Business
Britain’s housing crisis — no longer a nation of homeowners?
In 1923 Noel Skelton, the Scottish Unionist politician and Conservative thinker, wrote that in order to make democracy stable, government needed to promote “a property-owning democracy”. This would be able to meet the rise of socialism with “constructive conservatism”, which would expand and protect the interests of property.
A century later, Skelton’s views on home ownership remain acutely relevant. Among the scores of promises being offered in the current contest to be the next leader of the Conservative party — and thus UK prime minister — are pledges to make it easier for “Generation Rent” to get on to the housing ladder. Both candidates claim to be the true heir to Margaret Thatcher, whose “Right to Buy” policy was one of the defining policies of her long tenure in Downing Street from 1979-90. Very much in the Skelton mode, Right to Buy aimed to create such a property-owning democracy by giving tenants in local-authority housing substantial discounts so that they could buy their own homes.
Today, a combination of house price inflation fuelled by central bank quantitative easing, alongside austerity and the unintended consequences of Right to Buy, has turned that dream on its head. Right to Buy was a remarkable success in that it led to the sale of more than 2mn homes and resulted in an immediate transfer of wealth. But one of its direct, longer-term consequences has been that, rather than increasing home ownership, it contributed to the rapid growth of an under-regulated and precarious private rented sector.
In 1979, more than a third of people in England lived in council housing built, owned and administered by local government. Now, more than 40 per cent of the council homes bought under Right to Buy have been sold on to private landlords, who rent them out at three or four times the price of an equivalent property in the social housing sector. The result is that, in many parts of the country, private renting is unaffordable for those on lower and even middle incomes, excluding people from the market and leading to a continuous cycle of eviction. At the same time, a comparison of 35 European countries ranks the UK among the lowest 20 per cent in terms of home ownership, putting paid to the myth that the British are a nation of homeowners.
A number of new books capture this reality. In a welcome break with the well-worn stereotypes of writing about property and housing — breathless descriptions of accelerating prices or the dead prose of jargon-laden policy briefs — they look instead at the human experience of being forced to move, which has become an ever-present reality that colours daily life for the 11mn people who make up Britain’s population of private renters.
In Tenants, Vicky Spratt’s shocking and incisive indictment of private renting in Britain, she describes how functional and productive lives unravel as people lose their homes, sense of self and feeling of belonging in the world.
The case studies are shocking and sobering. Limarra, with her two degrees and job as a manager, was looking to progress into HR, to provide a secure base for her seven-year-old daughter. When her landlord notified her that he would be selling the south London flat where she had lived for nearly a decade, her life spiralled out of control.
Unable to afford another place, she had to turn to the council for help. But in order to qualify for assistance, she needed to prove that she was not “intentionally homeless”; this meant she had to wait for the landlord to issue her with a possession order through the courts, which took nearly a year. Having to wait to be evicted from her home was so damaging to her mental health that she was signed off work with severe anxiety and depression and was later hospitalised after taking an overdose.
When she was finally offered housing it was outside London, far from her daughter’s school and her mother, her only source of childcare. When she broke down in tears and asked how she would get her daughter to school, the placement officer told her to “get up earlier”. She and her daughter now live with her mother, the two of them sleeping in the living room and joining the ranks of the hidden homeless.
Tenants is packed with powerful narratives but also puts forward a number of policy alternatives. One of these is Housing First, which was developed in New York and which has transformed housing policy in a number of European countries, including Finland, the Netherlands and Austria. The policy, which is now being trialled in the UK, is aimed at the homeless and is premised on the provision of a home regardless of employment or addiction.
But Spratt believes that the guiding principle, of providing secure housing to people, should be extended across the private rented sector. This would help to counter the pernicious effects of the 1988 Housing Act, which introduced assured short-hold tenancies and left Britain with a legacy of allowing some of the shortest lets in the world — at just six months — paralleled only by Australia. Like Spratt’s book, barrister Hashi Mohamed’s beautifully written A Home of One’s Own emphasises the emotional fallout of constantly having to move, describing the sense of helplessness his family faced, with no control over the most significant aspect of their lives.
