Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Written Evidence


Memorandum by Professor Glen Bramley (AH 89)

INTRODUCTION

  This evidence has been prepared in some haste because by some oversight I was not aware of this Inquiry and call for evidence until the day before its deadline for submission. However, I felt that it might be useful if I were able to pass some comment on some of the questions raised in the Press Notice of 11 October, as I have been engaged in research on some of these questions over the last 15 years or so. This research has been supported at different times by a range of bodies, of which particular mention should be made of the Joseph Rowntree Foundation, ODPM, Scottish Executive and the Housing Corporation. While grateful for their support I must emphasise that of course the views and interpretations expressed are my own.

  In view of both the shortage of time and the Committee's expressed wish for brevity in submissions, I have endeavoured to keep these comments brief and to the point. However, in view of the wide-ranging scope of the Committee's questions, I realise that I have not succeeded. ("If I had had longer I could have written something shorter"). References are made as appropriate to fuller published output from the relevant research.

BENEFITS OF AND SCOPE TO PROMOTE GREATER HOMEOWNERSHIP

  Much has been written on this topic over the last three decades, some theoretical, some more pragmatic, much tinged with ideology and much again tinged with special interests. I shall not attempt to review this vast literature, but merely point to some particular points on which I can offer some evidence.

  This question really divides into two parts, the first on benefits and the second on means of promotion. The first part overlaps with the Committee's second question, about tackling inequalities and poverty. It is widely and rightly observed that homeownership is a popular aspiration, and has become more so over time. However, this is not a particularly good reason for the Government to promote this tenure, (a) because if it is popular promotion is unnecessary, and (b) because there should surely be some wider "public good" benefit to justify public subsidy and policy effort. Also, there are potential dangers from excessive public promotion of home ownership, if for example this leads to people of modest means being exposed to excessive risk of indebtedness, or to take another example if it simply serves to inflate house prices even more.

  What is the basis for arguing that there is a wider public good to be derived from greater homeownership? One long-standing argument is that homeowners have a greater incentive to look after, maintain and improve their homes, thereby helping to ensure that the major asset of our housing stock is sustained and enhanced rather than being degraded. There is a sound economic logic here, but this should not be overstated. There is a good deal of evidence, from official surveys of house condition and more targeted surveys, the homeowners often do not have a good appreciation of the structural condition of their properties and do not necessarily prioritise work which is in the best long term interest of maintaining good structural condition, partly because of incentives within the housing market. The Government's reform of the house purchase process (Home Sellers Packs, etc) is partly intended to address this problem.

  A second line of argument, which is receiving increased attention, is that homeownership promotes attitudes and behaviour which are more consistent with desirable social outcomes in terms of, for example, stability of local communities, engagement with local community affairs, and more orientation to future goals for themselves and their children. The rather loose term "social capital" has come to be associated with this view, and it has been argued from a range of evidence that homeownership is associated with more positive manifestations of social capital. One specific aspect of this is the role of social capital in supporting local schools and education, and this is something about which we have carried out some recent research which may be of interest. Our study (Bramley & Karley 2005b and c) investigated the role of homeownership in affecting educational attainment, alongside the many other factors which are known to be influential, including individual and neighbourhood poverty. Drawing on three distinct strands of evidence we concluded that homeownership does have an independent, positive influence on school attainment, even after allowing for these other factors. Children of homeowners themselves do better, even allowing for poverty, parental qualifications, etc; but there is also a significant effect from schools having a greater proportion of homeowners (as well as a lower proportion of children from poor households), and this can spill over to benefit children whose parents are not themselves homeowners. In view of the central role of educational achievement in promoting a much wider set of social goals of inclusion, employment, reduced crime, etc this finding is of some significance.

