Housing Subsidies and the Housing (Financial Provisions) Act 1933
By the end of the 1920s the government had shown that it was unable and perhaps unwilling to continue to support the building of houses by local authorities. For financial reasons as early as June 1921 the subsidies on house-building became limited and local authority house-building was seen as a residual activity. However subsidies continued to be paid throughout the 1930s as a result of the provisions of previous Housing Acts. The perilous financial position of the government in the early part of the 1930s was clear from the rise in outstanding borrowing from £98 billion in 1927 to £214 billion five years later. It was also perhaps true that a decade had passed since the homes for heroes mood existed in the country and with the defeat of the Labour government in August 1931 there was less political pressure for the new National government to continue with such a housing policy. In addition the economic problems of the time had not improved from 1920 when Chamberlain told the Cabinet that the whole scheme for building houses must come to a standstill for lack of finance. The Exchequer could not meet the cost of re-housing those in need, such a policy was impractical. This change in public opinion, combined with the large deficit, made it easier for the government to pass the Housing (Financial Provisions) Act of 1933 whereby, finally, the last of the subsidies was withdrawn except for the purposes of slum clearance and laid down a mechanism whereby local authorities and the building societies could work together to build houses for rent. Wilding argues that the Ministry of Health took a cynical view of this Act seeing it as little more than a smokescreen behind which the Wheatley Act subsidies could be withdrawn. A decade before the 1923 Housing Act had also contained a provision whereby guarantees could be given to building societies to encourage them finance the building of houses for rent, this scheme had not been successful, neither side finding the terms agreeable.
Walter Harvey said in a speech delivered to the National Congress of Building Societies in October 1938, and reported in the Building Societies Gazette in that month, that this Act was conceived by the Building Societies' Association as a way of using their deposits. It had its roots in a paper delivered to the 1929 building societies' conference by Walter Harvey called 'Public Money in Housing'. It was envisaged by the building societies and the government that the cheapest form of finance available to private enterprise would be that provided by the building societies. There were many critics of the proposals, in the second reading of the Building Societies' Bill in 1939 Colin. C. Poole a Labour MP said 'If ever there was placed upon the Statute Books an Act which contained the unmistakable handiwork of the building societies of the day it was the Housing Act of 1933. The Act was placed on the Statute Books simply because the building societies were absolutely bursting with money for which they had no outlet and it compelled local authorities to cease to build houses for the ordinary applicants, for one purpose and one purpose only, namely, in order that the people be driven into the hands of the building societies and called upon to purchase houses themselves'.
But the high cost of housing to the public purse at the time obliged the government to look at ways of moving the cost to others, the building societies were the only obvious source of funds, making it possible to stop the drain on the Exchequer. An unknown Treasury official had hand-written a note on a letter to the Minister of Health in June 1932, reflecting on the Bill, saying 'There is no doubt that the number of houses which will be approved ... will be considerable'. The Act was also seen by some in the movement as a way of making the societies almost the sole providers of finance for mass housing and enabling them to take over the role from the local authorities. The societies may well have had in mind a situation where they lent to builders, funds specifically for building houses for rent, secured against a government guarantee, at rates sufficient to give an acceptable spread,[the difference between the cost of funds and the lending rate]. In the first part of the Act the purpose of the legislation was said to be 'the building and acquiring of houses to be let to persons of the working classes'.
In addition to the security of a mortgage a society's position would be protected by guarantees attached to the loans. These guarantees were from the local authorities or county councils who in turn were guaranteed by the Ministry of Health. These guarantees were to be a fundamental part of the Act but they never materialised as the building societies envisaged. Part 2 (1) of the Act gave local authorities and county councils the ability to guarantee up to two-thirds of the principal and interest and the Treasury undertook to reimburse one half of any losses sustained by them. The building societies had hoped for the government to guarantee all the sums lent. To the instigators of the Act- principally Sir Enoch Hill and Walter Harvey-the existence of the guarantees was essential to limit the exposure of the societies.
Hill said that 'in well informed circles there is a growing conviction that the municipalities can safely rely upon public enterprise to meet the future demands for new houses'. To take the local authorities completely out of the private housing market the Act also empowered the societies to take over mortgages which had been granted by local authorities.
Because of financial pressures that existed from 1933, the government were unable and reluctant to give substantial levels of assistance to local authorities for house building purposes. They therefore must have hoped that private enterprise would take over almost the entire burden of financing the new homes either for sale or rent-this was one incentive for the 1933 Housing Act.
