Being stuck at home in my chair, recovering from minor surgery, prompts me to comment on a piece which Simon Jenkins published in today’s Guardian. 1 October 2015
I can hardly put all this in a comment box, so here it is separately.
Copyright lies with the Guardian and/or the author and I hope they will excuse me treating it in this way. Jenkins in roman, me in italic.
The problem with this writer, for me, is that he has flashes of good insight and flashes of reactionary ideology, all jumbled up. Fundamentally he is on the opposite side from me, but…
Many of my comments draw on stuff I just published in a paper commissioned as part of the Government Office for Science’s Foresight programme the Future of Cities. You can find that paper here.
Housing is Britain’s top policy issue. It is the “crisis” of our day. London’s mayoral elections, says Labour’s Sadiq Khan, should be a “referendum on the housing crisis”. The migration crisis, the NHS crisis and the poverty crisis all pale before its awesome might. So what is the “solution”?
In a way Jenkins is right because the housing crisis is partly (only partly) a symptom – a symptom of poverty and inequality facing the rising cost of housing.
Partly wrong because there is a distinct and awful problem added by the role of land ownership and rent in exacerbating inequality.
There is no solution. As in all political crises, there are tribal myths and economic realities. When the myths win, policy degenerates into chaos and counterproductivity. First, let’s deal with the myths.
1 That there is a housing “crisis”. There is none. Too many people cannot find the house they want in London and the south-east, which is where most politicians and commentators live. This is inevitable where an economy is booming. Average prices in London may be £500,000, but in the north-west and north-east of England they are £150,000. You can get a decent home in Salford for £65,000.
Sloppy but superficially true. London and the south-east are the main pressure areas because that’s where the jobs increasingly are (and perhaps also a bit because it’s where you can participate in the fastest asset-value appreciation if you can afford the entry price). But this spatial imbalance is itself part of the crisis because of the way it limits migration and otherwise constrains people’s development. At the poorest end (especially Northern Ireland where ‘recovery’ is slowest) I read of the poverty of households who had become owner-occupiers, come to rely on equity withdrawal for survival and now have negative equity. Extreme regional disparity is a real problem, not just something to be equilibrated through a market. Insofar as it equilibrates it does so with great pain.
2 That an average is a minimum. It is not. Housing hysteria is based on averages. When someone asks “How can I possibly afford £500,000?”, the answer is: you cannot, but somebody presumably can. But go on Zoopla and there are houses in parts of London for £180,000. Even the poorest newcomers seem to find somewhere (usually private) to rent.
On averages: yes of course.
On finding somewhere to rent this is the standard heartless neo-classical ‘solution’: the market will divide up the space so everyone can have what they can afford – thus beds in sheds, day tenants sharing with night tenants and so on. Not to mention the issues of quality and safety at the bottom of the rental market. The economist Alan Evans famously declared that what slum dwellers needed was MORE slums to bring the price down. Yes, London has a “wonderfully flexible” housing market in which anyone can find a space quickly if they can afford it, and a shared shelf otherwise.
3 That there is a national “need” for 250,000 new houses a year. For decades this has been Whitehall’s meaningless concept of “household formation”, taking no account of regional preference, propensity to move home, house prices or cost of finance. Housing need implies homelessness. It should refer to the 60,000 people currently in temporary accommodation, who ought to be the chief focus of policy attention. All else is “demand”.
Matching housing output to household formation is indeed rather a crude and mechanistic idea, but if the shortfall persists for decades, as it has done, then scarcities will worsen, as they have. Especially in London and south-east. This is just a mean paragraph.
4 That the solution to house prices lies in building more new houses. New houses are always worth building, where the infrastructure is in place. But new houses account for a mere 10th of housing transactions. The chief determinant of house prices is the state of the market in existing property and the cost of finance. During the sub-prime period, prices soared in America and Australia despite unrestricted new building. It was cheap money that did the damage. The house-builders lobby equates housing to “new build” because that is where their interest lies.
Yes. Here he is right. Or at least he’s right to dismiss the argument that building more houses is the solution. Building a lot more dwellings, especially if they were available cheaply and were in places where needed, would eventually tend to bring general prices down in the second-hand market which, as he says, is where price levels are mainly determined. But it would take a long time.
In the mean time, as he says, we would have to stop chucking credit at the housing market.
