Government intervention in the housing market: what works?

The whole issue of the legitimacy of government intervention in the housing market is particularly pertinent at the present moment. The government is flailing around trying to increase mortgage lending and mitigate the effects of falling house prices. This activity is pretty ineffectual and we are right to condemn it as social engineering.

Nevertheless, government intervention may not always be misguided. I’m currently half way through writing a book on the Right to Buy (RTB), the policy introduced in 1980 allowing council tenants to buy their dwelling at a discount. In many ways the RTB can be seen as one of the most successful policy interventions of the post-war period in that it actually achieved all of its main objectives, particularly the extension of owner occupation to working class households, the inculcation of personal responsibility and the reduction of state provision.

Over 2.2 million households have benefited from the RTB over the last 30 years and, despite some recent calls for its abolition from parts of the left, the policy seems unrepealable. Therefore it can certainly be seen as a success.

Yet, the RTB was itself a form of social engineering. It was a top-down policy imposed by central government on reluctant local councils. We might legitimately argue that the policy was popular, but does this justify the intervention? Is the RTB acceptable because of its outcomes, or because of the motives of the government which enacted it? Is it the type of intervention that matters, or should the RTB be seen as just as illegitimate as the Brown government’s mortgage rescue schemes?

The RTB clearly has transformed millions of people’s lives for the better. But this was because of government intervention. Perhaps, therefore, what we ought to be looking for is some means of determining which forms of government intervention work and which do not.

Peter King is the author of Choice and the End of Social Housing.

“we ought to be looking for is some means of determining which forms of government intervention work and which do not.”I’ve nothing against RTB in principle, but I object to the fact that the houses were sold at crass undervalue. Government intervention in the housing market via strict planning restrictions and easy credit has been shown (yet again) to be a hiding to nothing, their sticking plaster is now to make massive transfers from savers to borrowers.The way forward is liberalise planning laws (carrot) and replace Council Tax, SDLT and Inheritance Tax with Land Value Tax (stick). Existing home-owners will kick up a stink so LVT would just apply to subsequent purchasers.

I understand that the original intention with the RTB was for there to be no discounts, but it was felt that the policy wouldn’t take off without them. It was justified on the basis that tenants has paid rent for years and this ought to be recognised in some way.Is this not just good politics or does it fundamentally alter the way we should view the policy?

The Right To Buy policy was simply a form of privatisation, transferring ownership and control of houses away from (local) government. So it wasn’t in principle very different from other privatisations, for example of many nationalised industries. You could call that ’social engineering’ too, but in a desirable attempt to reduce government involvement. As to the price at which assets (or shares) were sold, yes, politicians will always be tempted to sell too cheap to gain popularity. Since the costs of continuing government ownership are likely to be very high, I’m inclined to look indulgently on such shenanigans.

Yes, the RTB was indeed a form of privatisation, but it was different in terms of who gained effective control of the assets once they were transferred away from local government. Individual households actually gained control rather than the rather diffuse form of ownership when the utilities were privatised. It is this facet of the RTB policy that created its great success: each individual could say the house was their’s in a very concrete sense.

I think it is pushing it to say RTB was social engineering. As D R Myddelton said it was privatisation. Of course, any privatisation has political limits in terms of how it is implemented and I think it is better to think of the limitations of RTB in this way rather than as social engineering. Yes, I am sure that the Conservatives wanted more property owners (social engineering), but even if that were not a concern it would have been very difficult to simply tell councils to sell the properties off to the highest bidder whether it be for renting or ownership. Apart from anything else, rent control precluded a market in rented properties.

Hi all,I don’t know where this “social engineering” catch phrase came in. It almost sounds like brutal and invasive government meddling, from which side of the street you walk on to how you should “think” about the news. In any event, the RTB has its merits. Merits I am in favour of. It gives people a chance to work towards what they want, instead of giving it to them when they don’t know what it takes to maintain it–teaser rates and ARM’s. Best,Yourihttp://globalviewtoday.blogspot.com/

Isn’t privatisation social engineering too? My point is that all forms of intervention seek to create change for a particular purpose – to engineer change – but that some are more benign than others in their effects, even though the method of implementation was pretty brutal.The question I’m seeking to answer in my book is why did the RTB work so well and how can it be replicated, because in social policy terms there is no policy that comes close to it in terms of creating personal responsibility and independence from the state.

