8 July 2019

Why less council housing can help tackle unemployment

By

In some quarters the proposed solution to Britain’s housing problems is lots and lots more social – ie below market rate – housing.

For the more extreme, this should mean local councils building, owning and renting out the dwellings. As one young couple have recently found out, this is no solution at all.

Thomas Gallagher and his partner Tanya, whose story appeared in The Sun over the weekend, have found themselves between a rock and a hard place. The couple hail from Birmingham, but moved to Cheltenham for a few years for work.

On returning to their home city to care for Thomas’ mother, they were told they were not eligible for council housing. In the meantime, they risk losing their right to a council flat in Cheltenham

The problem the couple faced was an apparent lack of a “local connection”, despite both having grown up in Birmingham – and having newborn twins to look after.

Their case encapsulates several of the problems with council housing in general. To paraphrase the League of Gentleman, local councils are, by their very nature, going to provide local housing for local people. Indeed, that’s their legal mission too.

And, given the point of council housing is to provide it below market value, there’s always going to be a queue. Local authorities are always going to put locals – ie those who can vote for them  – at the front of that queue. Given the way it is funded, social housing is not all that different either.

The economist Andrew Oswald hit upon this problem several decades ago. He posited that a home ownership rate which is “too high” is going to increase the natural rate of unemployment. Jobs don’t always pop up where the unemployed are, the unemployed aren’t always where the new jobs are, so there needs to be a certain fluidity in housing to be able to match the two sets up, jobs needing people and people needing jobs. That all seems obvious and logical enough.

Selling a house to move to another area and buy one is an expensive process. It follows that the more homeowners there are, the less movement of labour there is. A robust private rented sector, in which people can move with relative ease, is a handy solution to that problem of labour mobility.

It also follows that high rates of Stamp Duty are contributing to unemployment, because they make the cost of transacting property sales that much higher and therefore push up the natural rate of unemployment. Boris Johnson really should be trailing his plans to reduce Stamp Duty as a way of fighting unemployment.

Of course, it’s not homeownership per se which raise the unemployment rate – it’s immobility of housing. Renting in the private sector gives us that mobility, and it’s the gap between ownership and the freedom of private renting which reduces mobility and increases unemployment.

But as we can see from the case of Thomas and Tanya, social housing has much greater immobility than the private sector. Even cases of clear and possibly even urgent need don’t get the council house if they are not deemed to have a strong local connection. And apparently being born and raised in a place is not quite enough – at least if you’re from Birmingham.

Put another way, council and social housing specifically discriminates against those who do ‘get on their bike’ and look for work beyond their home town or city.

That does not mean, of course, that the decline in unemployment is entirely correlated with the decline in council housing over the last decade. Of much greater influence is the manner in which our reserve army of the unemployed goes home to Krakow when the job market’s a bit thin.

Nonetheless, Oswald’s original analysis still holds true. Housing immobility causes a rise in the unemployment rate by increasing geographic labour immobility. Given the way we set up social and council housing to be the most immobile form of housing tenure, it is only logical to assume that more council housing contributes to more unemployment.

Strange but true – council housing causes unemployment, so perhaps we should have less of the former to have less of the latter.

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Tim Worstall works for the Continental Telegraph and the Adam Smith Institute