A politico-financial model of local authority rents and rate fund contributions in the U.K

In this paper, the objective has been to discover whether rent levels and rate fund contributions can be explained within the context of some politico-financial model. Some success can be claimed in this direction. The rate poundage and rent level in each local authority area do appear to be systematically related to certain other variables. Rate fund contributions to the Housing Revenue Account are made, apart from statutory contributions towards the finance of rent rebates, entirely at the discretion of each authority. It is interesting to know that these prove not to be entirely random, or entirely the result of party political or ideological factors. There does appear to be evidence of the ‘balancing’ of the interests of ratepayers against those of tenants. An increase is net expenditure on Housing Revenue Account results in both higher rents and a higher poundage. This may not appear very startling, but it is difficult to explain why we should observe this relationship outside of some political model of behaviour. Similarly, as L increases it is only to be expected that average rents can fall for a given net expenditure on Housing Revenue Account. It is less easy to see why ratepayers should benefit by a fall in the rate subsidy, unless again there is some political balancing act involved. One objection to these conclusions might be that ideas of equity, fairness or justice determine the treatment of ratepayers and rentpayers not the vote-maximising behaviour of politicians. Such a contention is, of course, impossible to refute. However, some of the regression results do prove awkward for this rather idealistic view. In particular the positive association between the size of the non-local authority sector N and the level of rents in the public sector, ceteris paribus, reported in equation 3(3) and 4(7), seems difficult to explain unless some cruder political pressure is at work. An increase in N will certainly reduce the poundage necessary to raise a given contribution to the Housing Revenue Account. But if the increased electoral muscle of the non-local authority sector can be ignored — and the same old ‘equitable’ balance is struck between the interests of the two groups — some reduction in rent levels might have been expected. The model is supported by a number of other results. It successfully predicts that rents will be positively related to V N . As has been seen, a higher average rateable value in the non-local authority sector requires a lower poundage if payments per household are to remain the same. This lower poundage brings in less revenue from the commercial sector and the local authority sector itself, thus necessitating a rise in rents to restore balance to the Housing Revenue Account. Such an explanation may appear unduly sophisticated when compared to the alternative that higher rateable values imply better property and thus higher ‘acceptable’ levels of rents. But unfortunately this does not surmount the basic problem which is to explain why it is that non-local authority rateable value rather than local authority rateable value per dwelling proves the superior predictor of rent levels. Finally, some evidence that electoral security enables politicians to pursue their own policy preferences more easily is provided by the frequently significant positive association between the labour party dummy variable and the poundage. This is quite surprising given the results of earlier studies of local authority behaviour in the field of housing which reveal no party political influence on capital expenditure (Nicholson and Topham, 1971) or current expenditure (Oliver and Stanyer, 1969). Within a given expenditure programme however, the above results suggest some party political influence on the means of finance and confirm the findings of Boaden (1971: 69–70). Copyright Martinus Nijhoff Publishers 1982