The Economics of Rent Control
The Socialist’s task is to preach Socialism and work to bring a Socialist society into being. This involves understanding and explaining the nature of the present social system; that it is a class-divided system in which the workers, in their own interest, need to struggle on the wages field and to take any favourable opportunity to press for higher wages.
Social reformers, including the members of the Labour Party disregard (or explicitly reject) the class- struggle. They see instead a world in which, as they suppose, it is possible bit by bit to gain benefits for the workers and thus progress towards a new social system. It is a deceptively plausible argument; but it rests all the time on a great illusion. The argument runs like this, “Would it not be a good thing if on top of his wages the worker with children received children’s allowances? And if his wages remained the same and food prices were reduced by Government subsidies? And if his wages remained the same and his rent were reduced by rent restriction and housing subsidies?” It looks good, too good. It is too good to be true. The catch in it is the assumption that these “benefits” are added to wages and that wages can look after themselves. In truth the reforms mentioned, along with others of the same kind, have had the effect of undermining and weakening the working-class struggle for higher wages—and they were designs for that purpose.
Advocates of children’s allowances urged their adoption to avoid a general raising of wages; incidentally setting the married against the single workers. Food subsidies under the war time Coalition and under the 1945 Labour Government were used to manipulate the cost of living index in order to mask the real rise in the cost of living and fob off wage claims. And rent control was devised for for purpose of discouraging foe workers from fighting for higher wages at a time when low unemployment gave them a favourable opportunity to do so. It, too, has divided the workers paying restricted rents from the others, in high rented houses.
The final answer to the whole argument of the reformists is the fact that it was the Labour Government (following foe example of Tories and Liberals before them) that pursued the policy of the “wage-freeze,” thus knocking the bottom out of their own case. They demanded of the workers that, in face of a rising cost of living, they should be content with “social services” in place of wage increases: and asked employers not to give higher wages.
The late Sir Stafford Cripps, Chancellor of the Exchequer in foe Labour Government, defined this policy in a speech in the House of Commons on 27 September. 1949, when dealing with the White Paper on “wage restraint” issued foe previous year:—
“The White Paper must . . . be observed strictly, and it is only in the exceptional and genuine cases where some wage survives which, together with all the subsidies and social services, is insufficient to provide a family a minimum standard of living, that there can be any possible excuse for going forward for an increase” (our italics).
The occasion of the speech was the devaluation of the pound, which Sir Stafford had denied for months that he intended to enact but which he had just announced. He knew that this would raise the cost of living still further but again he warned the workers that they must not expect wages to rise:—
“Especially and specifically there can, in our view, be no justification for any section of the workers trying to recoup themselves for any rise in the cost of living due to the altered exchange rate.”
So the reformists who promised social reforms and low rents and prices to be a form of wage increase, ended up by asking the workers to put up with higher prices and a wage freeze!
The Curious History of Rent Control
Anyone who judges the present dispute over rents merely by what Labour Party leaders say about the Tory bill to free large numbers of houses from control and to raise the rents of those still under control will gain the impression that it is a clear issue between Tories, who are against low rents, and Labourites, who favour them. Yet the history of rent restriction shows that this does not fit the facts. It was a Tory Government that reimposed rent restriction when the war broke out in 1939 and a Tory Minister of Health, Mr. W. H. Long, in a Coalition Government, who started it all in 1915. What has to be explained therefore is why the Tories who began it, later on wanted to wipe it out. The explanation is really quite a simple one. The Tories (and Liberals) introduced it in 1915 and again in 1939 to deal with a particular problem arising out of war and when that emergency was over and new conditions arose they saw no point in keeping it in existence. What the MacMillan Government is doing now, through its new legislation, is, though on a restricted scale, what the Tory Government wanted to do in 1923. In that year the Onslow Committee, set up by the Government, recommended that rent control be entirely abolished and rents left to the free play of supply and demand. It was to be carried out in three stages so that by June, 1925, the last vestige of the war-time legislation would have been removed and landlords would be legally entitled to get what rents they could, as had been the situation before 1915. But this was so unpopular that the Government got cold feet and decided to make minor relaxations only so a large proportion of working class houses still had controlled rents when, in 1939 (again because of war) rents were pegged at their existing level.