  A third and closely related line of argument concerns neighbourhood social mix. Tackling neighbourhood concentrations of poverty and deprivation is a central part of the Government's overall anti-poverty strategy, and this recognises that such concentrations can worsen a range of social outcomes (of which education is but one). Housing policies and social trends of the last 30 years have led to a situation where social rented housing is a relatively "residualised" tenure which contains a predominance of households on low incomes, a majority of whom are not in work. Some would say that this is partly a byproduct of the promotion of homeownership, but other factors are involved as well and whatever the reasons it is now a deeply-established pattern (Stephens et al 2005). It follows that we should be using our housing, planning and regeneration policies to promote socially mixed communities rather than reproducing estates which are segregated by tenure, income and demography in the way that past policies tended to do. One part of such policies is that, when regenerating existing social housing estates, there should be active promotion of owner occupation on a significant scale within these areas, both through new building but also through sales of existing stock. Specific low cost home ownership schemes, like shared ownership, have a role to play in this. Another part of such policies is the requirement that most new housing schemes promoted by the private sector should be required to contain a proportion of "affordable housing", as is increasingly achieved through the use of s106 planning powers.

  We are currently investigating neighbourhood-level housing market outcomes across the country in a project supported by the Joseph Rowntree Foundation, with a particular view to assessing the impact of different types of new housing investment. Preliminary findings support the contention that new private investment improves outcomes in lower demand and poorer areas; the impact of new social investment is less clear (Bramley et al 2005). This partially confirms findings of an earlier unpublished study looking at greater Glasgow, where new private housing was clearly associated with positive outcomes in a way which new social housing was not.

  The scope to promote greater homeownership is as noted above a different question. This is partly a normative question, about the socially optimal level of homeownership; partly a forecasting question, about over what time horizon and under what conditions this might be achieved; and partly a question of means and mechanisms which might help to achieve it.

  I think that, for the kinds of reasons given above, it is reasonable to argue that there is a socially optimal level of homeownership which is rather higher than the current level in England. However, I certainly do not think that this level is anything like 100%. There many people in our society for whom homeownership is not the right solution, for example: younger mobile people who have not settled down to a particular career in a particular place and in a particular relationship; people with insufficient level or stability of income to afford and sustain ownership; people with other debts and liabilities; people with a range of vulnerabilities or problems which unsuit them to the responsibilities of ownership, including some older people. Beyond this, the sustainable level of homeownership depends on certain structural economic conditions, particularly the overall distribution of income and wealth and the supply and price of housing. Broadly speaking, a more even distribution and a more generous, affordable supply of housing opportunities would increase the quantitative scope for homeownership. Notwithstanding the Government's efforts to reduce poverty, the overall distribution of income is now much more unequal than in the 1970s, and powerful forces continue to lead towards greater inequality despite the impact of certain policies intended to moderate this. The position on housing supply and cost will depend substantially upon whether the agenda set by the Barker reports (Barker 2003, 2004) is capable of being implemented.

  Given this big picture, Government can do a certain amount to support additional homeownership at the margins. I do not think that blanket subsidies on the demand side are the way to do this. As is clear from economic analysis, from the evidence reviewed by Barker on supply inelasticity, and from specific studies including my own (Bramley 1993), a general subsidy (like the former mortgage interest tax relief) would mainly have the effect of raising prices. I think that there is considerable merit, however, in more targeted assistance to marginal first time buyers, of the kind represented by the Government's various programmes of "low cost home ownership" (shared ownership, Homebuy). In various evaluation reports (Bramley et al 2002, 2005) we showed that: (a) there is substantial potential demand in this so-called intermediate sector, particularly in the south of England; (b) such subsidised provision can be good value for public money in the longer term and good value for purchasers; (c) such schemes can be reasonably well targeted; (d) they can also fit well with some approaches to new provision using planning powers and regeneration schemes. Past provision has been insufficient in scale to really do much more than dent the problems of affordability and access to an inflated market, and has not always been as good VFM as it might. I think that possible models involving lender-financed equity loans have more potential than has so far been realised, and that the Government may have missed part of this opportunity through a reluctance to adopt what I identified as the optimal model involving time-limited revenue subsidies (Bramley 2004).

  I understand that the Committee is proposing a further inquiry on this topic, which will follow on from a current NAO study, so I do not pursue this issue here.