The main burden to the taxpayer in providing houses since 1919 was not only in the cost of public building and loans to local authorities, but the payment of housing subsidies to the public and private sector. These subsidies amounted to almost £137 million between 1920 and 1934. A leader in the Times of 7 August 1930 which argued against subsidies on the basis that they encouraged local authorities to provide houses, too large for slum dwellers endorsed 'the arguments of admitted authorities notably Mr Chamberlain and Sir Tudor Walters that housing should be conducted upon business lines. The need for housing is no less than in other social services. Since the war we have spent about £1,000,000,000 on housing, most of it borrowed and much of it is borrowed at rates of interest which impose a heavy burden on the taxpayers and ratepayers'. The total expenditure on public housing by local authorities for the period 1920 to 1930 was £25,029,000. A figure of £100 million was later used by Miss Mary Pickford a Unionist MP in a housing debate in the House of Commons on 7 December 1932. She said in her speech that in addition to the £100 million [spent over the last 12 years], there was an annual cost of £13.5 million to the Government and £2.75 million on rates in respect of housing. The cost of providing houses/homes was much more costly than the government had ever imagined. In 1919 Lloyd George had warned the cabinet that 'The people had been promised reform time and time again, yet still nothing had been done...we must give them that conviction even if it costs a hundred million pounds, what is that compared to the stability of the state?' What ever the correct figure was for expenditure by central government on housing it would have been inconceivable for the government in 1919 to imagine that even having spent well in excess of a hundred million pounds the problem of inadequate housing still had not been solved a decade and a half later.
Mr Harry Selley a Labour MP said in a debate on the Housing (Financial Provisions) Bill that ' 5 years ago the London County Council built two of its large estates...and the cost to the taxpayers and ratepayers was, on an average, ,1,050 per house. Had we gone on long enough on those lines we should have piled up a debt almost equal to the War debt'. Both local authorities and the government were finding that it was difficult to build houses at a price where the interest costs on the capital borrowed could be met from the rents received. The high rents which they were forced to charge put the houses beyond the means of many of the lower paid. This had always been the case with municipal housing and was why subsidies were introduced after 1919. The payments made by the government in respect of subsidies for the years 1919 to 1932 were estimated to have been ,136 millions in the period 1919 to 1934. This illustrates the need on central government to use the funds of the societies to relieve the financial pressures put upon them by the costs incurred in providing good housing accommodation.
The emphasis upon building homes to rent was a key provision of the 1933 Housing Act, the building societies were authorised to lend up to 90 per cent of the value of properties constructed by private developers for the purpose of letting. 'The societies are prepared to use their great funds...it is a form of business new to them...They cannot take on that responsibility without some assistance in the form of guarantee...It is a social need that we should get the money,' argued Sir Edward Hilton Young, the Minister of Health, during the second reading of the Housing (Financial Provisions) Bill in December 1932. The criticism against the societies continued within Parliament, Arthur Greenwood the Labour Minister of Health responsible for the Housing Act of 1930, commented in the same debate that 'to speak of this guarantee as a great act of patriotism on the part of the building societies will, I think, hardly hold water. It is not patriotic to offer money at 4.5 per cent today I should have thought that it was highly profitable and that many of those societies will be delighted if they can get rid of their surpluses at the handsome return of 4.5%'.
It was envisaged by the building societies that the local authorities would guarantee the advance over 70 per cent of valuation. Such an arrangement was incorporated within the Act. This provision, which was later to be amended by the 1936 Housing Act, had the effect of giving a guarantee from the Ministry of Health which would cover one third of the advance made by the building society between 70 per cent and 90 per cent of value. The other two-thirds would be shared equally between the building society and the local authority. There was also the proposal within the Act that the period of the loans should be extended to thirty years with a view to keeping the weekly payment low.
The aim of the 1933 Housing Act was to have low-cost homes for rent built for the working classes by funds provided by the building societies, and not by money from central government or the local authorities. However, between June 1933 and March 1939, only 21,482 houses were built under the provisions of this Act. Many building societies might have accepted the provisions in the Act in an endeavour to provide business and to fulfil their perceived historic role as providers of finance for low-cost housing. However, by the time the proposals became embodied in the Act a provision had been inserted that the rate of interest to be charged should be 4.5 per cent, about 0.5 per cent to 1 per cent below normal rates. If the interest rates charged by the societies were lower than they could normally expect to receive they were still higher than the local authorities had paid in the past. J. Martin, the secretary of the National Housing Council, said at the World Economic Conference at Aberystwyth that 'The terms arranged by the building societies with the Ministry of Health under the 1933 Act are that advances will be made for a period of thirty years at 4.5 per cent in the South of England compared with 3.5 per cent to 3.75 per cent with repayments over sixty years at which local authorities can now borrow'. A year later in a letter to the Builder, Martin said the Act was 'a failure'.
Another obstacle to the Act's success was a provision giving powers to local authorities and the Ministry of Health to influence the design and specifications of the houses to be built. They were required to approve all plans. As the local authorities did not have the necessary staff, delays occurred which led to dissatisfaction from the prospective developers. During a debate on 7 December 1932, Col. Chapman, Labour, mentioned a case where even though they had good technical staff the local authority of Willesden were obliged to submit a case to build 100 houses to the Ministry of Health and their formal submission took 6 months to be approved. Such delays could well have occurred in cases submitted to the Ministry under the Housing (Financial Services) Act of 1933.
For ideological reasons many local authorities continued to see themselves as the providers of houses for the working classes and were antagonistic to what they saw as a usurpation of their powers. Eleanor Rathbone, the independent MP said in the debate on the Financial Provisions Bill that subsidies had produced 'homes planned by architects and not by jerry builders, homes fitted with some of the amenities and conveniences which make the life of a working housewife something better than one deadening round of drudgery'. She argued against going back to private enterprise who provided detestable houses even beyond the means of the poorest worker, she called them 'horrid little brick boxes with slate lids'.
