Housing crisis: is there a way out?

Let’s face it, the housing system is lame. The current economic system is increasing inequalities in our society at an alarming rate, with one in three private tenant locked in poverty. If we want to afford tenants the stability and safety they aspire to, they must be able to secure a roof over their heads and improve their financial situation in the long term.

Yet the economic system is unable to provide either of these: tenants do not have security of tenure, and they cannot accumulate equity in property while they pay rent, creating an ever-increasing wealth gap between homeowners and renters.

In order to address these concerns, the housing system should make tenants wealthier instead of impoverishing them. This article shows how to do this.

Can tenants access homeownership?

Homeownership has become an impossible dream for most tenants, and relentlessly rising rents are preventing the majority to save money for a deposit on a property.

There are schemes that can assist tenants in this step, like Help-to-buy, Shared Ownership or the Mortgage Guarantee Scheme, yet they only help people who already have a deposit of at least 5% to buy a property, thus proving unhelpful for those unable to save money. The new-born scheme First Homes has the same shortcoming, as well as being mainly directed to key workers, thus further restricting access to the benefit to a small minority of the population.

When access to property is out of reach for most of us, making tenancies more affordable or safer seems a good idea overall, yet it does not make access to homeownership easier when house prices rise, it just leaves more tenants locked into renting. 

Let’s look at affordable rents and social housing in more detail to see if these can help.

Are social housing and rent controls a way forward?

The UK rental sector is a free market dominated by individual landlords who will naturally seek profits on their investment, and if house prices increase, rents will also have to go up in order to repay the ever-increasing costs of mortgages. This puts tenants against the wall, often paying more than half of their wages in rent. Several options exist to tackle this, but they are not without their own flaws.

Rent controls are supposed to rein in costs for tenants, yet it doesn’t work in the UK. Since the market is dominated by private landlords, rent caps will drive investors away and further deplete the supply of rented properties, actually making the problem worse.  This has been tried elsewhere with catastrophic results, and in the UK, rent controls have been abandoned in 1965 for the same reason. 

To call for more affordable housing is another common answer to the crisis, and certainly to increase the supply of affordable housing to 90k units over the next 15 years would be a massive help for tenants. Another option is to increase the supply of affordable homes by converting unused office spaces into residential units, which is cost-effective and more environmentally friendly than building from scratch. 

Yet, expecting the government to do so when the public debt is weighing heavily on its purse for the foreseeable future is illusory, and beside administering palliative care in the housing sector, the government is unlikely to ever be able to solve the root causes of the crisis, which are systemic.

If social housing is not going to rescue the market and rents continue to increase, the current housing system is bound to generate even greater inequalities in our society. No power or authority will be able to alter this trend unless a change happens within the system. Here we suggest a mechanism that works within the private market, putting the interest of both investors and tenants at heart. Read on.

Is this a political problem?

No, the building of inequalities is an economic problem. In his book, Discourse on the origin of inequalities (1755), Rousseau already identified that property makes rich the possessor and poor the one who doesn't possess. Yes, capitalism rewards the owner of capital with profits that the workers are denied, and the housing market is no exception to this: rents are a direct transfer of wealth from the tenant to the landlord, further fuelling inequalities between them.

Honestly, the government has neither the power nor the resources to correct the flaws of capitalism, and it looks like they can only apply patches to remedy the symptoms, without ever touching on the root causes of the problems.

If we want to see a evolve from capitalism, we have to change the way we do capitalism ourselves. We need to create a housing system that enables tenants to become homeowners, to enjoy security of tenure and to access financial stability in the long term, as we explain below.

Is Post-Capitalism a way forward?

Post-Capitalism acknowledges that both labour and capital deserve profits, and therefore it assumes that investors and workers should share profits and losses according to their contribution. To buy a property through post-capitalism means that the money put down by investors and the rent paid up by tenants are both considered an investment, so they both benefit from it in the end.

Let’s imagine this in practice: if a tenant pays £1000/month in rent towards a property that costs £600 in management, interests and maintenance, this leaves £400 profit per month. Instead of going into the pocket of the landlord only, the wealth is shared with the tenants. This way, tenants join into the investment with their rent, so that part of the money they pay toward the property ends up belonging to them.

As we have seen, the housing crisis is hitting tenants hard, and robbing Peter to pay Paul is not going to cut it. Post-capitalism allows anyone to be the change they want to see in the world. In Spring 2022 we will launch a social enterprise in Bristol UK that will buy houses and allow tenants to build equity with their rent. Watch this space!

By Boris Drappier