The graph compares the costs of house purchase and the cost of council and private rents at 2004 prices for a three bed roomed house. For anyone living on the national average wage, shown by the yellow line, the means of providing affordable accommodation can only be provided by a mature cost balanced council rent. Notice that in the lifetime of a house, mortgage loan costs are renewed every 20 years, on average. This compares with the single loan transaction for a council house. For each unit of accommodation, a council house costs a small fraction of the loan charges generated in the lifetime of a private house. The principle of a rented stock is ultra-efficient.
Fig.1 The principle of using investment to yield low cost-balanced rents
Model parameters based on Year 2004
| Unit cost: | £150,000 | Loan Rate: | 7% | Loan period: | 25yrs | ||
| Target stock: | 20,000 | Building rate: | 400/yr | RPI: | 5% | ||
| Manag & maint: | 2% | Nat avg wage: | £500 |
The financial comparison cannot be denied, the differences in the efficiency of these three models is not marginal, it is huge. The next graph shows the growth of financial advantage that is achieved from the gradual investment in a housing stock. It shows the non-subsidised weekly rent that would be required to pay all of the loan charges, plus management costs to build 400 houses each year for 50 years (20,000 total stock). At the market rates shown, it takes about 50 years for the rents to fall below the affordable level of one third of the national average wage. The historical record shows that this was actually achieved in half that time.