Parallel with legally restricted rents was the policy of Government subsidies to enable new houses to be built and let at rents below the amount required to cover the full cost. This, too, was not a Labour Party invention but was started in 1919 by the Liberal-Tory Coalition Government. Recently the Tories sharply reduced the amount of subsidies and Mr. Butler, who was then Chancellor of the Exchequer, announced that the intention was to abolish these Government subsidies entirely (House of Commons, 26 October, 1955).
Why the war-time Governments Restricted Rents
As soon as the war broke out in 1914 the building of new houses was curtailed, and later on brought almost to a standstill, because men and materials were wanted for the armies and munition making. The result was that rents began to rise along with the rise in toe prices of food and clothing and other necessities. As there was little unemployment and a great shortage of skilled workers, the members of trade unions began to press for higher wages. The Government (and the employers) wanted to prevent the workers, especially the skilled men who were very favourably placed, from taking advantage of the labour shortage by striking. The Government appealed to their patriotism, with the help of Labour leaders; promised to keep the cost of living down; and took the drastic step of making it illegal for landlords to raise rents above the 1914 level. At the same time they fixed maximum wages for many workers. This policy of “wage restraint” succeeded almost beyond expectation and throughout the war wage rates, particularly those of engineering craftsmen, were kept far behind the steady rise of the cost of living. The following comment was published in the Labour Year Book, 1919 (published by the T.U.C., Labour Party and Labour Research Department):—
“By the spring of 1915 the skilled engineers would have been able, if they had acted without consideration for the national position, to demand a monopoly price for their labour—a situation which had not occurred in this century since the Black Death of 1381. And just as the government of that day had met the situation by a statute fixing the maximum price that must be paid for labour, so in 191$ the government passed the Munitions Act, which had substantially the same effect. Compulsory arbitration and the Leaving Certificate clauses combined to prevent the engineer from getting better terms for his labour by withdrawing that labour, either collectively or individually” (p. 235).
The article in the Labour Year Book went on to point out that at the end of 1916 engineers wage rates were only 20% above the 1914 level. By the same date the cost of living had risen by 65%. And just after the end of toe war (in January. 1919), while all industrial wage-rates had, on average, risen to about 100% above the level of 1914, the cost of living had gone up by 120% in spite of the freezing of rents at the 1914 level.
This policy was followed again in the second world war though the true picture was obscured by the falsity of the Govemment’s cost of living index. On a real estimate of the rise of the cost of living during the war large numbers of skilled craftsmen (as well as most clerical workers) had increases of wage rates below the increase of prices. “Wage restraint” was continued after the war by the Labour Government and Mr. Richard Crossman, Labour M.P. and member of the Executive of the Labour Party, afterwards admitted how restricted rents and other factors were used by the Labour Government to keep wages down.
“The fact is that, ever since 194$, the British trade unionist could have enjoyed a far higher wage packet if his leaders had followed the American example and extorted the highest possible price for labour on a free market.
“ Instead of doing so, however, they exercised extreme wage restraint. This they justified by pointing out to the worker the benefits he enjoyed under the Welfare State—food prices kept artificially low by food subsidies: rents kent artificially low by housing subsidies; rent restriction; and, in addition, the Health Service “ (Daily Mirror, 15/11/55).
Rent Control not a Working Class Issue
In 1915 the Labour Party supported toe Govemmenfs decision to peg rents at the 1914 level and the Labour Executive in its report to their annual conference in 1916. claimed that “assuredly this Bill was a very big step against certain class interests.” The implication was— and every Labour Party supporter firmly believes it still— that a victory had been gained by the working class against, the Capitalist class. It was nothing of the kind. It was a measure for the safeguarding of capitalism taken at the expense of one section of the propertied class, the landlords. It was not a victory for the working class though then, and since, it may seem to have been in the interests of those individuals who happen to live in a house with controlled rent. It was intended as a means of dissuading the workers as a whole from pressing for the higher wages they could have got, and in this it succeeded.
