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

Memorandum by the Centre for Urban and Regional Studies (CURS), School of Public Policy, University of Birmingham (AH 10)


  1.1  CURS is one of the leading UK centres for research and teaching in housing, regeneration and renewal. Our work combines the worlds of practice, research and education. We have undertaken research for many leading agencies and provide high quality educational opportunities for undergraduate, postgraduate and post-experience markets. Recently we have carried out housing market analysis for the Housing Market Renewal Pathfinders as well as developing affordability models for regional housing market analysis.

  1.2  Our approach to housing market and affordability analysis is centred on a deep understanding of the drivers of housing market change in the context of wider supply and demand issues. We recognise from the outset the role of the housing market, the labour market, demographic shifts, and changes in tastes and aspirations, and the impacts that these have on the sustainability of local neighbourhoods and communities.

  1.3  Our understanding of the operation of housing markets is that they are complex and work across boundaries and tenures. We use the concept of sub-markets within the housing market—which are not necessarily spatially-defined entities—to analyse mobility and interactions within a wider market, and to characterise the different functions of neighbourhoods. We have carried out work that extends the analysis of supply and demand in housing to take into account neighbourhood factors, including local services, as well as housing factors, viewing housing as a "bundle" of attributes that represent a variety of uses, physical and non-physical characteristics, and neighbourhood—accessibility factors.

  1.4  This submission to the Inquiry on Affordability and the Supply of Housing draws on our experience of research in this field and reflects the views of CURS' staff working in this field.


  2.1  Our response is structured according to the issues set out in the Committee's press notice.

The potential benefits of and scope to promote greater homeownership

  2.2  Across England the level of home ownership rose from 58% to 71% between 1981 and 2001.[1] 1 Whilst there was a significant growth in the period 1981-91—partly resulting from the Right to Buy and deregulation of financial services—growth in the decade to 2001 was more modest. At the regional level there is significant variation in home ownership levels, with London having the lowest (57%) and the Eastern region (75%) having the highest rate in 2001. At the local authority district level this variation is even more pronounced. Castle Point district (Eastern region) had the highest level of owner-occupation (88% of households) whereas in Tower Hamlets (London) just over one in four households owned their own home (27%) in 2001. These findings point to two trends with concomitant implications:

    (i)  It is only possible to implement policies such as the right-to-buy and financial deregulation once. The expansion of home ownership in the 1980s created new market equilibrium. However, home ownership levels may now be reaching a natural "ceiling".

    (ii)  Secondly, the polarisation of experience, indicates that something more fundamentally distorted is happening in housing markets.

  2.3  There is too much emphasis placed upon home ownership. Housing policy should re-assert principles of equity, sustainability and adopt a more holistic housing markets perspective. A good strategy would be one that attempts to re-balance the provision of tenures to allow people to exercise choice but to facilitate that choice in a sustainable way. A key tenet of this would be to reduce outward migration from metropolitan areas and reduce the impact on Green Belts, shire and non-metropolitan districts. The low rate of home ownership in some local authorities partly reflects the economic profile of these areas and their low average incomes and high levels of deprivation. Having said that, the role of tenures other than ownership continues to be an important one in terms of facilitating labour market and housing market adjustments. There is therefore a limit to the rate of home ownership without it having an impact on the economy. Increasing pathways of housing choice, whilst improving the quality of existing stock, to give low-income households real choice would have potentially greater benefit than simply expanding home ownership per se.

  2.4  Related to this, it is important to draw a distinction between a market that "clears" (or is in Pareto-optimal equilibrium) and one that is optimal in terms of wider social policy outcomes. The two are not the same and, indeed, may frequently be in contradiction.

The extent to which home purchase tackles social and economic inequalities and reduces poverty

  2.5  It seems that, especially at the lower end of the market, the equity that can be drawn on by lower income households will be limited by the income of tenants/owner occupiers. Therefore, encouraging higher house prices as a mechanism for alleviating poverty (ie, augmenting earnings with capital gains) implies greater consumption and borrowing on equity, which for low-income households actually exacerbates debt, increases the level and intensity of poverty for these households and increases insecurity. Debts need to be serviced and households are exposed to fluctuating interest rates, therefore, home ownership as a mechanism for tackling social and economic inequalities seems to be an inversion of the principles of a Beveridgean, universal welfare state. Instead, it is a welfare state model that can only be selectively bought into or accessed in some way.

  2.6  There is also a recognised link between private renting and the economic mobility that it facilitates. Such mobility is of value in a dynamic, knowledge-based economy. Increased owner-occupation may be having a dampening effect on this economic value.[2]

The economic and social impact of current house prices

  2.7  There will be differential economic and social impacts. At a macro-level, higher house prices will reduce social and residential mobility. Social mobility will be reduced by the indirect influence of "neighbourhood effects" and third party welfare state benefits such as education and the relationship to house prices and location. At a household and individual level, there will be an impact on household formation, as children are increasingly staying at home, and the supposed economic benefits will be swallowed up by the need to release equity to fund housing for dependents (ie, children). Continued high house prices may also have an impact on graduate retention, as many as one in six graduates move abroad; many will be influenced not only by student debt but also by the high cost of housing and the diminished prospect of home ownership in the UK.

