In this long read, Martin Farley lays out what he thinks needs to be done to make housing truly affordable AND sustainable.
Martin is a member of the Green Party’s Tax & Fiscal Policy Working Group and a former member of PricedOut.
It’s time to prioritise the needs and rights of tenants over the financial returns of landlords and speculators.
In the article below I argue for a restructuring of the housing market that will provide low cost, energy efficient, secure homes to everyone who currently rents in the UK. This can and should be done in a way that is cost effective for taxpayers and residents alike and that gradually returns stability and affordability to the housing market.
All private tenants should be granted the right to buy their home, or rent it at not-for-profit levels. This should be accompanied by a retrofit of each property to reach the highest practical energy efficiency standards.
The financing of this purchase/transfer will be done through government, but all costs will be met by the eventual owner/tenant. There will be zero additional cost to the taxpayer.
We should offer current tenants two options:
- Continue to rent, but from a public/community body at an affordable rent: this would be the rent required to cover the cost of servicing any debt held against the property + the cost of maintenance, but with no profit for any other participants in the transaction.
- Buy the building, but continue to (effectively) rent the land from the public/community body. This is sometimes referred to as the ‘Community Land Trust’ model. In this sense, the ‘Community body’ could be represented by the local authority, or some other non-profit community body, such as a Housing Association, Co-operative or Land Trust.
The purpose of this policy would be to
- Provide security of tenure for all UK residents, regardless of income or status
- Reduce housing costs significantly for those who currently rent from private landlords
- Private rental homes are expensive to rent. Private Rental Sector (PRS) households in England currently spend an average of 41% of household disposable income on rent alone .
- Retrofit current private rental sector homes to a high standard of energy efficiency and build quality
- The majority of private rental properties are energy inefficient, emitting large amounts of CO2 — Only 27% of PRS dwellings have an Energy Efficiency Rating in the decent quality A-C bands, with only 1.5% in the A band .
- Improve the quality of these homes, thus improving the health and wellbeing of their residents and reducing their environmental impact
- Many are in very poor physical condition. The private rented sector had the highest proportion of non-decent homes in 2017, at 27% .
This will be achieved by:
- Public owned banks (or other public agencies) being granted the right to access new funds, up to 100% of the value of the property, directly from the Bank of England at a rate of interest of 1% (the same as current 30 year bond rates). They will then lend this money to current tenants to buy the home, using the Community Land Trust model (set out below), or to local councils/housing associations who will then let the home to the same tenant at the minimum affordable (‘not for profit’) rate. In both cases the payments from the buyer/rent from the tenant will cover the complete cost of repayments, maintenance, debt servicing and/or land rents
- Whenever the home changes hands (is sold to a new buyer, or rented to a new tenant), the level of the charge for the land value will be reassessed to reflect 1% of current market value. If the value has fallen, the charge for land rental will remain at the minimum needed to cover debt servicing costs
- At this point, the building can be sold by the owner for whatever price they can fetch for it. If the owner is the council/housing association, they can repay the remaining capital and refinance the property at the new value. If the value is lower than before they will be permitted to continue servicing the original loan. But, the new rent levels must be set at a rate that will cover the cost of that debt servicing
- For those who choose to buy, it is the intention to repay the capital on the building, but not the land (unless there is a point at which the council/HA wishes to refinance the underlying loan). For those who choose to rent, the outstanding debt will be serviced by their rent payments, but again the local council/HA will be free to refinance (and therefore repay the original loan) if it wishes
- The Landlords can sell voluntarily (it would be worth their while), or government could gradually tax and regulate most private sector landlords out of the market (i.e. by restricting access to Buy To Let (BTL) finance, increasing taxation of speculative investments or providing stronger rights for tenants), or government could set out criteria which, if met, could enable tenants to exercise their right to buy/pay affordable rent (i.e. if someone has rented a property for 3 years, for example)
- With the first two options, landlords could be forced to give tenants first right of refusal (i.e. the right to buy before anyone else can make an offer), but they must be paid the market rate for their property. Similarly, the tenants can also choose to continue to rent, but from the local authority or housing body, at the minimum not-for-profit rent that will cover the authorities’ costs
- With the third, some form of compulsory purchase order would be required, with clear criteria set out and with the landlord receiving full market value for the property at the time. Rent controls and improved rights for tenants might also be needed to prevent rent gouging and/or removing tenants before they would qualify for the right to buy/affordable rent
- The transfer of these homes can happen over the long term (say 10-15 years) to allow for gradual exit of the market by most private landlords. Some could stay on, but the vast majority should be replaced.