  Another form of low cost home ownership assistance is the Right to Buy/Right to Acquire for social sector tenants. This has been extremely controversial over the years. However, consistent with the views given above, I would support these policies subject to (a) the discounts not being set so low as to represent a significant cost to the public purse, and (b) the discounts not being paid for by effectively "raiding" the balance sheets of social housing providers.

  Another form of support to the margins of home ownership which would be potentially significant is the issue of "safety nets" for home owners who experience a fall in income and the threat of repossession. Others such as Janet Ford and Steve Wilcox at York University have investigated this subject much more extensively than I have. In short, a more adequate safety net, whether based in insurance, social security benefits or a widened housing allowance, would reduce the risks of homeownership for a substantial group of households who might otherwise be (rightly) deterred from entering such a commitment.

  It is also worth mentioning the financing of students in higher education in this context. The shift towards higher participation in HE combined with more use of loan finance is a significant factor behind the more cautious approach of young adults towards early homeownership.

ECONOMIC AND SOCIAL IMPACT OF CURRENT HOUSE PRICES

  This topic was reviewed very well in the Barker (2003, 2004) reports, which identified a range of adverse impacts on macro-economic stability, on the labour market and economic growth, on housing quality and general levels of welfare, on key worker availability for public services, on homelessness and housing need, and on widening gulfs in the distribution of wealth. These arguments are all valid and telling. Yet in a nation in which a majority already own their homes and have a stake in high and rising values, it is difficult to marshall a consensus in favour of policies which would bring about lower price levels and a lower rate of future capital growth. This is seen at local level, in opposition voiced to planned new housebuilding, or at national level in concerns about triggering an economic recession or about tax issues such as Council Tax revaluation or Inheritance Tax.

  One of the most obvious impacts of higher house prices is on the affordability of and access to home ownership, something which I have researched extensively. Recent work (eg Bramley & Karley 2005) suggested that about 41% of younger new households could afford to buy a home in England (based on income) in 2002; ranging from 20% in London to 55% in northern regions. Allowing for access to family wealth increased these figures by about 4-5%. By 2004 these figures had deteriorated by about 7% points due to the continuing rise in house prices ahead of inflation and incomes. Translating these into annual need numbers, the 2002 baseline assessment suggested a need for 100,000 additional affordable housing units per year, mainly in London and southern England. The deterioriation by 2004 would have increased these numbers by 15,000. As a ready reckoner, raising prices by 25% reduces the percentage of younger households able to buy by 12% and increases need by 24,000 units, with a generally greater impact in the southern English regions.

  These need numbers are large, much larger in total than the current subsidised housing programme. I comment further on this issue below, but this does raise the question, what happens to these households who appear to be priced out of the market (and judging by recent data on the falling number of first time buyers, are actually being priced out)? There is a mixture of impacts. A lot of these households have moved into or remained longer in the private rented sector. While this sector has expanded to some extent with "But to Let", there will also have been some displacement of poorer households, who are more likely to end up homeless. It is clear that homeless numbers are positively correlated with the strength of the housing market and we have seen significant increases in recent years, particularly in London and the south. There will also be a tendency for new household formation to be delayed and for people to have to share with other households. One remarkable finding from the 2001 Census was that the average household size in London actually increased over the previous decade, an almost unprecedented trend. Another clear byproduct of unaffordable housing, in London and other high demand areas, is longer commuter journeys. My affordability model shows the logic of this clearly: a third of the net affordable need could be met by moving to the cheapest adjacent district. Clearly, mass longer distance commuting contributes to travel congestion (on both road and rail), unsustainable levels of travel and associated emissions and pollution, and general stress on health and family life.

