housing allowances and inequality____________ Stewart Lansley, Guy Fiegehen young fabian pamphlet 36 25p young fabian pamphlet 36 housing allowances and inequality contents 1 introduction 1 2 policy and the housing market 5 3 alternatives 11 4 universal housing allowances 15 5 conclusion 23 6 appendix: estimates of allowances and savings 24 this pamphlet, like all publications of the Fabian Society, represents not the collective view of the Society but only the view of the individuals who prepared it. The responsibility of the Society is limited to approving publications it issues as worthy of consideration within the Labour movement. Fabian Society, 11 Dartmouth Street, London SW1H 9BN. December 1973 ISBN 7163 2036 3 1. introduction Housing has long been an area of central and local government concern, and this reflects its vital importance for both individual and social welfare. Yet it remains a major problem area of social and economic policy. Britain is an advanced and prosperous society in which the majority of citizens enjoy high material living standards, but in which significant sections of the community endure poor housing conditions. Housing standards have risen since the war, but shortages have persisted. Our housing stock remains very unequally distributed, and housing needs are not being fully met. Many families are still living in sub standard homes or in overcrowded conditions, and the number of homeless people is steadily increasing. Tf these inequalities in housing conditions are to be tackled policy needs to give attention to both the size and adequacy of the housing stock and its distribution. Government action in the past has been inadequate and in some areas seriously at fault. For example, a crucial factor influencing housing policy is the difficulties faced by low income families in meeting the cost of decent accommodation, but the forms that financial assistance with these costs have taken have often had the result of aggravating rather than overcoming this problem. Measures are needed on the two fronts of encouraging housebuilding and improvement, and assisting people with their housing costs. To deal with the problem of shortages a greater degree of public control is required. This is recognised in the wide discussion of the need for the municipal isation of private rented property, the public ownership and control of land and the building industry, and the expansion of the supply of council accommodation. In this pamphlet we are concerned with policies of housing finance and particularly the role that personal subsidies can play in reducing housing inequalities. To put the discussion in context a review of the housing situation and the structure of current financial assistance is given. Some proposals for reform are then considered, in particular the scope for introducing a scheme of universal housing allowances. housing conditions____________________ Although there are now marginally more “ dwellings ” than “ households ” in Great Britain (in 1971 there were 18.3 million households and 19 million dwellings), we still suffer from a shortage of homes. In the first place, some proportion of the housing stock at any one time should be vacant to allow for adequate mobility and improvement. Nor do the figures allow for the number of second homes. Thirdly, the need for homes has been increasing rapidly with changes in demographic patterns, and the existing number of households is still less than the desired number of separate dwellings. Further there are problems of “ fit.” There is a shortage of homes for small, especially single, households and the elderly. Housing is imperfectly distributed relative to jobs, and some regions have a severe shortage. Housing space is also poorly distributed, much housing being under occupied. Finally, and most important, much of our existing stock is completely unfit or lacking in basic amenities. The Housing Conditions Survey of England and Wales conducted in September 1971 (.Housing and Construction Statistics Department of Environment, 1st quarter 1972) found that some 7.3 per cent of the total stock failed to meet basic standards of fitness, while a further 10.9 per cent were in a poor and unsatisfactory condition. Nearly a fifth of the housing stock in 1971 was therefore totally or partially unsuitable for habitation. There were wide variations between tenures and regions, over 50 per cent of the unfit houses being privately rented though this tenure type accounted for only some 14 per cent of the total stock. Meanwhile the numbers of homeless have been increasing. In 1971 the number of families applying for admission to temporary accommodation in England was 23,830 while only 6,300 (25,600 persons) obtained admission. The comparable figures for 1968 were 18,390 and 5,180. 