Affordable Housing

Lord Desai Excerpts

Thursday 25th June 2015 Lords Chamber

[Lord Desai (Lab)]

My Lords, thanks to my noble friend Lord Whitty, we have had an excellent debate. Many noble Lords have spoken, about all aspects of the problem, so as the last Back-Bench speaker I have to do something new. It is quite clear that once upon a time, people wanted a house for living in but that is no longer the need. The first 10 places I lived in were all rented, but when I arrived in London, I was told that it was madness to rent and that I had to own. The incentives of owning were such that it would be mad to rent. Since then, we have gone on adding incentives to buy and therefore anybody who has the money buys houses not just for living in but for capital gain. Affordable housing has become a rather exotic item in the social circles that cannot buy, although with the Government having introduced the right to buy, even that bit has now powered on to home ownership.

Home ownership is very good but it is also a very irrational thing. Our last crisis was caused by home ownership, both in America and here. We should not forget that the idea that homes always go on increasing in price is a delusion. But people have delusions, and in democratic politics you cannot tell people that they have delusions—instead you have to feed them delusions. That being the case, how do we increase supply? As my noble friend Lord Whitty and many other noble Lords have said, it is a problem of supply. I have studied the historical gentrification cycles in London. Two noble Lords declared their connections with Peabody. Of course, we know that the London housing situation was dire, as Booth discovered in the 1870s. It was rich, private, charitable people who built a large amount of London housing in the late 19th century. Peabody is a perfect example.

As other nobles Lords said, in the post-war period public housebuilding took over the task of renewing London’s housing and keeping affordable houses supplied. In the mean time, a lot of small private builders were involved in the gentrification of various areas. We now face the problem that the public sector can no longer be a sufficiently large provider of houses and the small private builders do not have incentives to build affordable houses. That being the case, we ought to find some way to get big money into housebuilding.

People think I am an economist so I get invited to conferences where very rich people ask me how they can invest money. Sovereign wealth funds, pension funds and other such funds sit on a large amount of money globally. These people have really global ideas of where to invest. They are also, unlike many other private investors, long-term orientated and willing to accept a proposition in which the returns will come over 50 years. That is especially true of pension funds and sovereign wealth funds. The Government ought to be able to do something by which they give an incentive to sovereign wealth funds and pension funds, those people who invest on a 50 to 100-year basis, to revamp the housing stock of the country.

My noble friend Lord Adonis suggested something of this sort but we could do it on a much larger scale if we can harness a lot of money. My view is that there is a lot of money out there. Those in charge of that money, especially if it is private equity or sovereign fund equity, do not have to face shareholders. They have no short-term pressures on them to make money all the time. It is a very rare thing: if you have a little money you have short-term pressures but if you have a lot of money you do not. The Government ought to find some sufficiently clear incentive-based mechanism to attract this money into housebuilding. They may be able to do that through some sort of green bank but it would be very good if we could invite back the Peabodys of the 21st century to invest massively in London housing.

No other agency has the money and the Government will hardly try. We will be told by the Treasury sooner or later that we do not have the money. The fact that housing benefit is costly precisely because we have a short-sighted policy on supplying housing does not impress the Treasury. The Treasury is not an economic Ministry—it is made up of bean-counters who care only about the ins and outs of money. They will not care about that argument on the rationality of saving on housing benefit. If we can get a lot of private money into housing by some clever device, and I am sure we can all think of one, that would relieve the constraint on London’s housing supply.