Considering how obsessive the British are about their houses, it's amazing how dysfunctional the UK residential property market is. The social housing sector, in particular, is a complete mess. The sell-off of so-called "council houses" launched by the Thatcher government never paid much heed to the demand for affordable housing; instead it simply slashed the supply. As the economy has slowed in the last few years, demand for rental homes has begun to rise -- home ownership is actually declining for the first time in a generation -- making the problems even more acute.
There are still about 3.8 million social housing units in the UK. Most of these are owned by local authorities, the rest by co-operatives or other housing associations. The current waiting list for such homes runs to 1.83 million people, meaning that it can take many years for would-be tenants to be allotted a property. One small illustration of the scale of the problem: Newham Council in London was recently told that it would be allocated 350 homes in the Olympic Village to use for social housing, once the Games are over. Newham's current housing waiting list: 40,000!
Considering the imbalance between supply and demand, it's little surprise that some interesting scams have sprung up. One that has had a lot of media publicity lately is sub-letting -- council tenants quietly re-renting their property to others in need, and using the rent they receive to facilitate the purchase of a home of their own. This is, of course, forbidden. There's some dispute about how widespread the practice is: official data suggest that it only affects 1.25% of council homes nationwide, rising to 2.5% in London. However, on 23 January the Daily Mail ran a shock-horror story suggesting the real number could be as high as 20% of all council properties, costing the taxpayer an alleged £13 billion a year. (I am so NOT providing a link to the Hate Mail).
The lack of social housing has also boosted the cost of social benefit programmes. Local authorities have been compelled to put benefit claimants into private accommodation at full market rents. (If not more -- the private landlords are quite aware that they hold the whip hand in negotiating with council welfare officers). In more expensive areas, especially London, the overall shortage of available property has meant that the costs for providing this benefit have become astronomical.
As part of its welfare reforms, the government is proposing that the housing component of social benefit packages should be limited to £500 per week. This equates to a pre-tax income of £35,000, above the national household average, so the proposal has a lot of voter support, and not just from Daily Mail readers. However, concern that the measure would cause the break-up of families has resulted in its being rejected in the House of Lords, where an alliance of LibDems and bishops joined forces with Labour peers to defeat the government. Undeterred, the government insists it will press ahead with the measures, perhaps with some transitional or mitigating changes to buy off the bishops.
Meanwhile, very much at the other end of the scale, the super-rich are using offshore companies to dodge stamp duty payments on the purchase of UK homes, costing the Treasury an estimated £750 million a year. This form of ownership doesn't just deprive the government of revenues; it also means that the effective ownership of a property can change without any requirement to notify the UK authorities. (Lovers of music -- I use the term very loosely -- will be interested to know that Sir Bob Geldof is the beneficial owner of two UK properties that are legally owned by special purpose companies. St Bob insists that tax was paid when the properties were bought, and there's no reason to doubt him. However, it's a reasonable assumption that tax won't be paid next time they're sold, or any time after that, as long as the present law remains in place). The so-called "mansion tax" on high value properties, favoured by the LibDems, would close this loophole. Surprisingly, however, and unlike the housing benefits cap, this does not seem to be an urgent priority for the government.
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