Living in a state of housing instability overlaps with homelessness, with many people, like Limarra, classed as homeless even though they have a roof — albeit an inadequate one — over their head. Daniel Lavelle’s raw and compelling memoir, Down and Out, brings together precarity in private renting with street homelessness as he details his horrifying and abusive experiences of the care system and his inevitable descent into rough sleeping, addiction and homelessness. Lavelle describes himself as one of the lucky ones, who managed to get out, when many of those close to him didn’t. But even now, as a successful journalist, he has been evicted from two homes by two different landlords and his housing remains insecure.
Finding herself unable to travel due to the pandemic, Sunday Times foreign correspondent Christina Lamb turned her attention closer to home. The Prince Rupert Hotel for the Homeless is the story of how a historic hotel in Shrewsbury, Shropshire, found itself providing the local homeless population with somewhere to live for a year, as part of the government’s emergency “Everyone In” initiative.
Lamb’s compassionate and compelling narrative is heartwarming but doesn’t scrimp on the challenges faced. The family atmosphere unexpectedly created by hotel staff more accustomed to upscale guests sits alongside drug taking in the rooms, ambulances and fights, but the overwhelming message is that when the political will is there to house people, it can and does happen. As Spratt says, the Conservatives’ previous promise to end street homelessness by 2027 was rushed through by “Everyone In” in 10 days.
When Spratt, who is the housing correspondent of the i newspaper, was starting out in journalism, she worked as a junior producer at the BBC. One day she suggested that they might want to run more stories on housing, only to be told dismissively by her editor that “it’s just not that interesting”.
It’s a response I’m familiar with. Embarking on a career in journalism I alighted on housing as a vital social policy area that seemed to receive little coverage. I soon realised why: where once pretty much every newspaper had a housing correspondent, now they were filled to bursting with property supplements. Housing had been relegated to poor housing.
These books reveal a shift away from the property-boom approach to housing. All are based on myriad human stories which show that having a home is a central aspect of people’s lives and a cornerstone of trust in society and its institutions. The shifting nature of the discourse around the housing crisis is significant as, combined with the success of radically different approaches such as Everyone In and Housing First, they herald a real possibility of change.
The narratives also highlight that it’s a change which seems to have permeated the highest levels of government. Michael Gove, until recently UK secretary of state for levelling up, housing and communities, lambasted volume housebuilders as operating a cartel with unhappy consequences and condemned the poor quality of much of the private rented sector. In language a world away from more familiar Conservative rhetoric on housing, he repeatedly made it clear that far more social housing is needed — a stance echoed by the opposition Labour party.
Yet, like so many of his predecessors, Gove was only in post briefly, and weakness of leadership at the top is identified as a key barrier, with 12 housing ministers since 2010. There is also frustration that cross-party support for a land value tax, recommended by separate government inquiries by both parties and supported by many economists, has not been taken up. As the housing crisis blights ever more lives, the nature of the debate is shifting fundamentally, but whether the current political climate can action that readiness for change is another question.
Anna Minton is the author of ‘Big Capital: Who Is London for?’ (Penguin) and reader in architecture at the University of East London
Tenants: The People on the Frontline of Britain’s Housing Emergency by Vicky Spratt, Profile Books £20, 352 pages
A Home of One’s Own by Hashi Mohamed, Profile Books £5.99, 160 pages
The Prince Rupert Hotel for the Homeless: A True Story of Love and Compassion Amid a Pandemic by Christina Lamb, William Collins £20, 320 pages
Down and Out: Surviving the Homelessness Crisis by Daniel Lavelle, Wildfire £18.99, 304 pages
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Business
Families can make a tax-free rollover from 529 plans to Roth individual retirement accounts starting in 2024
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Americans who save for college in 529 plans will soon have a way to rescue unused funds while keeping their tax benefits intact.
A $1.7 trillion government funding package has a provision that lets savers roll money from 529 plans to Roth individual retirement accounts free of income tax or tax penalties.
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The House passed the measure Friday and the Senate did so Thursday. The bill heads to President Biden, who’s expected to sign it into law.
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The rollover measure — which takes effect in 2024 — has some limitations. Among the largest: There’s a $35,000 lifetime cap on transfers.
