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Movement 2

The State Walks Away

Recession and Retrenchment

If the 1970s can be characterised as the high point of direct State intervention in the financing and provision of housing, then the 1980s marks both a turning point and significant decline. While this change did not affect the shape of our dysfunctional housing system it dramatically altered the way in which that system is financed. This in turn exposed the vulnerabilities of the existing system while simultaneously introducing new risks.

Underpinning the significant expansion of public investment in social housing and supports for owner-occupation in the 1960s and 1970s was a period of sustained economic growth. While this continued into the early 1980s, the onset of recession as the decade progressed was to provide part of the impetus of the withdrawal of the State from direct expenditure on housing.

This fiscal crisis of State gathered pace from the end of the 1970s and affected economies at both the core and the periphery of the developed world as post-war Keynesianism came up against economic stagnation, rising prices and wage demands. The stage was set for a major ideological reformation in the advanced economies as the social democratic compromise that prevailed since 1945 gave way to renewed liberalisation.

The elections of Margaret Thatcher in 1979 and Ronald Reagan in 1981 signalled a shift in economic policy that would engulf most overdeveloped countries for the coming decades. The consequence was increased financial liberalisation coupled with reduced taxes, particularly on wealth, combined with reductions in social expenditure. The era of neoliberalism was born.

The impact on housing policy, in Ireland as elsewhere, was dramatic as a confluence of interests coincided, with profound consequences for the financing and in turn the availability of accommodation.

Concerns with the increasing cost of subsidies for private home purchase were already emerging in Southern Ireland during the latter part of the 1970s. Norris notes repeated breaches by Councils of the Local Loans Fund lending limits, due to the popularity of the scheme. There was a genuine fear in some quarters that this could lead to a significant funding crisis in the Local Government sector and so a number of changes were made.1

Limits were placed on the total value of Mortgage Interest Tax Relief that buyers could claim in 1974. Home purchase grants were restricted to first-time buyers for the first time in 1977. And the complex array of supports for would-be owner-occupiers were replaced by a single grant. Meanwhile Government simultaneously sought to encourage greater Building Society lending to offset the restrictions in direct State subsidies.2

However, during the 1980s as the recession took hold the economic situation deteriorated significantly. By 1987 unemployment was at 17 percent, Government debt stood at 150 percent of GDP and servicing this debt was absorbing 27 percent of public expenditure.

The Government response was threefold: a dramatic reduction in capital expenditure on social housing, a similar reduction in supports for private home purchasers, and a liberalisation of building society and bank lending. The impacts of these changes and a number of associated supplementary interventions were profound.

Reduction and Residualisation

The 1980s witnessed a 30 percent drop in the output of social housing with 42,893 homes delivered in that decade compared to 61,953 during the 1970s.3 However, these figures hide the more dramatic impact of the spending cuts from 1987 onwards. In 1984 Government funded 7,007 social homes. In the following years it fell significantly, to 6,523 units in 1985, 5,517 in 1986, 3,200 in 1987 and 1,450 units in 1988. It hit a historic low in 1989 with just 768 homes.4 It would be almost two decades before output would recover to the average levels of the late 1970s and early 1980s.

While the reduced expenditure may have eased the pressure on the Department of Finance it had the opposite effect on levels of housing need. In response Government sought to leverage existing stock to offset these losses and free up houses or funds.

The 1984 Surrender Grant of £5,000 introduced by Fine Gael was an attempt to meet two policy objectives with a single measure. Higher earning Council tenants, armed with a substantial taxpayer funded grant, could move out of their Council estate and purchase a newly built home on a private estate, thus fulfilling the Government’s housing policy priority of encouraging homeownership and promoting new construction. Meanwhile much-needed Council homes would be freed up for those on the waiting lists.

In the four years the scheme was under operation, up to 8,000 Council properties were surrendered, equal to almost half the total output of new Council homes during the same period.5 The surrenders were heavily concentrated in a small number of estates with 75 percent of the Dublin properties located in just four areas, Darndale, Ballymun, Clondalkin and Tallaght.6 All of those households availing of the grant were in employment.

While it is important not to overstate the significance of the grant given the relatively small numbers involved (approximately 6 percent of total social housing stock), the concentration in certain estates and its short life span, the impact was nonetheless significant.

