History

The first housing policies were introduced in the midst of TB epidemics in Europe that threatened to curtail the 19th century labour supply and even risked popular revolution. Their regulations introduced a lot of what we recognise in modern housing, like separate bedrooms, which allowed the isolation of the infected, and showers, which were a cheap way to bring hygeine to the masses.

— The Europeans, Housing policy, who does it best?

There was no trend at all in UK house prices until well after World War II. With the inflation-adjusted price index to 100 in 1980 (the year Thatcher came to power) the house price index was 47 in 1845, and 47 in 1960. House prices rose on average just 0.25% pre year faster than consumer prices between 1845 and 1979, but all of the increase came between 1960 and 1979, when prices rose by 1.75% per year. But after Thatcher came to power, the annual rate of increase in real house prices increased to 3%.

— Prof. Steve Keen, Remedies for ridiculous house prices

Between Thatcher and today, house prices have risen 3.5 times faster than consumer prices.

— Prof. Steve Keen, Remedies for ridiclous house prices

Since the mid-1990s house prices have decoupled from their long-run relationship with incomes and rents.

— UCL, The demand for housing as an investment

Financial innovation, in particular the emergence of residential mortgage-backed securitisation (RMBS) from the 1990s onwards, allowed new sources of institutional capital (for example, from pension funds and insurance companies), to enter the housing market. RMBS involves the packaging up of many mortgage titles into a security that pays a specific yield depending on the relative riskiness of the portfolio of mortgages contained within it. By selling RMBS, banks could remove these loans from their balance sheets, enabling them to reduce their regulatory capital requirements and then further expand their lending. The fees from selling on such loans helped banks make up profits lost due to lower interest rates.

— UCL, The demand for housing as an investment

Financialisation of housing

Most lending for housing was done by Building Societies, and this is crucial, because Building Society loans don’t create money. Instead, Building Societies have deposit accounts at the private banks, and when they make loans, their accounts fall by precisely as much as the borrowers’ accounts rise.

Banks, on the other hand, increase their assets—loans to households—and their liabilities—household deposits—by precisely the same amount when they make loans. This causes the money supply to expand, and particularly the amount of money used to buy houses. This expands both aggregate demand and incomes, but most of it drives up house prices. Some more houses are built, but overwhelmingly, bank loans make existing houses more expensive.

— Prof. Steve Keen, Remedies for ridiculous house prices

Housing has two economic functions. It is a consumption good – it provides shelter – but also an investment. In relation to the latter, it can be a financial asset providing realised and unrealised capital gains and rental returns; a source of collateral to support borrowing; and an efficient store of wealth. The demand for housing as an investment can impinge on its function as a consumption good given an inherently limited supply of housing and land in desirable areas.

— UCL, The demand for housing as an investment

Housing and commercial real estate have become the “commodity of choice” for corporate finance and the pace at which financial corporations and funds are taking over housing and real estate in many cities is staggering. The value of global real estate is about US$ 217 trillion, nearly 60 per cent of the value of all global assets, with residential real estate comprising 75 per cent of the total. In the course of one year, from mid-2013 to mid-2014, corporate buying of larger properties in the top 100 recipient global cities rose from US$ 600 billion to US$ 1 trillion.

— UN, Special Rapporteur on adequate housing

Unequal tax burdens

Council tax operates as a poor proxy for a wealth tax, with some people paying council tax at much higher rates relative to their property value than others in different places.

— IPPR, Supporting the status quo

For instance, a worker on £50,000 will pay £3,000 more in tax every year than a landlord with the same annual income from rents alone, representing a fundamental unfairness.

— IPPR, Supporting the status quo

The Vienna Model

50% of the housing supply in Vienna is social housing.

— The Europeans, Housing policy, who does it best?

While LPHAs have been building homes for over 100 years, it was only in the period post World War 2 that they became more prominent actors in Austria’s housing market. Especially in the post war period the construction of LPHA homes served to replace war-damaged houses and to provide homes of better quality than found in the private rented sector, where quality standards were comparatively poor.

— The system of limited-profit housing in Austria

The key principles of limited-profit housing are anchored in the WGG (i.e. the Limited-Profit-Housing Act), a sector specific law that only applies to GBVs (Gemeinnützige Bauvereinigung). In return for complying with the rigorous governance and auditing rules codified in the law, limited profit housing associations are exempt from corporation tax.

— The system of limited-profit housing in Austria

The main principles are the following:

• Cost Rent: GBVs calculate on a cost-basis, which means that rents can neither be set above nor below the costs incurred in the production, financing and management of residential buildings.
• Limitation of profits: Surplus generating components are a constituent part of cost-covering prices.
• Revolving funds: Equity is permanently tied up for limited- profit purposes and surpluses are continuously reinvested.
• Personnel restrictions: BVs must be independent from the construction industry, in order to prevent tie-in deals to the detriment of customers.
• Limited business activities: Limited-Profit housing associations must primarily pursue business activities that are within the main scope as stipulated in the WGG, i.e. the construction, maintenance, and renovation of homes, and must do so in their own name.

— The system of limited-profit housing in Austria