The Act was not a success. Sir Enoch Hill and Walter Harvey sincerely tried to make it so for social reasons and to improve the profits of the societies. Even though some of the building societies paid lip service to the idea of financing houses to rent, little was achieved. At the passing of the Housing (Financial Provisions) Act of 1933 there was very little effective concerted action by the building society movement. Those societies who supported the Act did so by allocating substantial funds, 'The Halifax, which set aside ,10 million for such advances, did not in fact do much business under it. The Halifax provided the advances for 60% of the 17,000 houses built under the Act up to September 1937, the ,10 million it set side proved well in excess of the demand. ' Up to March 1937 the Halifax had lent £3.849,657 in respect of more than ten thousand houses'. Walter Harvey writing his monthly column in the Building Society Gazette, in 1933 did make a strong plea to the building society movement in support of the Act: 'I appeal for their support, with a respectful reminder that the purpose of the measure is in the national interest'. Few of the societies were to respond. Hill continued to argue the merits of the Act and in an article in the Builder addressed to contractors he wrote that 'In spite of the opprobrium heaped upon it this Act [1933 Housing Act] possesses a considerable element of usefulness for private builders. It must be remembered that this Act was the outcome of the governments invitation to building societies to submit proposals whereby the provision of housing for renting by the artisan could be facilitated...where housing schemes under the Act have been started their completion has in many cases been prevented by obstructive local authorities trying to impose conditions of their own unauthorised by the Act'. In the same article he showed just how much faith he had in the Act by stating 'In order to prove it workable a few colleagues and I decided to erect an estate of houses, semi- detached at a density of 12 per acre, 2 bedroomed which we will let at 10/- per week'. He fails to say if the scheme made a profit, or what the rate of interest was paid to the building society nor what the return was on the equity investment plus the cost of the land. Bellman did not appear to be a supporter of the Act, and in his chairman's address to the 1934 conference of the Building Societies' Association, he raised laughter by referring to 'the obituary notices of an infant enjoying more or less normal health'.
If developers and the building societies were unattracted by the provisions of the Act, then so too were the local authorities. They were slow in making applications to take up the available funds. Up to March 1934, when the Act had been in force for one year, only 1,631 houses were in the course of being built under the terms of the Act, with the societies advancing £380,628. Ministry of Health returns published for the period up to 31 March 1935 show only 3,181 houses build with guarantees under the 1933 Act compared with 725 in previous half year. By September 1935 the figures were 8,025 houses built at a cost to the societies of £2.5 million. The last figures from the statistical department of the Ministry of Health at 31 March 1939 show 21,482 houses built and £6,862,612 advanced.
Looking back at the Act in 1938, Walter Harvey said the 'main reason why this Act has not fulfilled all that was hoped for it, is that many local authorities regarded it with disfavour, and offered passive and, in some cases active resistance. By this time they had become firmly entrenched in their position not only as builders and owners of house property, but they were, and still are, lending large sums of public money for house purchase'. This was an exaggeration as local authorities had only been lending an average of £4,630,000 per annum during the 1930s, less than 5% of the average of the amounts lent annually by the building societies during the same period. It is more likely that there was not the political will on the part of the local authorities to work actively with the building societies. Other members of the building society movement have confirmed that the local authorities were not interested in taking funds from them. Three years after the Act was passed on 17 January 1936, the Illustrated Carpenter and Builder said that 'There has been and still is opposition by the local authorities to the form of the tripartite guarantee agreed between the government and the building societies...they wish to impart into the agreement new conditions which neither the government nor the building societies will accept'. A later edition of the magazine on 6 March 1936 said 'the failure of the Act was due to the indifference and a lack of desire to co-operate on the part of the local authorities'.
The small number of houses built under this Act, and the undrawn facilities still available just from the Halifax alone, indicates that the fault lay with the local authorities rather than the building societies. The result was that there were fewer houses available to rent as the local authorities were unable to obtain government funding and appeared unwilling to co-operate with the building societies. This in turn put even greater pressure on the lower paid to buy rather than rent, and confirmed that only the speculative builder could be a supplier of houses within the economic and social conditions in Britain at the time.
The societies became glutted with funds notwithstanding an almost universal policy of increased liquidity ratios. Had the 1933 Housing Act been a success then the societies would have used their undrawn deposits in funding houses for rent. The Economist of 11 April 1936 thought that the societies had a liquidity ratio of about 15 per cent. These funds were in government securities and cash deposits. A study of the accounts of the Abbey and Halifax for the five-year period between 1931 and 1936 shows an increase in reserves by about 5 per cent, although the true figures are difficult to determine.
The accounting standards of the time would have allowed for hidden reserves in the form of under valuation of property used for branch offices and the early write-off of bad and doubtful debts. Several societies sought to reduce their cash deposits coming from the public at this time, and in 1932 all depositors with the Halifax were limited to a maximum deposit of £500. |