Firstly, it reduced considerably the income mix in the estates affected, many of which already had high concentrations of poverty and social welfare dependence. The arrival of heroin in many of those areas from the early 1980s and the accompanying sensationalist media stories of ‘problem estates’ riven with drugs and crime combined to create a public perception of Council estates as ghettos and social housing as bad housing.

It also marked a shift in Government thinking and practice with respect to who Council housing was for. A report by Threshold, the country’s leading charity supporting renters, in 1987 described the Surrender Grant as having the effect of ‘concentrating disadvantage’ in certain areas. Their study highlighted the fact that allocation practices in many Councils shifted considerably during this period with a greater number of single-parent families and people transitioning from homelessness securing allocations by the end of the surrender grants operation.7

Tenant purchase was also initially affected by the onset of the recession with a significant fall off in the number of Council homes bought annually from 1983. While purchases had averaged at 4,000 units a year for most of the previous decade 1983 saw a decline starting at 3,492 purchases in that year dropping to a low of 533 in 1986.8 While a recovery of sorts took place in the following two years Government responded with a new heavily discounted scheme in 1988.9 The response was dramatic, with purchases jumping to 18,166 in 1989, the highest on record.

The consequence of these measures, particularly as they continued into the 1990s, was to significantly alter both the perception and the reality of social housing. Norris is correct when she argues that

No matter what the intent of the reforms of the 1980s, their effect was to redefine the role of social housing: it ceased to become available to workers on low incomes and instead became welfare housing, increasingly targeted on a narrow range of long term welfare dependent households. The association between poverty and social housing tenure had always been present to some degree … But from the mid 1980s, the association of social housing with poverty became more direct.10

However, it is important to stress that as tenant purchasers remained in their existing estates the actual impact of the policy changes of the 1980s had a greater impact on future social housing developments and allocations. As tenant purchasers were generally the higher earning tenants, Councils also lost a significant portion of their rental revenue, impacting on their ability to maintain the remaining stock.

The End of Asset-Based Welfare

While the level of State support for private home buyers had started to reduce during the 1970s its role was still significant. In 1966/67 Small Dwelling Acquisition loans accounted for 32 percent of all mortgage lending. By 1972/73 it had fallen but still covered 18 percent of new loans.11 Despite the placing of a ceiling on the total value of Mortgage Interest Tax Relief in 1974, it still covered 23 percent of the total price of the purchase of the home for mortgages taken out in 1975.12

However, throughout the 1980s private purchaser supports were increasingly restricted. In 1982 the £3,000 grant for first-time buyers was extended to five years. In 1986 it was replaced with a smaller £2,250 builders grant for first-time buyers of new buildings only. Existing home improvement grants were abolished the following year. In 1988 the income limit for Small Dwelling Acquisition loans was further reduced and for the first time limited to those unable to secure loans from commercial lenders.13 The decade ended with a further reduction in the Mortgage Interest Tax Relief ceiling.

Taken together the changes to supports for both social housing and subsidised owner-occupation saw a 60 percent reduction in expenditure on housing as a percentage of GDP from 1975 to 1990. Nevertheless, working families who wanted to own their own homes had an alternative source of finance, namely the banks and building societies, which in the short term at least would ensure than unlike those dependent on social housing, private homeowners could have a non-state source of finance to ensure access to a home.

Letting Private Finance In

Ending direct subsidies and tax relief for would-be homeowners was more a fiscal necessity than an ideological preference for both the Fine Gael and Fianna Fáil Governments of the 1980s. However, it could not be allowed to undermine both parties’ core policy objective, namely homeownership. Thus while the liberalisation of bank lending would be a key ideological plank of both the Reagan and Thatcher regimes, Ireland was an early convert and for much more practical reasons.

Pádraig Flynn, the then Fianna Fáil Minister for Environment, made clear the logic of his support for bank liberalisation in 1987 when he claimed that despite reductions in Government loans for home purchase, private finance would provide ‘an adequate supply of mortgages for all income groups in all areas’.14

While the primary driver of the restrictions to and reductions in direct Government loans for home buyers was to cut expenditure, it was also designed to ensure that the ‘competitive advantage’ held by the Local Government sector was removed to ‘encourage’ greater lending by banks and building societies.

