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The privatisation of social housing

Privatisation is back in vogue and is seen as the panacea to all problems from policing to roads and housing is getting in on the act too.

Prime Minister David Cameron revealed plans to involve private companies in the building of roads last week, which will involve more tolling.

The NHS Bill has ran into trouble for suspected privatisation by the backdoor and police forces using private companies to increase capacity has come under fire.

The return of privatisation could be explained by the return of the free market Conservatives to government but in reality it has been the consensus for much longer than the current government.

Former Prime Minister Gordon Brown unsuccessfully tried to sell off the Royal Mail and bookmakers, the Tote, while the current government has continued the policy taking both into private ownership.

Labour also privatised air traffic controllers in 1998 and refused to reverse private ownership of water, railways, telephones and electricity enacted by the previous Tory government.

It doesn’t appear to be a party political issue although Ed Miliband’s boasts about the death of New Labour may have something to say about that.

For housing the decline in council homes has been a long-term trend with successive governments vociferously promoting home ownership.

The rejuvenated Right to Buy and the NewBuy scheme are the modern ways intended to boost home ownership in what housing minister Grant Shapps has branded an age of aspiration.

However, with mortgage availability tight, different lifestyles and demographics private renting is on the rise.

Private renting and social housing stand at 16% and 17% of all housing stock, according to the English Housing Survey 2009-10.

They are neck and neck but the private sector will soon take over as it is in long-term ascent compared to long-term decline for council homes.

The massive government clampdown on benefits and aversion to social housing will only accelerate the decline.

The government is encouraging the private rented sector to take up the slack particularly by encouraging institutional investors to buy homes.

With many predicting private renting could make up 25% of all stock by 2020 it needs some major investment rather than small private landlords.

The government wants to see hedge funds, major companies and other investors to become major landlords.

It wants to see huge estates of privately owned property to be built and rented by such investors to help solve the UK’s growing housing shortage.

There are examples of this type of activity in areas such as student accommodation or blocks of flats but the major role envisaged has yet to materialise.

By encouraging the private sector and not building council homes itself the government is involved in a major privatisation of social housing.

It wants investors to own estates and house many of the poorest people in the country rather than take on the liability.

Rental yields are running at around 6% for landlords but house prices remain stagnant nationally creating a mixed picture for potential investors.

Can you really imagine hedge funds pumping millions into the north-east or Northern Irish property market right now? House prices will always form the centre piece of any investment in property.

There are also reputational issues for firms as the poorest estates often involve poor schooling, healthcare and crime and it is more than possible private owners could take some of the blame.

Ultimately the risks are high and the rewards are low but this may change in the future with a stronger housing market and better incentives.

The government would need to offer some major tax breaks to entice investors in a significant way and tax giveaways are at a premium right now, unless you earn over £150,000.

Considering  the priorities of shrinking the state and reducing government spending and liabilities it seems unlikely now but will surely happen in the form of reduced rates or Stamp Duties for major investments in the future.

But what the government desire and what actually happens are often very different so it remains to be seen whether investors can be nudged in this direction.

The evolving privatisation of Britain’s housing is the biggest trend in the property market and it will be for years to come.

It is fully consistent with a national obsession of supporting private involvement in different industries over the last 30 years.



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