- Renting or selling back the homes to the sitting tenants would use one of the options set out below. The decision whether to buy or rent will be left to the tenants. The role of government should be to support people in their choices, not impose its own.
Homes are for people, not profit
The right to a secure, warm and affordable home should always take priority over the opportunity to extract profit from the people living in the home.
Landlords mostly exist to outbid potential owner-occupiers to buy housing, only to then rent it back to those same people with an extra charge on top to pay themselves. They add no value to the housing market, but extract huge sums of money from tenants.
Similarly, commercial mortgage lenders operate under licence from central government, including the ability to generate new money to lend to home buyers. The source of their revenue is provided by public institutions but the profit from it is privatised. They operate as a ‘middle man’ between public funds and the homes to be purchased, but are responsible for providing neither. Under this scheme, that ‘middle man’ role will be replaced with a public, not for profit body and the home dweller will be given direct access to those public funds.
It is time to prioritise those who just want somewhere decent to live at a reasonable cost, and remove those who add no value.
How much will all this cost?
This policy will save the average renter up to £350,000 in housing costs over a lifetime, while also reducing the government’s Housing Benefit bill by up to £6bn per year.
If this average home were purchased, using low-cost public financing/borrowing, then retrofitted and sold on or rented to the tenant at no profit, it could save them nearly £7,000 per year on average.
This assumes current government borrowing cost of around 1% . Government has proven itself very adept in recent years at accessing finance at zero cost , but we will assume for this exercise that the cost will be the same as raising the funds in the usual method of issuing bonds on the open market .
How much does it cost to retrofit a home?
The government’s own estimate of retrofitting homes suggests that a comprehensive retrofit to improve energy efficiency on a standard semi-detached/end of terrace home could be at least £25,000 .
One housing association has put the figure at £20,000 , but it also suggests this is probably lower than the average. The precise figure in unknowable without a deep analysis of the UK’s PRS housing stock, and an assessment of the retrofitting required in each case. Many of the challenges involved in retrofitting the UK’s housing stock have been explored by the government’s own Committee on Climate Change , and the challenges are varied and widespread, but surmountable.
Many of these homes might already have some degree of insulation, double glazing and/or efficient modern boilers, so it is unlikely that every home would require this level of investment. According to the government’s own energy efficiency statistics, 70% of properties with cavity walls already have cavity wall insulation, while 66% of those with lofts already have loft insulation . However, as stated above, we already know that much PRS housing stock is in very poor condition – we have no way of knowing the quality of current insulation.
Given this, we will assume the government estimate of £25,000 per home to be a reasonable one, but add an extra £5,000 for contingency. This gives us a cost of £30,000 per home, on average.
Savings brought by energy efficient homes
The average fuel bill of £1,254 per year  would fall significantly as a result of the improved energy efficiency of each home. If we assume a modest 30% saving (it should be much higher in reality), that would mean average bills falling by at least £375 per year .