In an attempt to boost the volume of Building Society mortgages the Government introduced a short-term subsidy to bring down interest rates in 1981 and increased the subsidy again in 1982. However, take up of loans from this sector remained sluggish, in part because of the requirement for many borrowers to have deposits ranging from 20 percent to 30 percent. In response, and in an attempt to get banks directly involved in lending, the preferential treatment for Building Societies was ended in 1983 and Central Bank credit rules were replaced with indicative guidelines the following year.15

Further financial reforms were introduced restricting price setting by banks, facilitating Building Society lending for bridging and refurbishment loans and allowing societies access to inter-bank lending. By the end of the decade Government policy was firmly focused on ensuring private finance was the principal provider of mortgage lending into the future.16

Despite the significant withdrawal of traditional State support for home purchasers, the number of new mortgages increased from 27,632 in 1986 to 38,580 in 1989 providing the Government with comfort that their shift from public to private finance for owner-occupiers was working.17

The shift was in line with developments elsewhere in the Anglo-Saxon world. For much of the twentieth century, mortgage lending in Britain was the preserve of Building Societies. However, in response to bank liberalisation in the United States, Margaret Thatcher introduced significant changes in both 1979 and 1986, opening the United Kingdom market to greater foreign competition and inter-bank lending.

Building Societies were also allowed access to the wholesale markets, further increasing the volume of credit available to the British mortgage market. Not only did borrowing for home purchase increase but a new phenomenon of equity withdrawal (borrowing against the value of your home) became an increasingly popular means for households financing other areas of expenditure.

The result according to Josh Ryan-Collins was a dramatic increase in the volume of mortgage-related lending, which jumped from 20 percent of Gross Domestic Product in the late 1970s to 55 percent a decade later.18 The immediate impact of this financial deregulation was the British housing bubble of the 1980s, which was to cause significant problems when it burst in the 1990s. Nevertheless, much less obvious at the time was the impact of credit liberalisation on house prices.

Ryan-Collins argues in his recent book Why Can’t You Afford a Home? that the most significant impact was a dramatic increase in house prices as mortgage finance actively sought out ever increasing house and land price values which were not only more profitable than standard investment in the productive economy but also more secure. He argues that up to the 1960s house prices were relatively stable irrespective of changes in income and population. However, from the 1960s to the 1990s house prices jumped by a dramatic 65 percent.19 His conclusion is that the ‘evidence suggests that the Anglo-Saxon economies that deregulated their mortgage markets in the 1980s saw faster rises and more volatility than those economies that did not’.20

While the impact of credit liberalisation on house prices in Southern Ireland was more delayed than in Britain, it did eventually arrive, albeit assisted by a second wave of financial deregulation led by the European Union in the 1990s and access to cheap credit arising from membership of the single currency.

By the end of the 1980s, however, the more significant outcome was a successful transition from a State funded property-owning housing system to a private finance-led model. In 1971, 68 percent of homes were owner-occupied, the figure rose to 74 percent in 1981 and higher still to 79 percent in 1991.

When taken together, the reductions in public expenditure on social housing and private buyer subsidies coupled with the liberalisation of mortgage finance brought about the end of the State’s role as the principal funder and provider of housing. The era of asset-based welfare that had been in place for more than half a century was coming to a close. While social and owner-occupier supports would continue in the future, they would be much more peripheral to both Government policy and the overall operation of the housing system.

The housing system increasingly comprised of residualised public housing catering for a much narrower group of lower-income households and an ever growing private homeowning sector. While the private rental sector underwent little change in terms of size, conditions or regulation this would change as both the squeeze on the social housing sector and the expanding mortgage credit sector converged on the long-neglected tenure.

In 1988 the National Economic and Social Council (NESC) published a major review of housing policy, based on a detailed analysis of every aspect of the housing system, by John Blackwell from University College Dublin.

The Council’s recommendations reaffirmed the status of ‘owner occupation as socially desirable’ arguing that ‘it should be encouraged as the main housing tenure’.21 Concern over the residualisation of social housing and the need to reduce public expenditure on owner-occupier supports were also key recommendations.

Significantly in their discussion of Local Authority Housing the issue of social ‘polarisation’ and ‘segregation’ was raised. The combined impact of the Surrender Grant, tenants purchase and the recession were all noted as causes of increased social-economic marginalisation of some Council estates.22 In response the Council suggested that the

practice of building large social segregated local authority and private housing estates should be discontinued, and local authorities should plan socially mixed communities by purchasing private houses for letting and building houses for letting in private estates.23

This and other recommendations were to have a significant impact on the development of housing policy in the coming decade.