Peter, it depends what you mean by social engineering. Normally we don’t mean simply an attempt to engineer change. Social engineering normally refers to an attempt to “improve society” by planning people’s actions in the social field. Arguably, council housing is social engineering; selling them off reduces the amount of planning and leaves people freer to form their own social plans.

Philip, the RTB could be seen as small beer, whereas I would consider it to be the most transformative housing policy. Is this a problem with how we define social engineering, or is there a tendency to see social engineering necessarily as bad and so wish to call those policies we approve as something else?

One could take this a step further. Let’s assume Korea is reunited under democratic rule. Now, how to privatise the state-owned industries of the North? The mode most in line with market principles would be to sell it all off in auctions. This way, it is not for the government to determine who gets what.
However, the most likely outcome of this is that South Korean investors will buy up everything. North Koreans don’t have any savings. This will create tensions, which can easily turn into hostility against the newly emerging market economy itself.
An alternative would be to actively favour buyers from the North. But this involves government discretion and possible abuse.
Which is less bad?

Peter King raises an interesting point – ultimately, all policy does constitute a form of social engineering as the aim of big/key policies is to bring about some kind of social change. RTB certainly did do this! Furthermore, whilst RTB may be viewed as a form of housing/economic ‘deregulation’ it is still a form of policy regulation in the sense that it sought to bring some kind of ‘new’ order – part moral, part social and part economic – to the overall housing market by giving people a chance to gain a greater sense of ontological security. I prefer to see the actions of government as either ‘intervention’ (generally positive impactcs) or ‘inteference’ (generally negative impacts).

I think Kris’s argument is a fascinating one. But is the argument quite the same. The South Koreans haven’t contributed towards the infrastructure of the North and so have little moral call on it compared to local citizens. However, in the case of the RTB we can argue that the non-tenant taxpayers have contributed in taxation to build the houses. Of course, the residents buying the houses have contributed through rent payments, and so it becomes a matter fo deciding whose claim is strongest.

There is a very strong pragmatic case for privatisations that actively favour small buyers, and I also happen to like the idea of a property-owning democracy a lot. But I don’t think you can make a strong principled argument for it.
In social housing, having paid rent does not constitute a claim on the flat itself. The rent is simply a user fee. It does not indicate that the sitting tenant should be favoured over a large housing association.
In the Korea example, South Koreans would not need a “moral call” on the North’s capital. In an auction solution, they would pay the full market value. The money can go to a Northern provincial government.
But this would have clear disadvantages.

Kris, the ‘user fee’ argument presupposes a normal system of property rights. Yet the actual practice of the RTB involves the overiding of the social landlord’s property right by the state. Inviolable property rights ought to make the RTB morally objectionable. Or is the outcome of wider owner occupation more desirable?

“we ought to be looking for is some means of determining which forms of government intervention work and which do not.”I’ve nothing against RTB in principle, but I object to the fact that the houses were sold at crass undervalue. Government intervention in the housing market via strict planning restrictions and easy credit has been shown (yet again) to be a hiding to nothing, their sticking plaster is now to make massive transfers from savers to borrowers.The way forward is liberalise planning laws (carrot) and replace Council Tax, SDLT and Inheritance Tax with Land Value Tax (stick). Existing home-owners will kick up a stink so LVT would just apply to subsequent purchasers.

I understand that the original intention with the RTB was for there to be no discounts, but it was felt that the policy wouldn’t take off without them. It was justified on the basis that tenants has paid rent for years and this ought to be recognised in some way.Is this not just good politics or does it fundamentally alter the way we should view the policy?

The Right To Buy policy was simply a form of privatisation, transferring ownership and control of houses away from (local) government. So it wasn’t in principle very different from other privatisations, for example of many nationalised industries. You could call that ’social engineering’ too, but in a desirable attempt to reduce government involvement. As to the price at which assets (or shares) were sold, yes, politicians will always be tempted to sell too cheap to gain popularity. Since the costs of continuing government ownership are likely to be very high, I’m inclined to look indulgently on such shenanigans.