The cost of both the buy and rent options
The full costings for each option, using the average home, are set out below . As they show, the savings for those using either option, would be massive.
|Option 1 – Secure Public/affordable rental|
|Cost of average UK home||£271,000|
|Added cost of retrofitting||£30,000|
|Total cost of home||£301,000|
|Cost of public financing (assume it’s the same as issuing 30 year bonds)||1%|
|Total cost of servicing £301k of gov’t debt||£3,010 per year|
|Typical cost of home maintenance and repairs (high end estimate)||£3,000 per year|
|Total rent needed to cover all costs (non-profit)||£6,010 per year|
|Domestic fuel bills||£940|
|Total annual housing cost/ rent||£6,950|
|Saving to tenant||£7,004 per year (£12,700 current annual rent + fuel bill of £1,254) – (total new rent of £6,010 and new fuel bill of £940 ) = £7,004|
|Lifetime savings (assume 50 years from purchase)||£350,200 (50 x £7,004)|
|Option 2 – Purchase using Community Land Trust model|
|Cost of average UK home||£271,000|
|Land value (typical)||£176,000|
|Building value (typical)||£95,000|
|Total building cost||£125,000|
|Cost of mortgage repayments on building over 25 years||£7,140 per year  for first 25 years (current estimate for repaying capital and covering gov’t 1% interest costs) £0 for final 25 years Total over lifetime: £177,600|
|Cost of servicing interest on land portion (would be re-evaluated for new owners)||£1,760 per year Total over lifetime: £88,000 (£1,760 x 50)|
|Total lifetime maintenance costs||£150,000 (50 years x £3000 per year estimate)|
|Total lifetime domestic fuel bills||£47,000 (£940 per year x 50 years)|
|Total lifetime payments||£462,600 (building repayment cost + land interest payments + maintenance) Minus final asset value of £95,000 (assume retrofit adds no £ value)|
|Net property cost over lifetime||£367,600|
|Current lifetime costs (assume renting at current prices)||£697,700 (50 x £12,700 annual rent) + (50 x fuel bill of £1,254)|
|Total lifetime savings||£330,100|
Why does this approach save the person living in the home so much money?
This proposal cuts out the two participants who extract a large amount of money under the current system: private banks and private landlords. In reality, neither of these actors add any real value to the housing market: they don’t build these homes, and any servicing or support a landlord might provide can be done by public/social landlords or the resident themselves just as easily (and probably more reliably).
Without their involvement, the full value of the home can be enjoyed by the people living in it, and the value of the land can be shared with the entire community, without having to also fund the profits of the mortgage lender or the landlord.
In this proposal, the capital amount (original loan) is not repaid (except on the building in the buying option). This is to reflect the situation in the current set-up, where when a home is sold, the old capital debt is paid off, but new debt is issued for the new occupant/buyer. In this proposal, the new owner/renter would effectively continue to service the original debt (though the old debt could be paid, and new finance raised to the same effect).
How will government afford to pay for all these homes?
Ultimately, it is the future owners and renters who will be ‘affording’ (i.e. paying for) this investment. The government is just the middle-man/facilitator of the transaction.
This is how post-war governments funded the expansion of our housing stock before, and it represents a very low cost, low risk approach. As long as there are people who can pay these rents, then the investment is secure (and given the rents are only around half of what is being paid now, that’s a very safe assumption)
Who will end up paying for these homes?
Ultimately, like any successful investment, this would be paid for by the savings it generates (lower rents and fuel bills) and/or the revenue stream it creates (i.e. the rents paid by tenants/ repayments made by new owners)
This programme would always be self-funding if the rents/repayments were set at the level required to cover all debt servicing costs. Because the government is also the source of the finance there is no reason why the funding would be recalled as sometimes happens in a commercial setting (i.e. when values fall below debt levels).
Will this proposal push up house prices?
Higher prices are a potential danger of injecting more government money into the housing market. This could be avoided by better regulation of the rest of the mortgage finance market (i.e. so that the overall level of mortgage finance remained the same, but more of it would go to people looking to make use of the Green Right to Buy/Rent, and less to other groups such as speculators).