2 While the majority of the population thus enjoy relatively high housing standards, overcrowding, homelessness and sub standard conditions are commonplace for a significant minority. Moreover, these inequalities in standards seem likely to persist well into the future on current trends and policies. In spite of the urgency of the need, the rate of housebuilding has been declining steadily since 1968. The number of completed houses in 1972 was the lowest since 1963. This downward trend must be quickly reversed if housing standards for the less well off are to be raised. An impetus to the housebuilding programme alone, however, will not solve the problem of inequality in housing. The new houses must be of the right type and help to relieve the areas of greatest need or allow other housing to be released for this purpose. Moreover, housing inequalities are not solely reflected in wide variations in physical standards. Housing takes a high proportion of income especially for low income groups, and this outlay is often related neither to the quality of accommodation obtained nor to ability to pay. the cost of housing__________________ In 1971 the Family Expenditure Survey shows that households in the uk spent an average of 15.5 per cent of their gross income on housing. This compares with around 19 per cent for households in Greater London and 22.5 per cent for households with incomes between £10 and £20 a week. The private rented sector includes some of the worst housing conditions, and it contains a higher proportion of low income households than any other sector. In 1971 47.5 per cent of households in private furnished accommodation had weekly incomes of less than £25 compared with 38.3 per cent of households in council houses and only seven per cent of owner occupied households with a mortgage. Evidence of the poor conditions found by private furnished tenants is provided by the Francis Committee (Report of the Committee on the Rent Acts, Cmnd 4609, hmso 1971). This shows, for example, that in Greater London in 1970 median rent as a percentage of median take home pay of heads of such households, who were typically low earners, was as high as 33 per cent. 53 per cent of these households were paying more than 30 per cent of their take home pay as rent. Moreover apart from the significant disadvantage of lack of security, furnished fiats in general offer inferior accommodation. Accommodation tended to be small with 25 per cent of tenants living in two rooms and 28 per cent in only one room. In the stress areas of London 26 per cent of furnished tenants were living in over 1| persons per room, although nearly a half of these tenancies were occupied by families with children. Many furnished tenancies also suffered from poor amenities. On average, therefore, low income groups in this sector pay a relatively high proportion of their income for generally inferior acommoda-tion. The situation whereby households can pay identical sums for widely differing standards of accommodation is partly due to regional variations and partly to the effect of past policy, for example, the differing costs and benefits and associated subsidies which distinguish each sector of housing. Within sectors large variations also exist, and even within a particular region a given outlay can purchase very different standards of accommodation. If we are to improve the housing situation, reforms designed to smooth these differences in costs and reduce these inequalities are needed alongside efforts to increase supply. To aggravate these problems, housing is becoming relatively more expensive. The table below shows the average price of new dwellings mortgaged with Building Societies since 1963, the average rents of local authority dwellings, and the index of retail prices and average weekly earnings of manual workers. Only the average price of new dwellings for the whole of Great Britain is shown. Average prices of modern existing houses and houses in London and the South East are higher 3 and have been rising at an even faster rate. Over the period since 1963 both house prices and local authority rents have been increasing considerably faster than the overall cost of living. New house prices kept roughly in line with average earnings up to about mid-1971 but earnings have lagged some way behind house prices since then. Rents grew at a slightly faster pace than earnings through most of the period and house prices up to about 1972. During 1971 and 1972 the increase in house prices accelerated largely as a result of the easing of credit facilities, rapidly rising money incomes, and the subsequent increase in demand for owner occupation during a period of a very slow rate of housebuilding. Thus new house prices rose by 16 per cent between the fourth quarters of 1970 and 1971 and by the unprecedented rate of 42 per cent between the same quarters of 1971 and 1972. The index of retail prices rose by 9.2 per cent and 7.6 per cent respectively during these periods. Local authority rents rose by 21.0 per cent between October 1971 and 1972. The increases in rents under the Housing Finance Act have meant that many households have found their housing costs forming an increasing proportion of their COST OF HOUSING income. In addition existing non-owners wishing to buy their own homes are faced with much higher house prices. At the end of 1972 new houses cost an average £9,000, modern existing houses about £9,700 and new houses in London and the South East £13,200. This leap in prices means that large numbers of families are no longer able to buy their own homes. Under present building society arrangements the maximum mortgage that households can obtain is three times their gross household income. In practice, the mortgage obtainable may well be less than this if a lower ratio is allowed, or if parts of household income such as subsidiary income, overtime, or wife’s income are disregarded. It is also common experience that manual employees with more irregular earning patterns and less employment and income