Housing: not so simple

I was invited by Neal Hudson @resi_analyst to be an interviewee in his series of Housing Conversations on YouTube. It took place yesterday 26 August and, when I look at it now, I’m shocked by how much I managed to omit or could have phrased better. So I thought I would write it out, using my notes + hindsight. The end of the written bit is a bit ragged.

Neal started by asking ‘In your 2015 report for the Foresight Future of Cities programme, you described the housing problem as  “bedevilled by rival simplifications”. Can you explain what you meant?’

So many people —citizens, academics, politicians, journalists— are happy to argue that the housing problem or crisis is caused by one single, or at least dominant, factor. That usually goes with proposing a simple solution:

Supply: the prevailing orthodoxy that there is a national shortage of homes and that a massive expansion of building is the answer to affordability and other problems.

Planning: the planning system, or the way it operates, has prevented a lot of new building and should therefore be ‘reformed’ in ways which would unleash increased output.

Technology: productivity in house building has failed to grow at the rate characteristic of other industries and more pre-fabrication & use of Modern Methods of Construction (MMC) would transform output and thus costs.

Foreigners: foreign investors are attracted to buy housing in the UK, either to rent out to tenants, or for use by visiting family members or students or just to hold in the expectation of capital gains. For some this is a means of money laundering.

Commodification: housing has become increasingly a traded commodity rather than a non-market public service and that has facilitated the pursuit of capital gains and a self-fulfilling upward spiral of prices.

Financialisation: the increased dominance of finance in the whole society and the growth of credit for house purchase (both to occupy and to rent out) has been a prime driver of price growth and should be curtailed or reversed.

Falling interest rates: house prices are understood as the discounted value of future rents; as interest rates have fallen, house prices have thus grown because rents get discounted at ever-lower rates.

Land ownership: private land ownership is what enables so much of the social product to be appropriated as rents or capital gains & is thus at the root of the housing crisis; land should be in collective ownership or subject to land value tax (LVT).

Boomers: the generation born in the 1940s & 50s (including me) are the problem; they have benefitted from benign public polices at key stages of life and disproportionately have become rich through owner-occupation, now posing an immense barrier to younger generations and further enriching themselves by collecting rents on homes they own.

Government: policies and practices galore take the blame. Dysfunctional taxes like capital gains tax exemptions, inheritance privileges, property tax (Council Tax so regressive at the low end, negligible at the high end); subsidies and support to owner-occupation which inflate prices & developer profits; Right to Buy, freeze on council house building; inadequate benefits & pensions.

All of these are wrong as simple stories. But all are also right as strands in an adequate account, either as contributory causes or symptoms or both.

Is there an acceptable simple story?

The best I can do is this, in 3 steps:

If housing is distributed through a market, it’s your income & wealth which determines how much you can have; 80-90% of housing in England is now distributed through market processes (up from about half since 1980s)

Income and wealth inequality (& insecurity of low incomes) have increased greatly since 1980s.

The combined effect is bound to create a crisis for middle & low-income people: what they can afford gets less, absolutely and relatively. People tend to buy a lot more housing as they get richer (larger, better located or second homes or homes to rent out, or as savings for old age).

This framing is helpful because it allows for the fact that it’s not the same for everyone; it depends on class position. For some there is a crisis; for others not. There are those who benefit from the current system:
• owner occupiers enjoy unearned growth of wealth
• landlords also, at the expense of tenants
• older generations of owners gain at the expense of younger
• land owners, many professionals, most developers and builders (though volatility can damage some).

And there are losers, some obviously so, including…
• those excluded from the market completely by poverty, income insecurity, mental or physical impediments not compensated by the welfare regime, those ineligible under racist migration rules; some of these groups would have gained social housing (outside the market) in earlier decades, others not. Many are thus on the street or in tents, sofa-surfing or badly housed by criminal landlords in substandard conditions or involuntary sharing.
• tenants whose rent enriches landlords and reduces their own capacity to save (notably for pensions or for later housing purchase), damages their power to subsist or to work shorter hours.
• tenants and some lower-income home owners displaced by market gentrification or state-sponsored demolition and replacement of social housing estates.

Some of the losers are less obvious…
• all of us (almost) who suffer the injuries of living in a rentier economy where the social surplus is so largely devoted to extraction of value from housing, from other land and buildings, from patents and other assets; thus little is invested in better technologies or training for dealing with climate change, improving working conditions or other useful purposes.

Rather than thinking of correct and incorrect elements in that list of explanations, I think it’s helpful to remember that the social forces bearing on housing differ in their geography and timing. Some processes are truly global like the financialisation of flows and falling interest rates. Some -precious few in the narrow housing sphere but more through competition policy- are regulated at a European level. Most tax and many benefit provisions are UK regimes while planning and housing policies and rules are mostly set for England, albeit by the UK government. Among the most important considerations are the structure of relationships of land ownership, notably between land owners and tenants, which remain drenched in feudal hangovers to an extent not known elsewhere, most visible just now in the paralysis of the leasehold system of housing tenure and the retreat of investment property funds in the face of non-payment of rents by corporate retail tenants.

This interplay of scales comes right down to the locality and explains the importance of careful analysis and understanding of property relations in each city, borough, district (which is why I so value the local work you are doing Neil in Built Place). In the words of my colleagues Jenny Robinson and Katia Attuyer which I quoted in commentary on the Government’s new white paper on planning::

The quest for simplicity and a one-size-fits-all policy runs up against what has been called the ‘slowly sedimented arrangement of “contradictory and complex system of dependencies, jurisdictions, and rules” which characterises British property, planning and governance relationships*. This phrase comes from a close study of the Old Oak Park Royal development in London where there were simply too many claims on the prospective property values to cover all the infrastructure costs, get even close to affordable housing targets and gratify the incumbent landowners. Each attempt to make a workable scheme led to further increments of density, way beyond what had initially been planned or consulted upon. The city is complex and thus resistant to simple nostrums.

 Robinson, J. and K. Attuyer (2020 in press) “Extracting Value, London Style: Revisiting the role of the state in urban development” International Journal of Urban and Regional Research. The authors are quoting Christian Schmid here and the whole paragraph if from my section of The Wrong Answers to the Wrong Questions, August 2020.

The list of ‘causes’ at 1 above could be woven together.

The ’causes’ listed above have to be woven together to form an adequate analysis of the situation. That’s what I was trying to do briefly in that 2015 report for the Foresight Future of Cities Programme and I don’t see anyone doing quite that at the moment. Within the mainstream I’m quite impressed by the latest version of the analysis by Ian Mulheirn in his August 2020 CACHE paper. He’s added a lot of useful caveats and qualifications to what was previously a crude example of ‘everything is due to interest rates’. It’s good to have an ex-Treasury economist attacking the supply-is-everything ideological position which underpins the government’s irrational planning ‘reforms’ (and also provides the imperatives for the very damaging London Plan).

Other factors to be dealt with in a fuller written version.

Failure of the state to ensure that laws and standards enable markets to trade smoothly (leasehold breakdown + fire & safety breakdown) – let alone constitute new markets or learn intelligently from elsewhere in Europe how markets can be constituted to do a better job..Failure of the state to avoid policies which escalate prices

Failure of the state to respond to Covid on homeless, sharers etc

Weaknesses in the London Plan – density controls, RtB, S106 & CIL.

Experiments?

Learning from Europe on zoning, procurement, rent controls

(minor corrections April 2024)