The housing market is not really a market in the traditional sense. It is almost entirely controlled by government regulation: everything from which land can be built on, what can be built on it, how those buildings can be used, how much money is available to finance the purchase of those buildings, who can provide that finance, how much interest is to be paid on available finance and how much tax is to be paid on that property. It can even regulate who is able to buy those homes. High house prices and rents are therefore a choice of government. This proposal would involve an explicit choice by government to drive rents and payments for new entrants into the market much lower.
Will this extra government funding cause inflation in the wider economy?
Not if the government balances this new financing with current levels of lending/borrowing. Private banks currently issue about £260bn of ‘secured’ lending per year, and receive just over £200bn in repayments. If this proposal were to account for, say, £130bn per year, the amount available for private banks to issue could be reduced to £130bn to maintain a steady flow of money into the housing market and wider economy.
There are other levers available to government to help control inflation. These can also be used in the event that general inflation were to increase. But, given that we are simply seeking to replace private sector house purchases with public sector ones of equivalent value, this scenario seems unlikely.
Why should the landlord sell their property?
Because their presence is driving up costs for those who simply use homes as places to live (rather than financial investments). Removing them (and other profiteers) from the housing market in large numbers is the only way to reduce housing costs for everyone else in the long term.
They will be paid the market rate, so will almost certainly get to keep the profits they’ve made so far, but there should be no future profiteering or wealth extraction.
If they refuse to sell, government can slowly regulate them out of the market by placing greater restrictions on mortgage finance for investors, introducing rent caps and/or granting tenants much stronger rights, or introducing much higher taxes on residential property used for commercial purposes.
Won’t this massively increase the ‘national debt’?
This proposal would shift private debt (i.e. current BTL landlords and home buyers) to the public bodies/government. Government borrowing is generally much cheaper to service than private sector borrowing, so the overall effect would be to reduce debt servicing/repayment costs across the economy as a whole. The true debt of the nation will become much easier to service and control.
Under this Green Right to Buy/Affordable Rent proposal, much of the capital (amount borrowed) need not be paid off, but could be continually financed. Given that rental costs will be much lower than they otherwise would be using private landlords, the revenue stream delivered by the rental payments will almost certainly always be enough to cover the servicing of these debts/loans. But in the event that refinancing would be necessary or desirable, this set-up would be the same as current requirements for mortgage financing in the private sector (except likely at lower cost)
Will this policy crash the housing market, as prices are forced down?
Quite the opposite. By providing a buyer of first resort, the government can ensure stability in the housing market, without pushing up prices. This will require more effective regulation of the market, including overall levels of housing finance, but is easily achievable with the political will.
Over time, it is desirable for house prices to fall, but this approach could manage that process gradually, rather than waiting for the next sudden crash (as usually happens every economic cycle).
This policy will remove the worst of the private speculation and profiteering from the housing market, which should prevent house price rises in the short term and improve affordability in the long term. But this proposal should manage that process in a controlled and stable way, rather than allowing the market to lurch from one extreme to the other.
Will this policy reduce new home building by removing the demand currently represented by private landlords?
Private landlords do not represent the demand within the housing market; their tenants do.
If every landlord sold up or disappeared tomorrow, we would still have the same number of homes, the same number of people willing to pay for them, and the same level of finance available to buy or rent them.
Their only role is to extract value from the market. Their removal from it will release that value to those who live in their homes and the wider community.
Who will be the winners and losers from this policy?
Much of the focus so far has been on the benefits of this scheme to current tenants, in the form of reduced rents, reduced household bills, greater security of tenure and more comfortable/warmer homes.
But there are others who will reap significant benefits, namely:
- Current Buy-to-Let landlords who wish to exit the market. They will be provided with a simple, quick way to sell their homes at current market rates and realise any capital gain accrued so far.