stability are offered iower mortgages than salaried or professional persons with equivalent current incomes. Even assuming a full three to one ratio is allowed, at the end of 1972 a 90 per cent mortgage on an average new home would have required an income of at least £52 a week and savings of well over £1,000 for a deposit and other expenses. This is beyond the means of most families who do not already own a house. The New price of new council retail price year houses mortgaged weekly rents index 1963 3195 100.0 1.27 100.0 100.0 1965 3768 117.9 1.45 114.2 108.2 1967 4283 134.1 1.78 140.2 115.3 1969 4819 150.8 2.08 163.8 127.2 1970* 5082 159.0 2.33 183.5 134.7 1970f 5206 162.9 139.0 1971* 5630 176.2 2.52 198.4 147.9 1971 + 6051 189.4 151.8 1972* 6947 217.4 3.05 240.2 156.9 1972f 8571 268.3 163.4 weekly earnings of full time manual workers 16.75 19.60 21.40 24.80 28.05 30.93 35.82 100.0 117.0 127.8 148.1 167.5 184.7 213.9 These figures are average local authority rents and do not allow for the higher rents that would otherwise have been paid by recipients of supplementary benefit. * 2nd quarter; f 4th quarter. source: Housing and Construction Statistics Dept. Environment; Dept, of Employ- ment Gazette. 4 Earnings Survey of April 1972 (Department of Employment Gazette November 1972) shows that less than six per cent of full time male manual employees earned over £50 a week. While earnings had increased slightly by the end of the year this gives some picture of the difficulties faced by those trying to buy a home. In October 1972 average industrial earnings were £35.82 and this would have been sufficient to obtain a mortgage of about £5,500, quite inadequate for even most relatively low priced dwellings. Further, the net weekly cost for the first year of a 90 per cent 25 year mortgage on an average home during the last quarter of 1972 would have been just over £12, and this is before rates, insurance and maintenance (and rates of interest have increased since then). Two years previously, at the end of 1970, a similar mortgage on an average new home would have cost £7. The mortgage cost of a new home increased by over 70 per cent over this two year period while earnings increased about 28 per cent. Purchase of a house in these circumstances for average income families would almost certainly involve restricting necessary expenditure on other items and so cause some hardship. Under current circumstances the large majority of households who are not in the owner occupied sector are therefore quite unable to become so, and those few who do will be faced with heavy financial commitments which may lower their standard of living elsewhere. Soaring house prices have greatly bene-fiitted those who bought before the boom but have meant that the privileges of owner occupation are becoming increasingly beyond the means of large sections of the population, and that future buyers may be even more than in the past concentrated amongst better off households. This is likely to accentuate the social and economic differences that have tended to distinguish households living in each sector. As long as home ownership remains a more privileged form of tenure than other types of accommodation, the increasing limitation on the choice of housing for lower and average income earners will have unfavourable social repercussions, increasing inequalities of opportunity and widening class and status divisions within the community. 2. policy and the housing market Housing conditions have a major influence on the health, attitudes, opportunities and quality of life of individuals and communities, inequalities in these conditions are reflected in educational, cultural and economic opportunities and are restricting to social and individual welfare. Most of those concerned with housing problems would accept that housing policy should aim to guarantee everyone a home of a minimum standard at a price that can be reasonably met (this for example was the broad aim underlying the 1972 Housing Finance Act). There is no universal agreement, however, on how this aim can best be achieved nor on what constitutes “ minimum standards ” and “ reasonable cost,” nor even on the need for government policy. policy aims_______________________________ The view of those on the Right would largely be that the supply and distribution of housing should be left to the price mechanism with the State playing a minimal role confined, for example, to slum clearance and subsidising those who, through lack of income, cannot afford some minimum standard of housing in the private market. The Conservatives’ Housing Finance Act with its move towards economic rents in the public sector, the implicit stimulus to the private rented sector and owner occupation and the introduction of means tested rent rebates and allowances for tenants is a partial expression of this outlook, though an even more non-interventionist approach would be advocated by some. A contrasting view, and the one held here, is that extensive government involvement is needed to ensure that decent housing of a high standard is provided to all households, that housing resources are distributed equally and fairly on the basis of need and independently of income. Housing standards should be relative and set against the background of the average standards enjoyed by society, and housing conditions should therefore not vary widely. Market forces operating freely