RELATIONSHIP BETWEEN HOUSE PRICES AND HOUSING SUPPLY, AND SCALE OF HOUSING DEVELOPMENT REQUIRED TO INFLUENCE HOUSE PRICES

  These two questions, which should be considered together, go to the heart of the challenge posed by the Barker inquiry. Barker argued that a very large increase in housing supply would be needed to achieve her desirable trajectory of house prices increasing at a rate more in line with the European experience (1.1% per year, rather than 2.4% per year increases in real terms). My affordability projections for the Inquiry confirmed that you would need a reduction of this order to achieve a sustained improvement in affordability (Bramley & Karley 2005). However, the question of how much extra housing supply would be needed to create this virtuous scenario for house prices remains one where the evidence base, in terms of robust economic models of the housing market, is rather uncertain. Barker itself relied on some studies by Geoff Meen which were essentially national and where some of the key parameters were subject to considerable uncertainty. Subsequently, the ODPM commissioned a team led by Geoff to build more detailed models at regional level to quantify the relationship between housing supply levels and the specific affordability target proposed, expressed as the ratio of lower quartile house prices to lower quartile earnings. My understanding is that these models (which have not yet been published in full) continue to show that large scale additions to housing supply would be required, particularly in the southern English regions.

  I have myself conducted several studies which seek to answer this question, based on economic modelling at a more localised level and taking more explicit account of the planning system and land supply. Earlier studies such as Bramley (1993, 1999) and Bramley et al (1995) are interesting in various ways but limited by the reliance on cross-sectional data and the need to make quite a lot of assumptions. More recently, with Dr Chris Leishman, I have developed a model which is more satisfactory, in that it is based upon evidence of the behaviour of local housing markets over time as well as space. I refer now to results which has just been published in the journal Urban Studies (Bramley & Leishman 2005), but would mention that the model is under further development and testing at the time of writing and it may be possible to supplement this in oral evidence.

  The results show that this price reduction target (more than halving the rate of real house price growth) could be achieved by a 39% increase in private housebuilding. However, to achieve this, it would be necessary to release much more land, with 175% extra in the higher demand areas and 100% more in the intermediate areas, and also with corresponding increases in social housing output. Because our proposed increases in supply are targeted in higher demand areas, essentially in the south, they would represent a larger percentage increase there (67% in the high demand areas, 46% in the intermediate areas).

  Meen's work for Barker (2003, p 59) suggested that output would need to nearly double in order to get price growth down to 1.1%. Our results suggest that these estimates are rather on the high side and that it would not be necessary to increase private output quite that much, at least at national level. Nevertheless, our model points to a general problem with trying to achieve this through the existing planning system, which is that a far larger amount of extra land would need to be designated, not all of which would be taken up in the short term. This could exacerbate the problems of urban sprawl and infrastructure funding. For this reason, I would favour more use being made of "direct delivery vehicles" like Development Corporations for growth areas. These mechanisms provide more control over the timing of output (for example through disposing of land under licence) and also provide a means of funding and coordinating infrastructure.

  The more recent work by Meen, Muellbauer and colleagues for ODPM uses a mixture of simpler and more complex models, and applies these at regional level. It would be very helpful to the Committee if this work could be published and discussed. There are several modelling issues which merit further discussion and examination, including whether the emphasis should be mainly on "stocks" or "flows", how the models are reconciled with household projections, how allowance is made for housing quality, and what happens in the rented sectors.

OTHER FACTORS INFLUENCING THE AFFORDABILITY OF HOUSING FOR SALE

  I am a bit sceptical about attempts to intervene in housing construction methods as a way of promoting affordability. Fundamentally, the price of housing in the market is determined by the market as whole, new and secondhand, and current price levels are far above construction costs, even if one were to agree that construction costs are higher than they might be. It is the land component in the price of new houses which is grossly inflated, and this land component is a derivative of the general price level of housing. So it is more important to bear down on this general price level by increasing supply than it is to try to reduce the construction cost element. If you just reduced construction cost without increasing supply, the land price element would rise to fill the gap.

  However, it might be argued that innovations in construction methods might enable supply to be increased without running into bottlenecks in the supply of skilled labour. This could be a serious issue if the level of output were increased by the magnitudes proposed by Barker. However, there are many unanswered questions about the quality and durability of more industrialised forms of housebuilding, as well as about how this fits with the organisation of the industry. Barker reiterates criticisms of the quality of the new housing product in Britain and challenges the industry to improve its performance. It has been argued, rightly in my view, that the industry has not focussed on competing on quality because the route to profitability has lain in getting hold of scarce land with planning permission. This suggests, again, that the key to better quality lies in increasing overall supply so that there is more genuine competition.