But it’s a crude statement because it misses the tax incentives and pension-failure problems which further pump up the demand side, and the floods of demand coming from abroad. It also misses the terrible shrinkage of the social housing stock through RtB.
5 That the solution lies in the green belt. This is an anti-ruralist’s version of myth four. Even were the green belt obsolete, which few accept, or partly so (which I accept), it will not dent the pressure of overall demand. Nor is sprawl remotely “sustainable” development. It requires new infrastructure and puts more pressure on roads and commuting. It is bad planning.
Mostly I agree, certainly on the inevitable car-dependence of sprawl permitted at the urban edge. I’d favour some GB developments round London but only if and where they could be integrated in the full public transport network of London – not just on radial railways. The Thames Gateway of Prescott and Co could have been rather good if tackled with gusto and public land ownership. But the Paul Cheshire etc de-regulation version I do not favour, though the latest versions do acknowledge that some planning would be needed.
6 That high buildings are the answer. They are inefficient as the higher you build the more is spent on servicing. London’s most popular and economic housing is “high density/low rise”. Towers have supplied mostly empty pads for the rich, housing no one.
There are lots of environmental objections to very high buildings, yes, though many who live up high love their views.
On the “mostly empty” I am getting fed up with people (professors as well as journalists and politicians) throwing this assumption around. Where is the serious evidence? Measurement very difficult and prediction even harder.
7 That the answer lies in new social housing. Security of tenure and low turnover – not to mention right to buy – renders the fixed stock of public housing inflexible and immobile. Increasingly it has become a generous donation by the taxpayer to a fortunate few, for life. It is largely irrelevant to acute homelessness.
Wrong. You imply that the security of tenure should be leveled DOWN across sectors. Why not up? If renters’ security in the PRS were as good as in many European countries the security enjoyed by Council tenants would not seem so profligate as it clearly is for you. Why should owner-occupiers be the only people with security of tenure?
Low turnover is surely a by-product of the differences in security. Some council tenants naturally cling on. If there were affordable secure alternatives fewer would do so.
8 That people have a “right” to live where they or their parents lived before. Localities benefit from stable populations, but conferring and bequeathing such a right to discriminatory subsidy is in no book of rights.
Rights are struggled for, not accorded by ‘books’. Why should poor people and their communities not be able to stay in their neighbourhoods just because the properties around them have seen their prices driven up by the financialised housing boom? I’m happy to struggle for these ‘rights’.
In my view you misuse the word “subsidy” in this context. Council tenants have been paying for their flats through their rent, with many local authorities banking surpluses in many periods. I could dig out some authoritative literature on this. To describe council rents as ‘subsidised’ simply because the surrounding market has risen is an abuse of language – though common among neo-classically trained economists.
(Housing Benefit is a subsidy – probably to employers or to landlords or both – but that’s not what you are complaining about, I think.)
9 That there is also a “right” to home ownership. The state has a housing obligation for those who need help. Home ownership is capital accumulation, developed out of the Tories’ mortgage tax relief as a form of saving for old age and to endow offspring. It promotes inequality and cannot be termed a right.
Yes. It would be good to establish a right to housing at an EU or global level. But a “right” to owner-occupation UK-style with all its privileged capital gains (if you play it right) no. The fetish surrounding it, fostered by governments since Richard Crossman was Minister in the late 60s and boosted so much by Thatcher, then inflated by the lunatic financial system, has been a disaster.
You are wrong about Tory mortgage tax relief, surely. It was started by Roy Jenkins (then Labour), and abolished by Gordon Brown. Countries which still have it, like the Netherlands, will live to regret it.
10 That renting is stupid. Renting is buying a service. About 60% of Germans rent. They do not think of buying until their 40s. Booming Berlin has 90% of its population renting. Renting aids labour mobility and channels savings into productive investment. As a result, Germany has little house price inflation and no “ladder” advantage to owning not renting.
Correct, but you are having Germany both ways. They have had very good (fairly good) security of tenure in private renting (though it’s being weakened now) which you so dislike when UK council tenants enjoy it.
Renting only channels savings into productive investment if rents are low. KPMG in their UK report with Shelter cite evidence that many UK private tenants are paying so much rent that they can’t save or contribute to pensions.
There are inter-dependencies here: controlled rents and secure leases in Germany combine with the lack of a primate city to produce low price inflation and land values. However major cities even there are now suffering problems as financialisation becomes more ‘British’.