would provide neither an adequate stock nor its fair distribution. This is because both global and individual housing need in the social sense differs markedly from economic demand to which market forces respond. In a free market, the extent to which housing needs are met depends upon the population’s capacity to pay and hence the relationship between the level and distribution of income and the cost of housing. In Britain the high cost of housing and the unequal distribution of income has meant that significant sections of the population have been unable, without assistance, to afford the full economic price of decent accommodation. The private market left to itself would produce a very unacceptable distribution of housing resources. Indeed it is the failure to control adequately the regressive nature of the market for housing that is responsible for many of our current problems. To guarantee adequate housebuilding and its fair allocation, therefore, wider assessments of housing need, overall planning of housing programmes and comprehensive involvement by central and local government are required. In view of the crucial importance of housing to living standards and the problems of an unequal distribution of income, financial aid is needed to enable families to spend more on housing than they otherwise would, especially low income families. This assistance should be progressively distributed with help being concentrated on those with low incomes. A housing programme must have as its goal the removal of the housing problems outlined earlier, but it must also face up to the constraint of limited resources and the competing demands of other welfare services. In the short run difficult choices have to be made between the conflicting needs of increasing the stock, raising standards and keeping costs down. Nevertheless more equality in housing can only be secured with the aid of more comprehensive government intervention, the restriction of the private market mechanism and a series of radical reforms designed to re-allocate existing re- 6 sources and reduce inequalities while increasing and improving the existing stock. the market for housing The housing market in Britain is divided into three major sectors, the owner occupied, private rented and public rented sectors. Other sectors are insignificant in overall terms though the number of housing association tenants is increasing. The table below shows the distribution of dwellings by tenure in a number of years since the war and indicates how the significance of each sector has changed. In particular the owner occupied and public rented sectors have become increasingly important forms of tenure while the private rented sector’s dominance has been gradually eroded. This shift in the distribution of the housing stock has been strongly influenced by the nature of government policy and its interaction with market forces as well as by rising real incomes. The total supply of housing is very inflexible ; in the very short run it is fixed and even in the longer run it will adjust to major changes in demand only slowly. In 1972, for example, the net addition to the stock of houses of some 214,000, represented only 1.1 per cent of the total stock. The market solution to a housing shortage is to allow house prices to rise sufficiently to ration the available stock, encouraging a more intensive use of the existing stock in the short term and an increase in housebuilding only in the long run. Excess economic demand would be eliminated but not the social need. It is against this background that housing policy and in particular subsidies to demand must be appraised. Demand subsidies used with the aim of reducing individual housing costs and stimulating supply will in the absence of wider controls increase prices before they affect output, and be of main benefit to existing house owners, landowners and landlords. Even in the longer run higher house prices may have little impact on new construction if the main beneficiaries have been landowners rather than builders. Certainly in recent years much of the increased price of new dwellings has been absorbed by faster rising land prices. In the fourth quarter of 1972 site values accounted for some 27.7 per cent of the cost of new houses while in London the figure was 37.5 per cent. In 1969 the proportions were 21.2 per cent and 28.9 per cent respectively (Nationwide Building Society Occasional Bulletin). Indeed land prices rose by 85 per cent between 1966 and 1971 while house prices rose 43 per cent and construction costs only 39 per cent. government housing policy Since the war a combination of increasing financial aid, rising living standards and demographic changes has given rise to a steadily increasing demand for more and better homes. But housing needs have not been fully met. Supply has failed to keep pace with this increasing demand STOCK OF DWELLINGS BY TENURE—GREAT BRITAIN owner privately year local authority 1000s % occupied 1000s % rented other 1000s % 1000s % total 1000s 1950 2,500 18.0 4.100 29.5 6,200 44.6 1 ,100 1.9 13,900 1951-60 4,320 26.6 6,805 42.0 4,170 25.7 920 5.7 16,215 1966 5.064 28.7 8,318 47.1 3,331 18.9 947 5.4 17,660 1968 5,389 29.6 8,847 48.5 3.033 16.6 965 5.3 18,234 1970 5,705 30.5 9,270 49.5 2,798 14.9 958 5.1 18,731 1971 5,824 30.7 9,508 50.1 2,682 14.2 953 5.0 18,967 source: Statistics, Social op cit. T rends Central Statistical Office; Housing