The Tory plan to extend right-to-buy to housing associations combines Thatcherite economics and Soviet-style confiscation

Helping people to own their own home! Well, a few people. At least a couple. For definite. Image: Getty.

Here we go again. For months – years – I've been noisily arguing that the thing we most need to do if we're going to end the housing crisis, the single non-negotiable element of any solution, is to build more bloody houses.

Yet here comes the Tory manifesto, with its headline pledge to privatise more of what little social housing we still have left. You know, in my darker moments, I sometimes think that nobody in the upper echelons of the Conservative party is listening to me at all.

The plan would see England's 1.3m housing association tenants given the right to buy their own home on a similar basis as council tenants, at an enormous discount (up to £103,900 in London, up to £77,900 elsewhere). If you happen to be one of those tenants then this is obviously fantastic news.

But it's a terrible policy nonetheless. For one thing, housing associations (HAs) are charities, and while the government could force them to sell their homes at a discount, it still amounts to privatising stuff the state doesn't own in the first place. This policy is a bizarre combination of Thatcherite economics and Soviet-style confiscation.


For another thing, HAs as a class are probably the bodies most enthusiastic about the idea of building large numbers of new properties. It is not exactly clear how forcing them to sell their existing homes at a hefty discount will make this more likely to happen.

The Tories claim this won’t be a problem, because they have a plan to fund the gap: it involves selling off council homes in expensive areas, when they become vacant. Three thoughts about this present themselves:

1)   We’re losing two social homes for every right-to-buy tenant, not one, so that’s just great;

2)   Waiting lists, already long, will become visible from space;

3)   Social housing in expensive areas will, over time, cease to exist altogether, so the policy comes with a side order of social cleansing, too.

Just to be clear: this idea is awful.

So, it’s a bad policy. But what of the politics?

Those 1.3m HA tenants will probably be quite pleased with their free bung (most of us would be if the government chucked us £100,000). The Tories’ thinking is presumably that enough of them live in marginal constituencies for it to help swing a few seats.

But HA tenants are actually pretty well housed already: their rents are low, their rights are secure.

Another, rather larger, group suffers from high rents and no rights whatsoever. There are an estimated 10m people in private rented sector, and perhaps another couple of million young people living at home with their parents. The Tories have steadfastly refused to do anything for them. They’re not doing anything (longer tenancies, rent control) that might make renting a less soul-sucking experience. And they’re absolutely not planning to build enough houses to meet pent-up demand.

In other words there are roughly 1.3m voters who'll benefit from this bung, but perhaps ten times that number who are going to be understandably miffed that they’re not getting it.

These people, if they are rational economic actors, will desert the Tory party en masse.

The whole thing speaks of a kamikaze short termism at work in the Conservative party. Homeowners are disproportionately likely to vote Tory: that was the insight that led to the creation of right to buy in the first place, and whatever else that policy got wrong, that political instinct was sound.

And yet the party is doing none of the things it needs to do if it actually wants to arrest the long-term decline in the number of homeowners in Britain. It isn't making housing more affordable. It isn't making sure there's enough to go round. It's simply flinging a few crumbs down from the table, in the hope it'll win them just enough votes to keep Ed Miliband out of Downing Street.

It might work in 2015. But what happens in, say, 2025, when policies such as this mean that less than half the electorate owns their own home? How strong will the natural party of government be then, do you think?

 
 
 
 

“Stop worrying about hairdressers”: The UK government has misdiagnosed its productivity problem

We’re going as fast as we can, here. Image: Getty.

Gonna level with you here, I have mixed feelings about this one. On the one hand, I’m a huge fan of schadenfreude, so learning that it the government has messed up in a previously unsuspected way gives me this sort of warm glow inside. On the other hand, the way it’s been screwing up is probably making the country poorer, and exacerbating the north south divide. So, mixed reviews really.

Here’s the story. This week the Centre for Cities (CfC) published a major report on Britain’s productivity problem. For the last 200 years, ever since the industrial revolution, this country has got steadily richer. Since the financial crash, though, that seems to have stopped.

