for eastern firms could be maintained only if costs were reduced accordingly, but this was impossible given that all other input prices and overheads were themselves subject to the revaluation. No enterprise could withstand that shock unaided.

The Kohl government of the early 1990s adopted a blasé attitude to deindustrialisation in the east. It set up an agency, the Treuhandanstalt (nicknamed the “Handover Agency”) that oversaw the fire-sale privatisation of eastern enterprises and land – including the sacrifice of perfectly viable firms. The sell-off was accompanied by legal and illegal corruption and was heavily tilted to the interests of western businesses.

Helmut Kohl oversaw German reunification. Image: Wikipedia / Bundesarchiv / Thomas Uhlemann/creative commons.

Beneath the German flag-waving, the pickings of unification were taken by the largely western rich. Overall, only 5% of Treuhandanstalt businesses were sold to easterners, 85% to westerners. Germany’s economic divide resumed, with senior management and the bulk of high-value activities located in the west.

The “great handover” combined with agglomeration logics to ensure that Germany’s western states attracted the bulk of capital and skilled migrants – this expanded local markets and, in turn, attracted further investment and immigration. Meanwhile, the declining regions of the east experienced emigration and stagnation, depopulated ghost towns and the wholesale demolition of housing.

Stuttering attempts to close the gap

The German government attempted to counter this east-west divide in two main ways but both also reinforced underlying differences. One was the construction of the east as a low-wage territory and neoliberal testing ground. In a bid to attract investment, employers were encouraged to experiment with practices that the stronger trade unions in the west would block. National collective bargaining agreements were ripped up in the east. This undermined workers’ strength and morale throughout Germany, but the extremes were in the east, particularly in Saxony, which suffers Germany’s highest rate of circumvention of collective agreements.

The other was state expenditure. “Solidarity” transfers of wealth from west to east were very substantial. This helped salaries and per capita GDP in the former east rise to around 80 per cent of the west in the early 2000s. But the gap has stuck at roughly that level ever since, and is predicted to continue or even widen.

West-east transfers are rather like giving fish to someone after taking their fishing rod. Because most of the east’s assets were appropriated by western interests, much of Germany’s transfer spending goes from western taxpayers to the east, then boomerangs back in the shape of rent and profits. To this extent, the transfer is from western workers to western proprietors, recycled through eastern infrastructure projects and welfare recipients.

Second-class status

Inequality and poverty are relevant to the higher levels of racism found in the east. So too are the recurring crises and insecurity that have wracked eastern Germany since unification, and the global slowdown that followed the 2008 financial crisis.

However, reference to regional socioeconomic cleavages and crises only takes us so far. After all, the right-wing, nationalist Alternative for Germany (AfD) party receives strong support in low-unemployment Zwickau (in Saxony). It polls better in the wealthy western states (Bavaria, Baden-Wurttemberg) than in the poorer Ruhr. Its support is, according to several studies, stronger among higher income earners and the self-employed than blue-collar workers, with fear of economic decline and alienation a strong psychological factor.

A key piece of this puzzle is found in the tangles of nation and immigration. In 1990, eastern Germans voted for FRG citizenship. In economic terms, as we’ve seen, something closer to annexation was the outcome. In political terms the hope was for full and rapid equality. “We are one people” was the chant on the streets as 1989 passed to 1990.

But politically, too, East Germans have experienced a form of annexation. Sweeping transformations were rammed through with little reference to public opinion or even parliament. Unification itself was accomplished by fiat, under the “annexation” paragraph of the federal constitution.

Westerners were appointed to most positions of power in the east, including senior civil service posts, professorships, and the top jobs in industry and the armed forces. East Germans were plunged into a quasi-immigrant position. They had left their Heimat behind and found themselves in a strange country. Their social furniture was suddenly upended. Their cultural capital (certificates, knowledge, etc) was devalued. Experiences of disorientation and dislocation were ubiquitous. East Germans, in journalist Toralf Staud’s words, “emigrated while remaining rooted to the spot”.

The analogy is loose, given that easterners did not face racism. Nonetheless, the perception of second-class status was hard to avoid. Perhaps, they thought, we are not “one people”?

Scapegoating immigrants

Grievances at discrimination can translate into a desire to rebuke elites and central government. And to some extent the Left Party Die Linke is the beneficiary. But where labour institutions and solidarities are weak, as in much of the east, non-German immigrants can be scapegoated.

Labour and immigration policies pre-1989 explain the east-west distinction here. In the FRG, racism and sexism were dominant ideologies in the postwar decades. There was appalling discrimination meted out to economic immigrants and asylum seekers. But rapid economic growth combined with the sluggish rise in women entering the workforce from the 1960s through the 1980s meant immigrants were recruited on a substantial scale. Decade after decade, they fought for their livelihoods, made friends with colleagues and neighbours and won their integration from below. Bigotry was pushed back.

Percentage of Germans without a migrant background (2016). Image: Underlying lk / Wikipedia/creative commons.

The GDR experienced the reverse. The official ideology was egalitarian and, on the face of things, anti-racist and anti-sexist. Women entered the workforce during boom times. But few immigrants arrived and those that did come were subject to brutal state discrimination and segregation. Few were permitted to settle, and the post-1989 economic collapse ensured the picture did not change. Trade unions were banned, and solidarity in workplaces centred on the (invariably white, German) work team.

Given that contact with immigrants generally undermines xenophobia, far-right parties are enjoying success in areas of low immigration, especially the east. Against expectations, the AfD receives strong support from some immigrants, but of a specific category: the German-heritage “late re-settlers” from Russia and Eastern Europe.

Many of these trends exist in Germany’s western states too, including the rise of the AfD. There is also a longstanding distrust of mainstream politicians and institutions. This is nourished by a perception that elites have feathered their nests and dumped the consequences of unification and economic crisis on the rest. The west has also experienced a rise in poverty – indeed, the east-west poverty gap is actually lower now than ten years ago.

Similarly, an “overwhelming majority” of people in Germany, according to a recent Eurobarometer report, hold that income inequality is excessive. So, together with anti-racist activism in East and West alike, the potential for a politics that cuts across “ethnic” divisions is clear.

The Conversation

Gareth Dale, Senior Lecturer in Politics and International Relations, Brunel University London.

This article is republished from The Conversation under a Creative Commons license. Read the original article.