Fun Online Polls/Economic Myths: The rapid increase in owner-occupation 1950-1990.

The responses to last week's Fun Online Poll were as follows:

Which factors contributed to rapid rise in owner occupation in the UK from 1950 to 1990?

Selling off council housing at undervalue - 36 votes (a)
Tax deduction for mortgage interest - 25 votes (b)

Rent controls in private sector 20 votes (c)
High taxation of rental income - 12 votes (c)
Lots of affordable council housing - 12 votes (c)
Mortgage lending restrictions - 11 votes (c)
Domestic Rates and Schedule A taxation - 11 votes (c)
No Housing Benefit for private landlords - 7 votes (c)

Lots of new private construction - 12 votes (d)
Low population growth - 5 votes (d)

Other, please specify - 4 votes
Total - 60 voters

a) We can rule that one out straight away. The percentage of owner-occupiers increased from 30% in 1950 to 68% in 1990 and had been steadily increasing by about 1% a year. The council house sell off didn't take off on a large scale until the 1980s. The rate of increase in owner-occupation during that decade was actually no faster than between 1950 - 1980.

b) We can rule that one out as well. For sure, first time buyers paid a bit less tax than tenants on the same income thanks to the tax break/subsidy, but the overall impact is probably zero either way.

Remember that:

i. one man's tax break is another man's tax burden, so if most people qualify for a tax break they are all chipping in the same amount to pay it. The net cash tax saving to a first time buyer is only a fraction of the nominal amount (which wasn't that much anyway).

ii. To the extent there was a small net benefit to first time buyers, that merely went into higher selling prices and/or higher interest rates, there is plenty of real life evidence to support this.

c) These are the real reasons:

Strict rent controls make housing a less attractive investment for landlords but do not affect owner-occupiers; so the amount owner-occupiers have to bid is lower. Mortgage rationing dampened the tendency of owner-occupiers to outbid each other.

High taxation of rental income, Domestic Rates/Schedule A tax and the absence of large scale subsidies to private landlords (Housing Benefit) reinforced all this.

I would argue that as well as explicit rent controls, you can have implicit rent controls, i.e. if it's not too hard to get a very affordable council house, that pushes down private rents as well.

So by and large, the availability of council housing as a low-cost alternative until the 1980s was just as positive for owner-occupation rates as was the Thatcher-Blair sell-off thereafter. The two are opposites and cancel out!

d) These two must have helped, although new construction petered out in the mid-1970s. But new construction only helps if the rest of the system (items labelled c) is geared towards discouraging landlords from cashing in and banks from ramping up prices; new construction in itself does nothing to increase owner-occupation rates.