11 That buy to let is evil. The poorest people rent from the private sector. The more houses are available to rent, the more flexible is the housing stock and the lower are rents for those who do not buy. Whether buyers-to-let should enjoy tax breaks and whether rents should be regulated are quite different matters.
In my view it tends to be bad in the current UK (or at least London / SE) form: it creates power relations between landlord and tenant which can be highly exploitative. Certainly we need more houses to rent, but we must have them in non-market, non-commodity form. We know how to do that well and there is no sign that anyone is going to civilise the PRS. The banks probably wouldn’t permit it.
Facing these myths stand a few realities.
1 There is no “need” to build on rural land outside cities. Jobs, leisure and infrastructure are available in cities. We should not aid hypermobility with sprawl. Every city, in de-industrialising, leaves empty sites stuck in planning arguments or delayed decontamination. The London agents Stirling Ackroyd have identified sites for 500,000 houses in London without touching the green belt. People may like houses in the countryside, but that is preference not need.
You can’t generalise across places like this. These estimates of London’s “Brownfield” tend to assume we can gobble/destroy council estates and/or displace the workshops and offices where people work and exchange services. I’m open minded on this (need for green field development) issue. Proper large new towns/cities could be tremendously innovative as part of the mix…
2 The one massive reservoir of vacant residential property in Britain is under-occupied property and underdeveloped city land. London is awash with small houses and empty rooms, its residential density the lowest of any big city in Europe. Detached houses, spare rooms and gardens are the nation’s luxury. Britons had 1.5 rooms per person in 1981 and have 2.5 today, even as new housebuilding is declining. Freeing up this capacity should be the overwhelming goal of policy.
Yes on the under-occupied O-O property. Reducing the incentive to hold so much space involves things to do with tax, inheritance, CGT, SDLT and also the production of a lot more housing which would entice ageing people like me and the droves of divorcees who contribute to the under-occupation to downsize. Could and should be done.
3 Tax makes it worse, not better. VAT discriminates in favour of new building and against the conversion of existing properties. Stamp duty is a tax on transactions, and thus on downsizing and more efficient use of space. Council tax is wildly regressive, promoting wasted space. Inheritance tax relief rewards hoarding.
Yes. Land Value Tax probably best to replace the whole lot.
4 Planning control is too strict. Permitting an extra storey, apartment or back extension on every existing property would drastically increase density and capacity. London can grow higher without growing high.
Haven’t the Tories already given a blanket permission for that?
5 The most effective way to relieve housing poverty is through housing benefit, at present chaotically administered.
What’s wrong with the admin? The admin isn’t the problem anyway. The problem with HB is that it has to fill a widening gap between low pay and high rents. Raising pay would be the best strategy. Lowering rents good too. It’s a class battle either way.
Cash payments are more flexible and fit for purpose.
What does this mean? You prefer the HB money to be paid to tenants, not to landlords? That just turned out to make it even harder for HB recipients to find flats because landlords discriminated…
They should extend to a new “public sector Airbnb”, geared to bringing vacancies to market.
Sounds good. Some universities do it. Every council could.
6 The only way to force down rents and house prices in the south is to strain every policy sinew to make London poorer and the regions richer. That seems too radical for anyone.
Well I would favour discouraging the (British and foreign) global super-rich from buying so much of our stock. That would bring the average down.
Strong regional re-balancing is a very high priority, yes.
A final comment: you and I are facing the same evidence, the same experience. My take on it has some overlaps with yours but is fundamentally different. This is the last few paragraphs from my report:
- How can it be that, on the one hand, we have an extremely ‘high-value’ built environment and its value has mushroomed in recent decades, generating massive profits and capital gains (rents) amplifying inequality while many of us are inadequately housed, space standards are low, value for money poor, funds for social and physical infrastructure and services can’t be found and the environmental performance of the resulting settlement pattern is substandard? It is a dreadful paradox, a severe contradiction.
- Put like this, however, it is clear that the problem could be solved. There is lots of money being spent on housing and more of it could go on what we need — good quality, well-designed, affordable housing with good services, environments and workplaces — less being distributed as profits and capital gains/rents.
- It is as though there were two kinds of tax in the society: one paid to the state and local authorities for public services, the other paid as rent to landlords, financial institutions and established owner-occupiers.
- The future has to be different from the past. How it could be done is the subject of the report.