Housing is not only a focus for family life but is also very influential in economics. Policies brought about by a government have great effects on house prices. The buying, selling and renting of housing effects inflation and the state of the economy as a whole.(The Students Companion to Social Policy Edited by Pete Alcock, Angus Erskine and Margaret May. Second Edition 2004) Thatcher came to state in 1979, she implemented many policies which changed the housing market dramatically. This essay will look at these policy changes throughout the 1980’s and there influences on house prices. Housing has never been a state monopoly, (The Students Companion to Social Policy Edited by Pete Alcock, Angus Erskine and Margaret May. Second Edition 2004) however due to the policies implemented by the conservatives and labour governments the role of the state has changed drastically. I will begin by briefly looking at the state of the housing market before 1979.

During the decades following the First World War the recession meant that buying houses was made less attractive. There was a growth in council housing and affordable houses were built for the working class, such as homes for the miners provided by the industry. At the same time private renting decreased as the affluent began to buy. There was also a great variation in the supply and demand of housing. (The Transformation of British Politics 1860-1995 – Brian Harrison – Oxford University press 1996) There was a surplus of expensive housing in the countryside and a shortage of affordable housing in inner cities, (Housing Policy and Practice 5th Edition 1999 Macmillan Press Ltd, London). This meant that only the affluent could buy and the more deprived were unable to buy because there was not enough affordable houses available to them, leaving good quality homes empty and deprived families homeless.

The conservatives recognised that they could attract the votes of the skilled working class by offering greater shares of wealth to them in this area. It was this popular capitalist measure that attracted their votes. Margaret Thatcher sought to lead the conservatives in a new direction. She was prime minister from 1979 to 1990, (www.margaretthatcher.net/studies/economics.php). Under Thatcher’s leadership the conservatives had come to the conclusion that a house was one of the most important materialistic needs. Thatcherism was about extending home ownership and cutting back on welfare assistance.

The first phase in the conservatives aim for increased home ownership was their “Right to Buy” policy which introduced the Housing and Tenants Rights ACT of 1980. The “Right to Buy” policy applied to most council tenants and some housing association tenants and gave them the right to buy their properties at a large discount depending on how long they had lived there. The maximum discount that was given was 60%. This policy gave the advantage to those people who could afford to buy, however those who could not afford to buy were at a greater disadvantage as rents were inevitably increased. The Right to Buy policy benefited communities as it kept the more affluent household in the previously council dominated areas instead of them moving and buying houses elsewhere to leave large areas of deprived families. During 1980 the proportion of owner occupied houses grew by 10%.

Following the 1983 election the conservatives began to try and remove the problems that some people were having in buying there council houses, this lead to the block sale of council estates to housing agencies and private developers. There was also modification to the housing benefit scheme. The housing benefit scheme helped low income families pay their rent. The benefit was paid by local councils depending on the circumstances of the individuals.

The Conservatives wanted to make it even easier for people to buy their houses; this was done by making it easier to borrow money. The Building Societies Act of 1986 enables building societies to offer a wider range of services, making it easier for them to compete with the banks. The increase in competition meant that the building societies and banks were offering 100% mortgages and were allowing people to take up to five times their annual salary.

Tax relief was also introduced. Tax Relief was given to the first £30,000 of a mortgage or loan on purchasing a house. During 1988 the government then introduced a three month plan to remove mortgage relief. This meant that there was a sudden increase in people buying just so that they did not lose the benefit of tax relief.

The policy changes of the conservatives encouraged more and more people to buy. Not only enabling council houses to be bought at highly discounted prices but also enabling people to borrow more. As the demand for houses increased it became a sellers market. As with any goods or service, if demand is increased or supply is limited the price increases. However the housing market is not like other markets. For example if the demand for cars increased the shortage in supply can be settled by producing more cars but it is not possible to simply build new houses as the demand increases, resulting in the shortage causing the price of houses to rise dramatically as more people are willing to pay.

Whilst Thatcherism saw the increase in home ownership and a rise in inflation there was a world wide recession taking place. This meant that unemployment was rising, leading to both inequality and poverty. Recession creates uncertainty therefore people borrow less and spend less. Interest rates had been raised to 15.4% by nineteen ninety in hope that the economy would slow down. Generally high interest rates encourage people to save however as people had large mortgages in relation to their income they couldn’t even afford their monthly mortgage re-payments. This led to houses being repossessed.

The repossession of houses meant that there was now a steep increase in supply of houses available for purchase. The only problem being that there were few people in a position to afford to buy, the cost of borrowing was too high.

In effect there was a shift in the supply and demand of housing; supply was rising quickly at the same time as the demand falling. As with any product or service in this situation the price of housing had to fall back down again for the market to be able to continue.

In conclusion the most significant changes to the price of housing in the 1980’s were the Right to Buy, Tax Relief and the Housing Benefit Scheme, these increased house ownership dramatically. This was beneficial to those who could afford to buy and the government because it gave a quick increase in the funds available to them. Home ownership was made even easier by policies making borrowing money easier, but during the recession interest rates soared and meant that low income families could not afford to pay their mortgages. The market fell through and the price of houses naturally fell to a level of affordability again.