Housing Politics – The Next Instalment

The Labour Party conference this week had a strangely subdued atmosphere for the last one before a General Election. It probably didn’t help being sandwiched between the Scottish Referendum result and the recall of Parliament to take us to war again.

From a housing perspective the lack of publication of the Lyons Review was understandable but did mean that housing didn’t capture the conference headlines. The pledge to increase first time buyers to 400,000 pa (or double them depending on your source) was underwhelming when they are already north of 350,000. Michael was very optimistic about publication in the next few days and hopefully the practicalities of how to deliver the new homes we need will then be back in the policy headlines.

In the meantime there have been a number of related developments. Employers in London are increasingly expressing concern about housing costs and recent surveys continue to underline how difficult life is, particularly for people moving to London to fill the jobs that London is creating twice as fast as anywhere else in the UK.

KPMG, who supported the recent Shelter report on housing supply (PWC are playing a similar role for Lyons), announced that they were including elements in their remuneration packages to help new employees find housing.

This is a classic bubble inflator. Unless KPMG are actually going to build new homes that wouldn’t otherwise be built this is just stoking effective demand for a limited supply of housing. No doubt other firms will feel the need to compete on the same basis and before we know it London house prices will have ramped up again. This is probably worse than a zero sum game.

It’s an exquisite situation. London is a great globally competitive location for knowledge businesses because it has a huge pool of English speaking knowledge workers and vice versa. The centre of London is the optimum location for firms accessing this knowledge pool and, for employees, the centre of London and all convenient commuter routes into the centre are the optimum locations to live to access these jobs.

But the ability to increase housing supply in these locations, particularly at the pace of demand growth the jobs market is currently requiring, is limited.

So the solution is not to throw more money at the employees to allow them to bid up prices because supply simply isn’t elastic enough to respond sufficiently to achieve affordable prices, at least in the short and medium term.

Clearly supply in these areas will increase and Government is doing various things to facilitate this. I will return to this when the Lyons report is published.

Government is also investing in transport infrastructure which increases the catchment area of the centre of London. I had an interesting conversation this week about the changed attitude of the market to sites close to Bath and Bristol railway stations. Electrification and the cost of housing in London make these attractive location for part time commuters to London.

But given the pace of increase in employment and population this won’t be enough to prevent increasing unaffordability in London and indeed in Bath and Bristol, as my time on the Bristol Housing Commission showed. The affordability problem just gets worse.

And people get very confused about what affordability is. Most naturally equate it with house prices whereas it is really the annual cost of housing (rent or mortgage payments) and with mortgage rates still at historic lows the two have become detached from each other to an extent. The best way to control house prices is to increase the cost of credit but this doesn’t look like it is going to happen to a major extent any time soon and in any event it would make affordability worse.

Another way to deal with housing affordability is housing subsidy but this is currently reducing at an alarming rate. Not just because of austerity but now because the terms on which it is being offered are not attractive to many housing associations so programmes are undersubscribed (hence the sudden enthusiasm for Housing Zones to absorb the underspend and provide offsetting political headlines).

The size of the area in which shared ownership is broken in central London continues to grow. And the customer experience of shared ownership can be terrible. From the overwhelmed sales exhibitions through the continual rejections to the abysmal customer service of the housing associations it is a soul destroying experience for the knowledge workers London needs to accommodate (and that’s just my daughter’s recent experience for those housing associations in London wondering if I am talking about them).

In any event housing subsidy made sense when land values were relatively low and land accessible to employment locations eg post war, was relatively plentiful. Subsidy delivered substantial increases in supply. Today, in areas of high land values, new subsidised housing replaces new market housing so pushing up the prices of the remaining market housing provision. Again this is worse than a zero sum game.

Government is also now talking about investing in infrastructure to improve the competitiveness of other UK cities and combined with the push factor of London house prices this pull factor may persuade some firms to grow their bases in places like Leeds and Manchester where many of the young immigrants to London are coming from. Graduate retention might become a bit easier if the choice is between living in a nice flat in central Leeds or sharing a room with a stranger in Dagenham!

The housing policy conversation (Shelter, Lyons etc) about how to solve the housing crisis is now circling towards a consensus around the need for a large number of different market interventions most of which are about short term supply boosts combined with longer term diversification of house building suppliers.
The key short term areas are probably Government getting into the land manufacturing game in a much more serious way with big financial investments in land acquisition and infrastructure, unlocking land banks and dealing with the rational NIMBY resistance, flagged by the latest Building Societies Association survey, to the poorly designed places the house builders are expected to deliver. But the list of other initiatives being suggested is long and most of them will have a role.