and Construction 7 and shortages have remained. Moreover inequalities in housing conditions have persisted. The government’s response to this situation has varied widely, and even in the immediate post-war period there has never been a fully co-ordinated and comprehensive approach to housing problems. Housing needs have been continuously underestimated, policies have been piecemeal and intervention partial. While average housing standards have risen considerably, variations in these standards have not been reduced. Policies particularly in the area of housing finance must take a large share of the blame for this situation. In an attempt to replace and expand the depleted housing stock the immediate post-war Labour government imposed extensive controls on all building and accepted almost total responsibility for the finance and organisation of the housing programme. The -twin elements of their programme were subsidies to council house building and rent control. The elaborate provisions produced an initial housing drive, but they were temporary and were only successful in meeting temporary needs. Economic difficulties together with serious underestimates of future requirements led to future building programmes being restricted. These comprehensive post-war controls were gradually dismantled as immediate needs appeared to be met and as more resources were required elsewhere, a process which was quickened with the return of a Conservative government in 1951. Throughout the 50s there was a greater emphasis on the free market, and in 1957 rent control was partially lifted. Cuts were made in local authority building programmes too. Owner occupation was encouraged and the proportion of houses built for private owners rose from 15 per cent in 1952 to 63 per cent in 1961. Under the Labour government of 1964 there was a return to greater involvement with the introduction of rent regulation and other policies. But economic circumstances again led to this involvement being limited. A number of steps have been taken to reduce individual housing costs, and these have stimulated housing demand. In addition to building subsidies in the public and rent control and regulation in the private rented sector, households buying and owning their own homes have been assisted through tax relief on mortgage interest payments and other tax concessions. Together with the shortage of supply of rented accommodation, these financial aids have contributed toward the expanding demand for home ownership. More recently measures aimed directly at helping lower income groups to become owner occupiers have been introduced. The option mortgage scheme started in 1968 enables households paying little or no tax to choose, instead of an ordinary mortgage with tax relief on the interest, an option mortgage with a government subsidy which reduces the interest rate paid. In the fourth quarter of 1972 22.8 per cent of mortgage advances by building societies and 22.3 per cent of local authority loans were option mortgages. The equivalent proportions for mid-1970 were 7 per cent and 12.6 per cent (Housing and Construction Statistics, Department of Environment). Another measure to help lower income families buying houses is the 100 per cent mortgage given by local authorities which should assist those who have not been able to save a deposit. Although such mortgages declined in importance between 1965 and 1969 when the total of local authority loans fell, their number has been increasing again recently. Their availability depends, however, on money market conditions and central and local government initiatives. While these measures have undoubtedly had the desirable result of improving the access of lower income groups to home ownership, they have also been partially self-defeating through their impact on house prices. Apart from these policies a number of indirect factors have been at work. House purchasers who first bought in the 1950s and early 1960s have benefitted from the high rate of inflation in the 1960s. Indeed the combined effect of tax relief and inflation has been that the real rate of in- 8 terest on mortgage loans has been negative in a number of years (see R. L. Harrington “ Housing—supply and demand ” National Westminster Bank Review, May 1972). An additional advantage enjoyed by owner occupiers has been the tendency of house prices to increase faster than the general rate of inflation thus providing house owners with real capital gains on their accommodation. This rise in the price of houses has been assisted by the policy of subsidising demand in a situation of limited and inelastic supply. Moreover, the ability to obtain capital gains from buying houses has encouraged an investment demand which has further stimulated the rise in prices. The demand for home ownership has thus been continuously rising but new construction in this sector has not kept pace so that the increased supply has been partly provided from the stock of existing houses. The long period of rent control has reduced the rate of return available to landlords and led to a deterioration in quality and reduction in quantity of private property to rent ; many houses in this sector have been transferred into the owner occupied market. Another measure influencing the shift of houses into the owner occupied sector has been the introduction of additional improvement grants in the 1969 Housing Act. The aim of this