“It’s a good provision for people who have [529 accounts] and the money hasn’t been used,” said Ed Slott, a certified public accountant and IRA expert based in Rockville Centre, New York.
That might happen if a beneficiary — such as a child or grandchild — doesn’t attend a college, university, vocational or private K-12 school, or other qualifying institution, for example. Or, a student may receive scholarships that mean some 529 funds are left over.
Millions of 529 accounts hold billions in savings
There were nearly 15 million 529 accounts at the end of last year, holding a total $480 billion, according to the Investment Company Institute. That’s an average of about $30,600 per account.
529 plans carry tax advantages for college savers. Namely, investment earnings on account contributions grow tax-free and aren’t taxable if used for qualifying education expenses like tuition, fees, books, and room and board.
However, that investment growth is generally subject to income tax and a 10% tax penalty if used for an ineligible expense.
This is where rollovers to a Roth IRA can benefit savers with stranded 529 money. A transfer would skirt income tax and penalties; investments would keep growing tax-free in a Roth account, and future retirement withdrawals would also be tax-free.
Some think it’s a handout for the rich
However, some critics think the rollover policy largely amounts to a tax handout to wealthier families.
“You’re giving savings incentives to those who can save and leaving behind those who cannot save,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.
A 2012 analysis conducted by the Government Accountability Office found the typical American with a 529 account had “much more wealth” than someone without: $413,500 in total wealth for the median person, about 25 times the amount of a non-accountholder.
You’re giving savings incentives to those who can save and leaving behind those who cannot save.
Steve Rosenthal
senior fellow at the Urban-Brookings Tax Policy Center
Further, the typical owner had a roughly $142,000 annual income versus $45,000 for other families, the GAO report said. Almost half, 47%, had incomes over $150,000.
The new 529-to-Roth IRA transfer provision doesn’t carry income limits.
Limitations on 529-to-IRA transfers
While the new tax break primarily benefits wealthier families, there are “pretty significant” limitations on the rollovers that reduce the financial benefit, Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis, said in a tweet.
The restrictions include:
- A $35,000 lifetime cap on transfers.
- Rollovers are subject to the annual Roth IRA contribution limit. (The limit is $6,500 in 2023.)
- The rollover can only be made to the beneficiary’s Roth IRA — not that of the account owner. (In other words, a 529 owned by a parent with the child as beneficiary would need to be rolled into the child’s IRA, not the parent’s.)
- The 529 account must have been open for at least 15 years. (It seems changing account beneficiaries may restart that 15-year clock, Levine said.)
- Accountholders can’t roll over contributions, or earnings on those contributions, made in the last five years.
In a summary document, the Senate Finance Committee said current 529 tax rules have “led to hesitating, delaying, or declining to fund 529s to levels needed to pay for the rising costs of education.”
“Families who sacrifice and save in 529 accounts should not be punished with tax and penalty years later if the beneficiary has found an alternative way to pay for their education,” it said.
Are 529 plans already flexible enough?
Some education savings experts think 529 accounts have adequate flexibility so as not to deter families from using them.
For example, owners with leftover account funds can change beneficiaries to another qualifying family member — thereby helping avoid a tax penalty for non-qualified withdrawals. Aside from a kid or grandkid, that family member might be you; a spouse; a son, daughter, brother, sister, father or mother-in-law; sibling or step-sibling; first cousin or their spouse; a niece, nephew or their spouse; or aunt and uncle, among others.
Owners can also keep funds in an account for a beneficiary’s graduate schooling or the education of a future grandchild, according to Savingforcollege.com. Funds can also be used to make up to $10,000 of student loan payments.
The tax penalty may also not be quite as bad as some think, according to education expert Mark Kantrowitz. For example, taxes are assessed at the beneficiary’s income-tax rate, which is generally lower than the parent’s tax rate by at least 10 percentage points.
In that case, the parent “is no worse off than they would have been had they saved in a taxable account,” depending on their tax rates on long-term capital gains, he said.
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The knives are out for Goldman Sachs CEO David Solomon, and this time the people brandishing them aren’t the usual suspects — his junior staffers annoyed that they have to work late or come into the office several times a week.