  Given the overall supply situation and the likely persistence of relatively high prices in the foreseeable future, there will remain considerable scope for other measures to deliver housing which is more affordable than that for sale at the prevailing market level. The most important current mechanism in this category is the use of s106 planning agreements to secure a proportion of "affordable" units on all housing sites. This affordable housing can and should be a mixture of social rented (RSL) housing and low cost home ownership schemes, like shared ownership and homebuy (equity loan), which provide opportunities to buy at levels significantly below prevailing market prices. As noted above, such schemes can be relatively cost-effective in terms of subsidy, particularly in the longer term, and if s106 is used appropriately then most of this subsidy comes from the land value rather than the exchequer. Unfortunately, s106 has not been used as effectively as it might be, due to too great a readiness to mix it with public subsidy (social housing grant), delays in negotiation and policy uncertainties. S106 also contributes to another desirable policy goal, that of mixed and balanced communities, which I identified earlier as part of the wider public benefit of owner occupation.

  S106 is a form of fiscal measure, albeit not a conventional one. There is a post-Barker proposal to introduce a general "Planning Gain Supplement", which would represent a more generalised tax on development gains, but could serve to limit the scope for s106 agreements at local level. While the PGS could generate more funding for infrastructure, there is still a danger that this could act to discourage supply, to a greater extent than s.106 which is more directly tied to facilitating specific developments and which can provide local authorities with direct benefits and thereby motivate them to approve developments. In my earlier work I conducted some rather crude simulations of the market effects of generalised development charges related to land values (Bramley et al 1995). These suggested that there would be some level of impact on supply (negative) and on price (positive), but that this would not be too severe. If PGS enabled the funding of the critical infrastructure required to deliver the "step change" in supply called for by Barker, then this would be an acceptable cost within a package whose overall effects would be positive. I should add that we may be in a position to make some further estimates of the impact of such charges within the model which we are currently updating.

  A number of other fiscal measures impact on the housing market, including Council Tax, Stamp Duty, and less directly Capital Gains Tax, Inheritance Tax, VAT (partly through exemptions, eg as in recent debates about Personally Invested Pension Schemes). I do not offer detailed comments on these tax issues here, but just make a couple of general points. Taxes which relate to the level of housing consumption or the return on housing assets will impact on the demand for housing. So, for example, tying Council Tax more clearly to housing values, through revaluation and rebanding, could act as a damper on housing demand. Such tax changes which act on the demand side, without affecting the currently very inelastic supply, will tend to impact on house prices. To the extent that tax changes or concessions are selective, they may impact on particular local or submarkets (eg PIPS on second home submarkets in city centres, University towns, attractive rural and coastal areas). Also, tax changes which act to damp demand may also restrict affordability, particularly where they impact on the current cash cost to users. More desirable tax changes would be those which reduced rates and expectations of future capital gains (the asset or speculative element of demand), and which altered the distributional incidence in a more progressive fashion.

THE SCALE OF THE GOVERNMENT'S PLANS

  The Government is expected to announce the scale of its plans for new housebuilding, revised in the light of the Barker report and subsequent research and analysis, shortly. Previous plans have been really inherited from the old approach based on household projections (and hence somewhat "circular", as I and others argued—see Bramley & Watkins 1995), subject to ad hoc adjustments relating to the 2003 Sustainable Communities Plan. Indeed, I would argue, from the review of evidence conducted within the context of the "Evaluation of English Housing Policy since 1975" (Stephens et al 2005), that the actual supply of land through the planning system was actually falling progressively throughout the 1990s and into the early 2000s, regardless of what the government's stated plans were. In other words, you have to consider implementation as well as plans. Figure 1 attached has been constructed as part of our modelling update, and provides a very graphic illustration of the problem which Barker was addressing. Effective land supply more than halved in the south of England between 1992 and 2003, and also halved in the midlands. Only in London did supply recover after 1997, and then not to levels of the 1990-92 period. These data were not officially monitored by government after 1997.



 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 20 March 2006