Yes, the RTB was indeed a form of privatisation, but it was different in terms of who gained effective control of the assets once they were transferred away from local government. Individual households actually gained control rather than the rather diffuse form of ownership when the utilities were privatised. It is this facet of the RTB policy that created its great success: each individual could say the house was their’s in a very concrete sense.

I think it is pushing it to say RTB was social engineering. As D R Myddelton said it was privatisation. Of course, any privatisation has political limits in terms of how it is implemented and I think it is better to think of the limitations of RTB in this way rather than as social engineering. Yes, I am sure that the Conservatives wanted more property owners (social engineering), but even if that were not a concern it would have been very difficult to simply tell councils to sell the properties off to the highest bidder whether it be for renting or ownership. Apart from anything else, rent control precluded a market in rented properties.

Hi all,I don’t know where this “social engineering” catch phrase came in. It almost sounds like brutal and invasive government meddling, from which side of the street you walk on to how you should “think” about the news. In any event, the RTB has its merits. Merits I am in favour of. It gives people a chance to work towards what they want, instead of giving it to them when they don’t know what it takes to maintain it–teaser rates and ARM’s. Best,Yourihttp://globalviewtoday.blogspot.com/

Isn’t privatisation social engineering too? My point is that all forms of intervention seek to create change for a particular purpose – to engineer change – but that some are more benign than others in their effects, even though the method of implementation was pretty brutal.The question I’m seeking to answer in my book is why did the RTB work so well and how can it be replicated, because in social policy terms there is no policy that comes close to it in terms of creating personal responsibility and independence from the state.

Peter, it depends what you mean by social engineering. Normally we don’t mean simply an attempt to engineer change. Social engineering normally refers to an attempt to “improve society” by planning people’s actions in the social field. Arguably, council housing is social engineering; selling them off reduces the amount of planning and leaves people freer to form their own social plans.

Philip, the RTB could be seen as small beer, whereas I would consider it to be the most transformative housing policy. Is this a problem with how we define social engineering, or is there a tendency to see social engineering necessarily as bad and so wish to call those policies we approve as something else?

One could take this a step further. Let’s assume Korea is reunited under democratic rule. Now, how to privatise the state-owned industries of the North? The mode most in line with market principles would be to sell it all off in auctions. This way, it is not for the government to determine who gets what.
However, the most likely outcome of this is that South Korean investors will buy up everything. North Koreans don’t have any savings. This will create tensions, which can easily turn into hostility against the newly emerging market economy itself.
An alternative would be to actively favour buyers from the North. But this involves government discretion and possible abuse.
Which is less bad?

Peter King raises an interesting point – ultimately, all policy does constitute a form of social engineering as the aim of big/key policies is to bring about some kind of social change. RTB certainly did do this! Furthermore, whilst RTB may be viewed as a form of housing/economic ‘deregulation’ it is still a form of policy regulation in the sense that it sought to bring some kind of ‘new’ order – part moral, part social and part economic – to the overall housing market by giving people a chance to gain a greater sense of ontological security. I prefer to see the actions of government as either ‘intervention’ (generally positive impactcs) or ‘inteference’ (generally negative impacts).

I think Kris’s argument is a fascinating one. But is the argument quite the same. The South Koreans haven’t contributed towards the infrastructure of the North and so have little moral call on it compared to local citizens. However, in the case of the RTB we can argue that the non-tenant taxpayers have contributed in taxation to build the houses. Of course, the residents buying the houses have contributed through rent payments, and so it becomes a matter fo deciding whose claim is strongest.

There is a very strong pragmatic case for privatisations that actively favour small buyers, and I also happen to like the idea of a property-owning democracy a lot. But I don’t think you can make a strong principled argument for it.
In social housing, having paid rent does not constitute a claim on the flat itself. The rent is simply a user fee. It does not indicate that the sitting tenant should be favoured over a large housing association.
In the Korea example, South Koreans would not need a “moral call” on the North’s capital. In an auction solution, they would pay the full market value. The money can go to a Northern provincial government.
But this would have clear disadvantages.

Kris, the ‘user fee’ argument presupposes a normal system of property rights. Yet the actual practice of the RTB involves the overiding of the social landlord’s property right by the state. Inviolable property rights ought to make the RTB morally objectionable. Or is the outcome of wider owner occupation more desirable?

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