Not only is this shown by what happened to wages and the cost of living in Britain during the two world wars and under the 1945 Labour Government, but it was demonstrated also by experience in continental countries, including Austria and Germany.
Low Rents, Low Wages, High Profits
The effect of rent restriction on workers’ wages was inquired into more than once between the wars by the International Labour Office. One of their reports was The Workers Standard of Life in countries with Depreciated Currencies. (ILO, Geneva, 1925). Dealing with Vienna it showed that, because the Government had prevented rents from rising,
“the item of expenditure on rent in working class budgets was reduced to practically nothing in July, 1923, it was barely 1 per cent, of the total expenditure of a working-class family, whereas before the war it might be estimated at about 20 per cent. The change, however, directly benefited certain classes of workers only. But this applied only to unskilled wage earners in a few industries. Most of the workers were in the same position as those of Germany; they had practically no liabilities under the heading of rent, but the corresponding amount was not included in their wages. The actual gain was thus nil.”(p. 97).
The Report went on to say that the real gainers were the employers, because they were able to reduce wages to the full extent of the missing item, expenditure on rent.
Of course the losers were the landlord section of the propertied class.
Tory and Labour both now favour Higher Rents
Though the landlords had to put up with the sacrifice of their interests during the two wars they naturally used all the influence they had to set rid of rent restriction and thus restore the value of their investments when war ended. A number of factors helped them, including the remorseless economic law of capitalism that if there is no profit there is no production. If investors cannot get something like the normal rate of profit on house property they don’t invest money in house-building or in repairs. So both the Tories and the Labour Party are agreed that the mere perpetuation of rent restriction is not wanted and must go. In 1923 the Labour Party members on the Onslow Committee recommended that rents should be reduced below the level then permitted under the Acts but no Labour Party spokesman advocates this now. Their main new proposal is that all rent-controlled houses occupied by a tenant be taken over by local authorities, repaired and improved and, as the Labour Party frankly admits, “there will inevitably be some increase in rent.” (Labour Party “Talking Points,” No. 15, 1956).
The Tories on the other hand intend to free a large number of houses and raise the permitted rent in others, with the certainty that many rents will go up and the promise that some of the existing very high decontrolled rents will come down. In their view the private landlords, sure of a higher return, will look after the condition of the houses. Both parties agree that the present situation, with a great number of slums, and other hundreds of thousands of houses deteriorating fast into a slumdom, cannot go on.
The Wages Front in 1923 and 1957
The Tories wanted to get rid of rent control in 1923 because it had served its war-time purpose of discouraging wage increases and because by 1923 there were so many unemployed that the trade unions were not in a position to win wage-claims by strikes. They dropped the plan then because it was unpopular and they needed workers votes in elections.
In the past few years the situation has been different from that of 1923. There has been little unemployment and the Tories tried to carry on after 1951 the Labour Government’s policy of wage restraint, but with increasing lack of success.
Whereas under the Labour Government from 1945 to 1951 wage-rates lagged behind the rising cost of living, since the Tories came in in 1951 a more aggressive attitude on the part of the workers has played its part in causing wage-rates to rise faster than the cost of living index.
In these changed circumstances the policy of “wage-restraint” by persuasion from above is on its way out, and with it goes any remaining belief by the Government and the employers that it is worth their while keeping widespread rent control in being as a means of discouraging wage claims. Far too many workers are already in decontrolled houses (including the high rented Council houses) or furnished apartments, for the workers as a whole to be as much influenced in that direction as they used to be.
It may be asked what, in face of this situation, is the Socialist Party’s policy for the rent and housing problem. ( The answer can be brief. The workers’ housing problem will not be solved while Capitalism remains. It is as old as capitalism—the first legislation to solve it was over 100 years ago—and it will last as long as Capitalism, whether the Government be Tory or Labour. It is just a part of the problem of working class poverty, for which neither of those parties has any solution whatever.