- Taxpayers. The reduction in rents/housing costs would allow for a reduction in the cost of providing housing benefit to private renters. The government currently pays over £12bn each year to private tenants  to help with meeting housing costs. If those costs are substantially reduced (in this model by 50%), that provides the opportunity to save at least £6bn in housing benefit payments.
- The environment. The UK’s housing stock is one of its main sources of greenhouse gas emissions and the PRS has proven the most difficult part of that sector in which to reduce those emissions. This proposal will allow for a comprehensive upgrade of much of the UK’s poorest housing stock and will help the UK meet its Net Zero Carbon targets.
- Communities. With greater security of tenure, communities will see residents commit more to their local area, and for longer.
- The nations and regions of the UK. Because this proposal applies equally to all areas of the UK, no region, town, city or village will be left out. The £150bn retrofitting programme will be spent in every community across the country. If we assume the Green Right to Buy/Affordable Rent project runs over 10 years, that equates to £15bn of spending across every part of the UK each year.
- Manual workers. The £150bn retrofitting programme would allow for the training and employment of up 250,000 skilled manual workers across the whole of the UK for this period . They could be engaged in manufacturing the equipment and parts needed (e.g. air source heat pumps), as well as the retrofitting itself. This is a group that has traditionally found it difficult to acquire secure, long term work in their local area that provides adequate pay and transferable skills.
- Small businesses. They could bid for small, local contracts to complete the retrofitting work to an agreed standard. Currently, the UK does not have the capacity to complete this volume of work in the necessary time-frame, and its dynamic and innovative small business sector could help create and mobilise this capacity.
- The NHS. Warmer, better quality homes will result in a healthier, happier population. Poorly insulated homes are costing the NHS at least £1.5bn per year , while the respiratory and mental illness they cause are major factors in workplace absenteeism. Better homes mean a healthier population and a more robust economy.
- The ‘Zero Carbon Sector’. This level of investment will help drive innovation in the energy, housing, finance and environmental sectors, as it has done in other countries, allowing the UK to become a world leader in combating climate change and improving housing. As we scale up this decarbonising work, the marginal cost of doing it will fall, thus helping increase wider de-carbonisation across the economy.
High housing costs have been a political choice by successive UK governments for the last 2 decades for two key reasons:
- To facilitate wealth transfers from young to old, and from poor to rich. This has enriched the key political supporters of successive governments, at the expense of young people and renters
- To pump large sums of new money into the economy (net £48bn in 2019 ), in an effort to support monetary (and therefore broader economic) expansion
This approach has subjected millions of lower income households and younger people to a generation of insecurity, poor housing quality, inflated housing costs and increased indebtedness.
We must now make a different choice to create lower cost and better quality housing, combined with significant and sustained investment in a low carbon economy.
This proposal combines both of those things in a way that creates zero additional cost to the taxpayer and a whole host of wider social and economic benefits.
It is time to choose affordability, security and sustainability.
It is time for a Green Right to Buy/Right to Affordable Rent.
 Even if government borrowing costs were higher, it would make little difference to this proposal. In that scenario general interest rates would be higher, and house prices would subsequently fall. This would make the purchase cost lower, so that the total cost of purchasing and/or renting the home would remain broadly similar
 https://greenbusinesswatch.co.uk/how-much-can-you-save-with-home-insulation. The estimate here is more like £800-900+ savings per year, but that assumes the home is starting from scratch. As mentioned above most homes already have some degree of effective insulation, so the real average saving is likely to be much less
 All estimates assume current prices. Clearly inflation and other price changes would affect these calculations, but if anything will make the cost to the tenant/buyer even lower. We could index-link the rental/land payment, but this is not necessary to cover the costs listed here.
 Using this mortgage calculator – https://www.moneyhelper.org.uk/en/homes/buying-a-home/use-our-mortgage-calculator
 Assumes that labour costs are 2/3 of the cost of retrofitting, and those workers earn an average of £30k per year, and incurs £15k in other costs (insurance, taxes, sick leave etc)