Solomon’s problems are more serious and existential, I am told, and how he handles what can best be described as a revolt in some quarters of Goldman’s middle and upper management ranks could determine how much longer he stays in his job.
Solomon, 60, took the job in 2018 and was always somewhat of an odd choice to run the white-shoe investment bank that usually cultivated its leaders from within. He cut his teeth at a decidedly un-Goldman-like venue: the scrappy investment bank Bear Stearns (ultimately one of the causalities of the 2008 financial crisis).
He joined Goldman in 1999, as a partner, no less, because his deal-making chops allowed him to skip layers of management.
In other words, Solomon is an outsider at a firm with a wickedly insular culture. He has a quirky side gig as a DJ in the summer Hamptons party circuit. He’s also not one for small talk, and doesn’t consult with a lot of people before handing down his edicts.
“He doesn’t breed a lot of love,” said one former Goldman executive who knows Solomon well.
Lots of people at Goldman don’t like him, and they’re letting their views be heard both internally and with pals at rival firms.
For the record: I’ve met Solomon and like him for his no-BS style. And until pretty recently, the numbers show him doing a great job. Goldman was running on all cylinders in deals and trading. Even as the market corrects, shares are up about 60% since Solomon took over as CEO in 2018 compared to around a 44% rise in the S&P during that time.
Goldman is still the top M&A shop, even widening its market share over rivals in that important business line. Solomon was the first among his fellow CEOs to see the downturn and enact significant layoffs to cut costs.
Still, the grumbling about Solomon is spreading to the managing director and partner class. High-priced Wall Street talent don’t call all the shots at any firm, of course. But Goldman’s MDs and partners have historically been a powerful force when the board decides the fate of current management, which makes Solomon’s hold on his job increasingly precarious as more and more of them defect from his camp.
Here’s how they’re building a case against him: Goldman’s longtime archrival investment bank Morgan Stanley now easily dwarfs Goldman in market value, $144 billion to $116 billion, continuing a trend that predates Solomon. That comes amid a slowdown in banking deals, Goldman’s bread-and-butter business, and Solomon’s home turf.
Morgan’s CEO James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues. Solomon’s effort to diversify was an overindulgence in something called Marcus, a digital retail bank launched by his predecessor Lloyd Bankfein that Solomon made his baby. So far, it’s been a disaster, so much so that Solomon has been forced to scale back, possibly on the way to winding it down.
Goldman, meanwhile, has missed targets in its recent earnings announcements, and more downward surprises could be in store as markets continue to wobble. Bonuses are down, in some places cut in half, albeit from the nosebleed levels of 2021.
Traders did well in 2022 because Goldman’s are particularly adept in profiting off turbulence, but part of their pool is being diverted to bankers to keep them in-house until the deal slowdown ends.
Since Solomon is a banker, he’s also being accused of favoritism, which in truth is a pretty lame charge, since bankers often subsidize trader bonuses when the markets aren’t profitable. Still, the Goldman trading department is powerful and can spark management change, as it has done in the past.
There’s also a question about Solomon’s allegiance to Goldman’s stand-alone culture. In its 153-year existence, Goldman has operated on the assumption that it would be the acquirer in any major strategic acquisition. Solomon’s experience at Bear, then one of the most transactional places on Wall Street, means he could be looking for a deal and not one that keeps Goldman in charge.
At a time when most Goldman insiders believe he needs to do a “transformational deal,” i.e., something big that allows it to better compete against Morgan Stanley and super banks like JP Morgan, there is speculation that Solomon might allow Goldman to be swallowed whole by, say, a big asset manager or bank if the price was right.
As best I can tell, this grumbling, though real, doesn’t immediately threaten Solomon’s job. Then again, there is something to be said for keeping your producers happy.
Jack Welch, the legendary CEO of General Electric, was a notorious screamer and demanding beyond belief. Yet Welch knew how to nurture his people.
“Jack could chew your ass, then put his arm around you and make you feel great,” one of his longtime executives, Bob Nardelli, once told me.
It’s why so many other talented execs chose to stay around under Welch, abuse and all, and left when his successor took over, watching GE implode from the outside.
Maybe it’s a good time for Solomon to take a page from Welch and start hugging it out.
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