Act was to encourage a higher rate of improvement and rehabilitation of older houses but while the grants have been successful in improving the quality of the housing stock, their use has been inegalitarian in effect. Many landlords have made use of the grants to improve their property and then sell to owner occupiers. There is also considerable evidence that property developers have taken advantage of the scheme in inner urban areas by buying private rented property, improving it with the aid of grants and re-selling or letting at a substantial profit. The scheme has therefore contributed towards the transfer of accommodation for rent to the more expensive end of the owner occupied market, a clear abuse of the aims. The inability of the private market to provide sufficient homes for buying or renting at a price which lower and even average income families can afford has increased the need for council accommodation. The supply of council houses depends mainly on the political will and initiative of central and local governments and on the prevailing economic climate and cost of borrowing. Among the main reasons for the decline in housebuilding in the public sector after 1967 were the deflationary policies which led to cuts in housing programmes, and the heavy swing to the Conservatives in the 1968 local elections with their lower commitment to council house building. More recently land availability and the difficulties of obtaining contractors within the limits of the cost yardstick have become important factors. While a clear need exists for government intervention, the actual policies followed have been insufficient to meet housing needs. The supply of housing responds only slowly to rising incomes and prices and is also critically related to the prevailing economic climate. The rate of housebuilding in both the public and private sector has not kept pace with increasing need. In this context, governments’ haphazard attempts to bring demand and social need into line have been partially self-defeating by encouraging inflation. Further, by treating different sectors very differently they have tended to reinforce rather than remove inequalities. inequalities between sectors Our system of tenure and the different advantages afforded by living in different sectors are a major source of inequality in housing. The sectors of housing differ widely in their physical condition and in the legal and financial privileges they offer, yet for most of the population no choice exists between them. Access to the most privileged sector, the owner occupied, is largely denied to lower income groups, despite the measures outlined above, a situation that has been accentuated by the recent boom in house prices. This has prevented many from buying their own homes while providing existing owners with large capital gains. 9 Different sectors not only offer different qualities of accommodation, in that private rented property tends to be the oldest and least well maintained, but also varying degrees of security of tenure ; yet security is vital to the accommodation needs of all households. Owner occupiers enjoy complete security. Council tenants in law do not have security but in^ practice are rarely evicted. Against this, they are restricted in their geographical mobility because of the great difficulty in finding new council accommodation in another area. Private unfurnished tenants who have the right to security often fail to claim it through lack of awareness or the very real fear of harassment. Private furnished tenants on the other hand include some of the poorest and least powerful sections of the population but enjoy little or no security. Further, while the aim of housing subsidies is to assist people with their housing costs, the means used bear little relation to principles of fairness or need. Financial assistance is unequally distributed and often gives most help to those least in need. A number of devices are used to protect households from bearing the full market cost of their housing. private rented sector Private tenants in the past have been protected by the use of rent controls. Although the 1957 Rent Act led to a considerable relaxation of these controls, many tenants still occupy controlled dwellings. Under the Housing Finance Act of 1972 all existing controlled dwellings will be gradually decontrolled over the period to 1974 when rents will have reached “ fair rent ” levels. Under the 1965 Rent Act tenants or landlords of formerly decontrolled tenancies could anoly for a regulated “ fair rent ” to be determined on the basis of the “ age. character, locality and state of repair of the dwelling” while disregarding the value due to any local shortage of similar accommodation. (The Francis Committee found that, on average, registered rents were some 20 per cent below market rents.) A large number of properties, however, remain unregulated either because they have a gross rateable value too high to be covered by the Act or because their tenants do not take advantage of their right of regulation. The assistance provided in this way is therefore probably relatively small in comparison with other sectors. As decontrol is implemented and the national rent allowance scheme introduced in the 1972 Act begins to operate the extent and nature of subsidisation in this sector will alter. Rent regulation and control help tenants purely at the expense of landlords, though “ fair rents ” are meant to be sufficient to give the landlord a reasonable rate of return on his property. Moreover, they tend to subsidise all tenants alike, irrespective of personal circumstances and ability to pay. the public sector Council house rents have been generally lower than either historic cost or market levels. Before the Housing Finance Act they did not cover the full cost to the local authority of council housing which consists of maintenance and administration, and the payment of interest on past loans obtained to finance building. The difference was met by direct central government grants and from local rates. In 1970-71 these subsidies amounted to £217 million, £157 million from Exchequer grants and about £60 million from the rates, making £39 per council house (Social trends). Council tenants were also helped to the extent of the difference between this historic cost rent and the rent obtainable on the open market. While the subsidies provided were substantial, their allocation was quite haphazard. Before the Housing Finance Act, rent levels had been set at the discretion of local authorities with the result that actual rents charged to individual households for similar accommodation varied widely both between and within authorities. This was partly because Exchequer subsidies received by individual authorities were related to the time when they built uo their housing stock and the then prevailing costs of building, interest rates, and levels of central government subsi- 10 dies. Differences in the degree of support were also due to the variations in criteria used to determine rents, and the differing policies on rent rebates, rent pooling and rate contributions adopted by authorities. Exchequer subsidies tended not to be related to local needs nor to tenants’ incomes. the owner occupied sector Owner occupiers enjoy a very privileged financial position in comparison with other sectors. First, they obtain financial support in the form of tax relief on mortgage interest payments which is greater the larger the mortgage and the higher the income and rate of tax incurred; tax relief is therefore regressive in its effect. Until 1963, house owners had to pay tax on the value of their imputed rental income from ownership (Schedule A taxation), and it is arguable that the mortgage interest incurred in obtaining that income represented a justifiable allowance against this tax. However, even then they were considerably undertaxed since the imputed rent element was calculated on the basis of 1936-37 rating valuations. With the abolition of Schedule A tax in 1963, the mortgage interest tax relief which remained became in effect a substantial source of subsidy to this sector. The abolition of Schedule A tax for owner occupiers means that while house ownership provides considerable income in kind, it is not taxed. Although the owner occupier with real income from his home has a higher standard of living and a greater capacity to pay tax than a non-owner occupier with identical money income they are treated identically for income tax purposes. This confers a considerable financial advantage on the house owner as is clear from, for example, a comparison with landlords who have to pay income tax on rent incomes or with investors in shares who pay tax on dividends. The extent of this tax saving can be gauged from a comparison of two standard rate taxpayers with identical incomes one living in and one letting his home. If the rental value of the house is say £500 per annum the person occupying his home obtains income in kind of £500 li per annum while the person letting obtains a rental income of £500 per annum less tax at 30 per cent (£150). A further advantage is that even if house prices increase at the same rate as general inflation, the real value of mortgage repayments declines while the real value of property remains constant. If, as has been the case, house prices appreciate more than other prices occupiers will make real capital gains but be exempted from capital gains tax when selling their property. This represents another advantage over both renters with no property and landlords letting property who have to pay tax on capital gains. The combined effect of giving tax relief on mortgage interest and exempting occupiers from paying tax on both their imputed income and their capital gains is a considerable inequity of treatment between occupiers and landlords and both private and public tenants. Furthermore, the value of these tax concessions is greater for those with higher incomes and more expensive houses. These concessions have other undesirable consequences. They encourage the demand for housing by the well off and thus help to stimulate the inflation of prices and aggravate the difficulties of access to owner occupation for lower income groups. This in turn diverts building resources and land to the luxury end of the market and so inflates the cost of building at the poorer end. They also discourage the building of houses for letting rather than owner occupation. The major fault of this system of financial aiid is that house purchasers and owners receive greater support than either private or council tenants, although the latter are on average lower income households. In 1970-71 tax relief on mortgage interest amounted to some £300 million or £60 per mortgaged house. The saving accruing to owner occupiers through not paying tax