2. Towards a rational policy

DENNIS PILCHER

Dennis Pilcher is a Vice-President of the Lon- don Rent Assessment Panel, set up under the Rent Act, 1965, and was a member of the Milner Holland committee of inquiry into housing in Greater London.

The starting point of any rational housing policy is the overriding need to distinguish between rent and its task of supporting a capital asset on the one hand and a tenant's income and his task of supporting his family upon the other.

I begin, therefore, with the assumption that housing for rent is needed and will continue to be needed; and that we have not as a nation reached a stage at which it can be fore- cast that within the foreseeable period the rising percentage of owner-occupation will look after all the housing need of the people. There are good reasons for making this assumption even if it cannot be precisely proved. Some of them are these. Tenancies are much more flexible than ownership. Not by any means everyone wants to undertake the capital investment obli- gation of ownership and there are many who are unable to support these obligations even if they wanted to. Many of the elderly and those of slender means and resources prefer to rent. Basically, ownership is often more ex- pensive than renting and is certainly a larger obligation. Under present fiscal law this is the more so the lower the income and the less the income tax paid by the house owner. Again, many households live and account (even if un- consciously) on a weekly or a monthly basis altd thus need to know what the weekly or monthly outgo is, in total. This is easier with a tenancy than with ownership.

The area of housing which causes concern is precisely that which caters for those who can neither afford nor want to buy. Above this level there is no real cause for anxiety on the supply issue. The point needs to be emphasised that the method of housing supply, its financing and occupation, is a problem quite distinct from the regeneration of `twilight' zones and slum clearance. The latter are positive, physical and social necessities. But the problem I am discussing here is how housing can be provided, and afforded when provided, for a specific section of the population, whether it be a regenerated 'twilight' house, a flat on a city site cleared of slums, or a pew house or flat on a new site.

In a leading article earlier this year the SPECTATOR argued that the £1,000 million a

year of public money currently spent on hous- ing was being spent in the wrong way because neither the Government nor the public recog-

nised that there is not a housing problem at all—only a problem of poverty. This goes very nsar to the truth but it is not the whole of it. Because of the present system (or lack of system) of subsidy, public and private; the variety of methods of assessing rent (e.g., local authority, rent restricdon, housing society and the open market) and the inequality of the fiscal burden as between one class of occupier and another, a proper assessment of who is and who is not in need and to what extent is effectively prsvented at present.

For the same reason the assessment of the true cost of providing housing and of maintaining it when provided has also

been prevented. For example, rent restric- tion at varying levels has been with us for over fifty years; housing subsidies for local authorities for nearly as long. Both have per- formed useful and often vital functions, but by now their incidence is so haphazard as to ensure that they have only one effect—to reduce the rents below their economic level. In very many cases the tenant needs that assistance. But in others he does not. No one today really knows which is which.

The case for a complete new look at the whole policy for providing housing seems to me to be irrefutable and I doubt whether any- one would seriously contest that.

The problem can be stated in the form of a self-evident but rarely recognised proposition.

It is this. A dwelling has two distinct characters, both of which are of fundamental importance to society, but which, left unaided by intelli- gent measures, are incompatible. First, a home

is the place in which a man and his wife live and raise a family. They must be able to do so in surroundings of decency, comfort and health.

Second, that same building is a part of the nation's capital assets, the preservation of which is of vital interest to the nation and to the economy. It can and will only be so preserved if the rent is such as to service the capital invested in the property and enable it to be repaired and maintained to decent and proper standards.

The problem of this aspect of housing is that in a very large number of cases such a rent will be beyond the means of the tenant who needs to dwell there.

If rent restriction (as distinct from rent regu- lation under the Rent Act 1965) is the instru-

ment chosen to assist the tenant it fails to meet the need: first, because it is haphazard, and, second, because it ensures that the house is not maintained as it should be. Subsidy is equally haphazard and is confined almost wholly to local authority tenants. Both these methods reduce the rent of the dwelling: whereas what is needed is to adjust the re- sources of the tenant.

