Housing Subsidies and the Housing (Financial Provisions) Act 1933
Rented Accommodation and Council Housing.
The need still remained in the late 1920s and early 1930s for rented homes to fill the demand from the public and the local authorities. The building societies were financing some cheap houses to rent, but not enough to provide accommodation for those people in substandard, outdated homes. However, an attack on the problem of a shortage of houses, by the building of homes to let, was largely out of the question because of the profit motive; there was not enough profit for the builders and the banks who provided the finance. In addition there was still rent control which restricted the level of rents charged and there was also the threat of further rent restriction being introduced in the future.
Nevitt has argued that taxation policies of governments since the 1870s have been designed so that capital flowed from rented accommodation into other forms of investment which receive more favourable tax treatment. Private enterprise building and finance was not at the time organised to provide low-cost houses to let on a large scale. The thinking within the country after 1919 and especially in the government had confined itself to dealing with the shortage of houses by building to rent. This had been virtually the only method known. The committee set up in 1921 by the Ministry of Health to report on the reasons for the high cost of building working-class housing does not mention the possibility of working-class houses ever being built for sale. Only the Marley Committee's Report to the Minister of Health on the Rent Restrictions Act in July 1931 saw that 'the contribution of private enterprise to the solution of the housing problem would mainly be confined in building houses for sale'. It noted that 'We have not overlooked the fact that the habit of home ownership is one which has spread with great rapidity during the last few years to the better-paid members of the working classes...owing to the difficulty in obtaining houses to rent'.
Without an end buyer or Government guarantee, the banks would not provide any development finance and few builders had the capital resources to build houses to let. The banks and the builders needed their capital to be turned as quickly as possible to allow them to take on other projects and make a further profit from their capital. Building houses to let was a long-term investment, and neither the banks nor the capital markets, that is the stock and bond markets, were willing to provide capital for such purposes. The building societies were willing to provide capital by way of their investors deposits, but only to prospective purchasers not for the building of houses for rent. This problem could have been resolved, but the government did not take steps to either provide grants, tax breaks or loan guarantees to builders. It might also have explored the possibility of bringing in legislation to allow the building societies directly to build houses for letting purposes free from rent control. A further alternative would have been to allow charities or institutional investors to build houses for rent. The larger charitable trusts were to build very few homes in the 1930s. In proportion to housing needs and to the extent of the building which was taking place what they achieved was negligible. The Peabody built none, and the Guinness Trust only 799 tenements in high-rise buildings during the period from 1932-1939. In addition 'about 250 Public Utility Housing Societies have been formed up and down the country to try to provide cheaper housing. Capital has been raised at a low rate of interest, 2.5% to 4% by private issues of bearer shares and Loan Stock. The number of houses provided has been small'. Even though much faith had been vested in these housing societies it must be assumed that very few investors were attracted by the low returns offered by them; it might also have been there the deposits were illiquid compared to those with building societies.
There could be no likelihood of any significant number of houses to let being built by the private sector without some financial assistance from the government. Any tax incentives, loan guarantee or cheap loans would have been at a cost to the government and they would have had no guarantee that the houses produced would have been let at a level the poorer sections of the working classes could afford. The effect of the subsidies given under the various Housing Acts had tended to make the houses built only suitable to be rented to the middle and upper working classes as they were expensive to build. This was because the houses were built to good specification, there were costs incurred in the employment of professional teams, and site layouts were wasteful compared to those used by the speculative builders of the 1930s. Only the better paid manual workers were able to pay the rents which, when added to the subsidy, would equate to the cost to the local authority of the capital borrowed to build the houses. If the lower paid wished to rent, the supply of modern houses to let was limited, especially in areas of full employment. Not all of the estates developed by local authorities had easy access to employment. Olechnowicz illustrates how expensive the cost of travel was for the occupiers of the estates he examined. Olechnowicz also shows that for a mortgage payment of 19s.9p per week inclusive of rates, it is cheaper and better to buy than to rent a house on the Becontree Estate.
The local authorities, under central government pressure, were anxious that there would not be a deficit to fall on the local ratepayer; they, therefore, had to charge rents high enough to meet the interest on the loans taken to build the houses. These houses were built to a higher specification in accordance with the Tudor Walter recommendations, than the smaller speculative home and cost more. Subsidies 'tended to use tax-payers' money to subsidise the housing of those who needed it least'. Marian Bowley said that 'the working-class families who benefited most directly from the subsidies were ...among the best off'. In his speech moving the second reading of the Housing (Financial Provisions) Bill in 1933, the Minister of Health, Sir Hilton Young, said that 'subsidies, being abnormal and artificial...they are expensive, because they divert public money which is badly need for other services...they have the positive evil that subsidies actually raise costs'. After the end of subsidies at least 'the provision of housing moved further down the social scale than the lower-middle classes and upper levels of the working classes who had been the exclusive beneficiaries of earlier schemes'. The movement up the housing ladder by the better-off sections of the working-classes might have released housing accommodation for the lower-paid. However this accommodation would not have been modern and could not have been as attractive as a new speculatively built house.
With the difficulties of building houses to let in the private sector and without subsidies or grants to enable local authority housing to be expanded there was an ever- increasing demand for new housing, especially cheap housing to meet the needs of the lower paid workers. Colonel Chapman in the same debate on the Financial Provisions Bill had a simple idea for solving two problems at once; namely, unemployment and the shortage of small homes. He said, 'If the Government would lend to the building societies, in order that they in turn could lend it out to the people who want to buy their own houses... the Government could lend at £2.12.6 per cent ...and the societies would then lend on at £3.10s. per cent...Houses of four rooms can now be built for £350...the weekly repayment is 7/4 p.w... If we take a unit of £100,000,000 at £350 per house, you could build 300,000 houses...If we take 80 per cent of the cost of building a house goes in labour...we get £72,000,000...on average £3 per week...would give us a full years work for 480,000; it would provide work for the whole of unemployed members of the building trade for two years'. Not surprisingly, his ideas were not followed by the government.