A New Consensus

Two important developments at the end of the 1980s were to set the tone for significant changes to housing policy in the coming decade. The 1987 Programme for National Recovery agreed by the Fianna Fáil government was the first in a series of trilateral social partnership agreements involving Government, trade unions and business.

The core focus of this, and indeed subsequent agreements, was pay and productivity, underpinned by reducing public debt and stabilising the State’s finances. While social policy commitments were included, particularly after the involvement of the community, voluntary and environmental sectors, they were clearly secondary to and dependent on the primary objective of generating economic growth.

The social policy commitments of the 1987 agreement were contained in a section titled Greater Social Equity and detailed twenty-two actions across social welfare, health, education and housing. The fact that there were just two commitments on housing policy indicated where it lay in the social partners’ priorities. The agreement included a promise to introduce new legislation dealing with homelessness and a ‘special emphasis … to be given to the housing needs of disadvantaged groups’.

The following year saw the passing of the Housing (Miscellaneous Provisions) Act 1988 which provided for the first time a statutory definition of homelessness and created a dedicated stream of funding for Councils and Approved Housing Bodies (AHB) to provide accommodation and supports for people experiencing homelessness. The Act also introduced a new requirement on Local Authorities to produce triennial social housing needs assessments and social housing plans.

However, the real shift in housing policy came with the publication in 1991 of A Plan for Social Housing by the Department of Environment. This was the first major statement of Government housing policy since the 1969 Department of Local Government document, Housing in the Seventies.

The 1991 plan set out an overarching approach for housing policy underpinned by the significant changes to funding and provision that took place during the previous decade. While heavily influenced by the 1988 NESC report, it lacked much of the earlier document’s nuance. Crucially it laid the foundations of a policy consensus that has informed almost all Government housing policy since.

The plan sets out three key objectives: ‘promoting owner occupation as the form of tenure preferred by most people; developing and implementing responses appropriate to changing social housing needs, [and] mitigating the extent and effects of social segregation in housing’.24 It promised to ‘introduce a range of new measures to deal with social housing need’ which were expected to ‘improve housing prospects and [grant] quicker access to housing for people of limited means’ as well as ensure ‘a more efficient and equitable use of resources, improved opportunities for community and voluntary action in housing [and] more choice in housing’.25

The document exuded a certain optimism detailing that, according to the first Housing Needs Assessment carried out under the 1988 Act, there were just 19,000 households in need of social housing and that 1990 saw the first increase in capital spending for social housing since 1984.

To meet this housing need the plan promised ‘a range of complimentary and innovative measures that will reduce the traditional degree of dependence on local authority housing’.26 Crucially the document asserted that ‘The resumption of house building by local authorities on the scale of the early to mid-eighties … would not now be appropriate.’27 This was a very narrow interpretation of the NESC recommendation on the need to counteract class segregation.

The significant policy shift was justified as being ‘in line with the international trend which is away from the direct provision of housing by public authorities’ and was designed to avoid ‘reinforced social segregation’ which was deemed to have been a feature of the more traditional approach to social housing provision.

While clearly the primary rationale for this new diversification was fiscal, i.e. avoiding a return to large-scale capital expenditure, the 1991 Plan was the first occasion in which the policy objective of promoting ‘a better social mix’ was clearly set out.28

To achieve these objectives the plan outlined a twin track approach of improved capital spending for direct Local Authority building to increase output in 1991, alongside a medium-term target for the new delivery streams to reach 5,000 social housing units a year. However, it was estimated that these new streams would initially deliver just 750 homes in 1991 and within three years reach the 5,000 target.

Central to these new delivery streams was an enhanced role for Approved Housing Bodies. Up until that point the role of the not-for-profit sector was extremely limited. Government capital funding for special needs housing, targeting older people and those experiencing homelessness, was first provided in 1984. By 1991 a total of 1,600 units of such accommodation had been provided.

The Plan for Social Housing introduced for the first time a funding mechanism that would allow Approved Housing Bodies to provide general needs housing similar to Councils. The Rental Subsidy Scheme, later to be renamed the Capital Loan Subsidy Scheme, would provide loans to Housing Associations to build or buy properties and a rental subsidy for housing a waiting list applicant, which over thirty years would repay the loan.