The standard narrative on this has it that the problem lies in the ‘long tail’ of unproductive businesses – that is, those that produce less value per hour. Get those guys humming, the thinking goes, and the productivity problem is sorted.

But the CfC’s new report says that this is exactly wrong. The wrong tail: Why Britain’s ‘long tail’ is not the cause of its productivity problems (excellent pun, there) delves into the data on productivity in different types of businesses and different cities, to demonstrate two big points.

The first is that the long tail is the wrong place to look for productivity gains. Many low productivity businesses are low productivity for a reason:

The ability of manufacturing to automate certain processes, or the development of ever more sophisticated computer software in information and communications have greatly increased the output that a worker produces in these industries. But while a fitness instructor may use a smartphone today in place of a ghetto blaster in 1990, he or she can still only instruct one class at a time. And a waiter or waitress can only serve so many tables. Of course, improvements such as the introduction of handheld electronic devices allow orders to be sent to the kitchen more efficiently, will bring benefits, but this improvements won’t radically increase the output of the waiter.

I’d add to that: there is only so fast that people want to eat. There’s a physical limit on the number of diners any restaurant can actually feed.

At any rate, the result of this is that it’s stupid to expect local service businesses to make step changes in productivity. If we actually want to improve productivity we should focus on those which are exporting services to a bigger market.  There are fewer of these, but the potential gains are much bigger. Here’s a chart:

The y-axis reflects number of businesses at different productivities, shown on the x-axis. So bigger numbers on the left are bad; bigger numbers on the right are good. 

The question of which exporting businesses are struggling to expand productivity is what leads to the report’s second insight:

Specifically it is the underperformance of exporting businesses in cities outside of the Greater South East that causes not only divergences across the country in wages and standards of living, but also hampers national productivity. These cities in particular should be of greatest concern to policy makers attempting to improve UK productivity overall.

In other words, it turned out, again, to the north-south divide that did it. I’m shocked. Are you shocked? This is my shocked face.

The best way to demonstrate this shocking insight is with some more graphs. This first one shows the distribution of productivity in local services business in four different types of place: cities in the south east (GSE) in light green, cities in the rest of the country (RoGB) in dark green, non-urban areas in the south east in purple, non-urban areas everywhere else in turquoise.

The four lines are fairly consistent. The light green, representing south eastern cities has a lower peak on the left, meaning slightly fewer low productivity businesses, but is slightly higher on the right, meaning slightly more high productivity businesses. In other words, local services businesses in the south eastern cities are more productive than those elsewhere – but the gap is pretty narrow. 

Now check out the same graph for exporting businesses:

The differences are much more pronounced. Areas outside those south eastern cities have many more lower productivity businesses (the peaks on the left) and significantly fewer high productivity ones (the lower numbers on the right).

In fact, outside the south east, cities are actually less productive than non-urban areas. This is really not what you’d expect to see, and no a good sign for the health of the economy:

The report also uses a few specific examples to illustrate this point. Compare Reading, one of Britain’s richest medium sized cities, with Hull, one of its poorest:

Or, looking to bigger cities, here’s Bristol and Sheffield:

In both cases, the poorer northern cities are clearly lacking in high-value exporting businesses. This is a problem because these don’t just provide well-paying jobs now: they’re also the ones that have the potential to make productivity gains that can lead to even better jobs. The report concludes:

This is a major cause for concern for the national economy – the underperformance of these cities goes a long way to explain both why the rest of Britain lags behind the Greater South East and why it performs poorly on a

European level. To illustrate the impact, if all cities were as productive as those in the Greater South East, the British economy would be 15 per cent more productive and £225bn larger. This is equivalent to Britain being home to four extra city economies the size of Birmingham.

In other words, the lesson here is: stop worrying about the productivity of hairdressers. Start worrying about the productivity of Hull.


You can read the Centre for Cities’ full report here.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites

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