It is evident that, particularly in large cities —and, I suppose, especially in London—a rent for a new home, built to nothing more than the Parker Morris standards, will be beyond the means of a very substantial proportion of the tenants who need this class of accommodation. Yet they must have the home and the property must be preserved and repaired. = The basic requirement for a solution of the rent problem is easy enough to state. I ant prepared to believe it would be difficult to achieve but not that it would be impossible. When it first began to be mooted (there is no copyright in these ideas; they occur to many people at the same time as the result of study and thought) a few years ago there were no takers and one was told it was not on. Today it is catchinpon. It is simply this. Rents and mortgage in- terest in the residential field should be treated the same and both allowed as a deduction against income tax. Consider the position today. One man pays, say, fl(X) a year mortgage in- terest on the loan on his house, on which he

has a tax allowance of £41 55, making his net payment £58 15s. His next-door neighbour occupying an identical house pays £100 a year in rent. This tenant pays the rent out of his taxed income and he enjoys no tax allowance.

In other words, the burden for the rent payer is nearly twice as great as that for the mort- gage interest payer. Of course, if rents 'are to become tax-deductible there must be safeguards against abuse, for example the proviso that a man must rent a dwelling suitable to his needs; but such points are not insuperable.

However, even this reform on its own will not be enough, because there will be many families whose income is such that its tax liability will be insufficient to provide the full allowance needed. In such cases there should be a housing allowance equal to the deficiency. Why not? We now have an option mortgage scheme at special rates of interest which is de- signed to achieve just the same financial end for mortgage interest payers whose incomes are insufficient to gain the full benefit which the present law allows. Moreover, the Government has recently announced its intention of still further aiding owner-occupiers by arranging in certain circumstances for 100 per cent mortgages.

Even then, and at the level of the lowest in- comes, there will be many who cannot afford the residual rental sum, and for these a special allowance should be made. To illustrate this, take again the payer of a rent of £100 per annum mentioned above. He would be entitled to income tax relief thereon at the present rate of £41 5s, just as is the mortgage interest payer. Suppose, however, his tax liability was only £25, then he would be entitled to a housing allowance of £16 5s to make up the difference. Furthermore, if in fact the resulting net rent of £58 I5s was beyond his means he would become entitled to the special allowance to adjust the position.

Given a system of the kind I have outlined, rent restriction and housing subsidies could be entirely abolished, although rent regulation on the pattern of the Rent Act, 1965, is still going to be needed until the supply of housing to rent much more nearly matches the number of families needing it—if not at all levels, then to a very- much greater extent than it exists at present. But if, with such a sane system, need and supply can be brought into relationship, the operation of the market alone will ensure that competition be- tween landlords to let their dwellings and keep them let will result in the market rent being the lowest figure at which it is economic to let and thus all the benefits will stay with the tenants for whom they are intended.

One enormous benefit from this approach would be that all rents would be then assessed by reference to what was a fair rent and, as housing supply increased, fair rent and market rent would become synonymous in an ever larger section of the residential field. One could see order emerging, whereas at the moment there is something akin to chaos.

The system I am suggesting is not a means test in the bitter meaning that term acquired in the 1930s and which still lingers. It is a return of income for tax and benefit purposes. Those above the line would pay tax and those below it get benefits. And again I ask why not, if one accepts that decent, housing for all, its provision and maintenance, is a basic requirement which this country has the wealth and ability to afford?

In the computer age it should be one of our aims that everyone should make one single return of income from which ,it is assessed .whether he pays or receives. This may be some way off. Recent informed discussion on some aspects of this idea underlines the difficulties. No one will doubt their existence, but, equally, no one should regard them as insuperable if the objects to be attained are necessary and beneficial. But if; in the meantime, changes of the kind for which I am arguing are made re- quiring the kind of returns which I have out- lined, there is, I believe, no more likelihood of their rejection by the public on the grounds of their involving a 'means test' than has been the case with the reception of the option mort- gage scheme.

Finally, a reform-along the lines I have sug- gested would in due course end exploitation in private housing by' bringing supply and needs nearer to parity. It would provide a stable base for investment in housing to rent. It would enable all resources and varieties of expertise to be harnessed to its provision, and that includes private enterprise with its know- ledge and resources. There are other and very important aspects of this which I have no space to develop in this article, such as- the need to establish investment allowances in housing and the relief of amortisation funds from tax, all of which could be harnessed to the task of reducing rents without disturbing the other vital side of the matter—the maintenance of the capital asset. With such measures' I prophesy with confidence that the vast funds of life assurance offices, pension schemes and the like -would become available to invest in the pro- vision of rented housing, as today they are not.

These are objects worth pursuing:To achieve success the present jungle of financial and social inequalities and incompatibilities has to be cleared.