The short term supply boost policy suggestions are already hitting up against constraints in terms of materials and labour and we aren’t even half way towards the national annual supply targets never mind the London and south east commuter ones. The next constraint will be the inability of the public sector to deliver land and council homes given the continuing cuts to their revenue budgets and the competition for skills from the private sector.

After that the loss of employment floorspace will become an issue as Government, through its latest consultation on changes to permitted development rights seeks, just 12 months on, to further remove the ability of local planning authorities and neighbourhood forum’s to protect the employment space they need and the mixed use areas they love. Tech City for example will again come under development pressure.

The pre conference housing policy promise from the Prime Minister was to promise to scrap both CIL and s106 affordable housing obligations to deliver 200,000 starter homes at 20% discounts to market value (subject to resale restrictions) on brownfield and publicly owned land, much of it presumably in Housing Zones.

This will do nothing for housing supply and will only make financial sense in high value areas like central London.

The Labour leader has been criticised for the lack of ambition (and the lack of political resonance) in his 200,000 new homes per annum target by the end of the next parliament (since extended to ‘all the housing the nation needs’ by 2025) but given the constraints, and likelihood of the next property market downturn in that period, this may well turn out to be optimistic. Even if he is elected and does throw the kitchen sink at it, or at least whatever he can find in the kitchen given the outgoing head of the civil service’s dire warning about the next five years of austerity, we might struggle to put much of a dent into housing undersupply.

Housing Politics, Process and People

I had a really interesting discussion with an innovative London local authority and two innovators in the world of housing recently. We were discussing how best to do estate regeneration given the considerable difficulties with, and community opposition to, the current prevalent practice of the top down, developer or housing association led approach.

Read More »

The Scottish Regeneration Referendum

To my shame, and despite an upbringing which involved spending time across the Tay in Fife, until last week I had never been to Dundee. This is particularly bad because Dundee has the look of one of the most successful regeneration, place making and city building projects in the UK in the last decade.

Read More »

The Economics of Diversifying Housing Supply

Call me sad but I spent part of the holidays reading some of the work of Ha Joon Chang, one of my favourite economists. His work on infant industry protection has enormous resonance with what Government is currently trying to do to encourage the emergence of a Custom Build and an institutionally funded new build private rented sector (PRS) in the UK. The Government’s objective is to diversify the supplier base of new housing in order to increase the pace of supply of new homes as the Office of Fair Trading (OFT) historically recommended.

Read More »

Innovating Placemaking

The culture in the UK real estate industry has always been deeply conservative and resistant to change. The number of people who will tell you why something can’t be done differently is massively greater than the number of people trying to find better ways to do things.

Read More »

Housing Policy Towers Over Belgravia

The free market cheer leaders for more housing are starting, rightly, to become more focussed in demanding more housing, not everywhere, but in the economically growing places like Bristol, Oxford, Cambridge, London (and recognising that the problems, or rather the solutions, are different in other parts of the country where environmentally sustainable brownfield development capacity is substantially more obvious).

Read More »

Spinning the Housing Debate

I took part in a proper debate, on green field development, organised by the real estate related professions in Leeds last week. I’m not an experienced debater and came away mainly with the realisation that it isn’t really surprising that life long politicians who do this stuff from school age become flexible with the truth. It is great practice for telling people what you think they want to hear in order to win votes rather than exposing truth by forensic interrogation.
Read More »

Delivering the Community Housing Dream

I came across a number of instances this week of Government’s inability to make its policies happen on the ground.

In the first example I did a quick straw poll of a large room full of local authority planners. I asked how many of them had read the Government’s guidance on collecting evidence for strategic housing market assessments in relation to custom build as they are required to do by the NPPF.

Not a single hand went up.

Read More »

Building Communities

I’ve experienced a number of inspirational communities this week and shared the huge challenges they face, and the overwhelmingly better outcomes they achieve, from leading the development of their own homes and neighbourhoods.

Read More »

Evolving Cities

One of the joys of holidays is catching up on those books that get squeezed out by working weeks. The Neighbourhood Project by David Sloan Wilson was Easter’s catch up. Despite my background as an ecologist with an interest in evolution this book ultimately failed to deliver on its appealing title and its author’s evolutionary credentials.

The book is founded on the author’s belief that pretty much everything in the world, including cities, can be explained, and managed, by the principles of evolution. There is much in this. This is not evolution as most of us understand it as genes that change and get selected over generations. It is evolution of culture and systems.
Read More »