The relationship between house prices and housing supply

  2.8  There is a need for sensitive analyses, as prices are distorted for a number of reasons and the market plays out differently locally. Two examples that we have encountered in our research are as follows.

    (i)  Average house prices in the Housing Market Renewal Pathfinder areas have risen significantly in the past two to three years. Partly this has been driven by "buy to let" investments, but has also been influenced by policies such as dispersal under the NASS (National Asylum Seeker Service) scheme. These have led to increased prices for what were traditionally "entry-level" properties such as terraced properties in inner city wards, although investors often otherwise have weak links with the areas.

    (ii)  In the city centres of Liverpool, Birmingham, Nottingham, Manchester, etc the City Living market has expanded remarkably. Whilst there has been an expansion of supply, prices have not reflected the low take-up in some areas (a vacancy rate of upwards of 13% was recorded in one City Living market in 2003).[3] 3 Therefore, even where vacancy rates are high due to external investment (corporate and other individual investors buying off-plan) prices are protected as investors spread their risk and are not prepared to lower sale prices. In this protected environment the relationship between supply-demand and price has been obfuscated. The answer is not simply one of increasing supply and has important ramifications for the interpretation of the Barker Review.

  2.9  More sensitive analysis of local markets and the interrelationship between competing spaces is required. This also needs to take into account the level of "external" investment (eg, buying off-plan) to interpret the supply, demand and price signals.

The scale of the Government's plans to boost housing supply

  2.10  The obvious driver for these plans is the Barker Review and the perceived effect that reduced supply is having on prices. This is at the expense of a meaningful debate on the multiple causes of problems of affordability (see above on differential impacts). Barker's recommendations come from a Treasury perspective and are influenced by the wider context of the five economic tests for joining the Euro. Key among these is interest rates and consumer spending. Housing is a major driver of this. But, housing is seen more and more as an investment opportunity in addition to (or instead of) its traditional consumption and shelter roles. Reduction of the opportunities to invest in housing and replacing these with opportunities to consume housing in its traditional manner will lead to prices finding a new equilibrium. Over the past decade £67 billion has been invested in housing through the buy-to-let route. This is more than the RSL sector has levered in private sector investment for social housing in the period since the 1988 Housing Act.[4] Clearly there are contradictions between supply by whatever means to alleviate affordability problems and the desire for sustainable communities. External private sector investment cannot deliver this in all cases and there is a need for re-balancing the role of housing as an investment good. The danger is that the Barker agenda will not deliver anything sustainable because it is coming from a treasury rather than a housing and communities perspective.

The relative importance of increasing the supply of private housing as opposed to subsidised housing

  2.11  Continuing what we have said above, there are ways of rebalancing the market that do not need any increases in housing supply (private or subsidised). Changing the mechanism by which housing is consumed (similar to changes in Council Tax rules pertaining to second homes) is one such way. Proposed changes to pension allowances (SIPPS) will potentially counter this, however. Housing has unique economic characteristics (that make it different to vintage wine or investment in blood stock, for example) which mean that policies aimed at increasing home ownership and increasing housing's attraction to investors are potentially in conflict. Whilst there may be a place for investment in private sector stock, the social, sustainability and land use implications of this should not be sidelined for short-term economic convenience.

  2.12  Furthermore, it is important to consider the likely effect of increasing private housing supply in different submarkets. The concept of "filtering" has for a long time been used in attempt to justify subsidised provision of high value housing in the expectation that it will ultimately benefit lower-income groups through a sort of "hand-me-down" process.[5] The degree to which this actually happens and represents a superior form of housing subsidy has, more latterly, been seriously questioned by Galster[6] and others.

  2.13  It should also be noted that affordability is relatively elastic with respect to supply. Despite fluctuations in both supply and prices, affordability has continued to worsen over the course of more than three decades at a relatively steady rate (figure 1). This probably reflects the fundamentals of housing (and, more importantly, land) as hereditable commodities that are attractive to investors.

  2.14  An obsession with house prices is an obsession with market outcomes rather than the individual components of supply and demand. There is arguably scope to alter the price of housing without increasing rates of new housing provision. But the solutions are partly unpalatable because they strike at the very heart of wealth creation and principles of "ownership". There are over 800,000 dwellings empty in Great Britain.[7] Whilst many of these will be in the North, significant numbers are in new developments where corporate investors keep them empty to maintain the overall prices and rental yield on those that are either let or sold. This is artificially inflating the market. The Buy-to-Let market has seen £67 billion invested in the eight years since it started,[8] which is significantly more than the private sector leverage by Housing Associations in the period since 1988.[9] Therefore, private sector investment for profit in housing has far outstripped private sector investment in social housing. Social landlords have some commitment to the neighbourhood and have a wider sustainability agenda (as exemplified by the NHF's "iN business for neighbourhoods" initiative). Absentee landlords buying vicariously and off-plan invariably don't share this agenda. The government could do more for affordability and the housing market cycle (allowing first-time buyers to enter the market) by abandoning Stakeholder Investment Pension Plans (SIPPS). Second homes and investment in domestic property for gain, seems to be contrary to Sustainable Communities especially where this investment is remote and distorts local markets.

How the planning system should respond to the demand for housing for sale

  2.15  The planning system needs to strengthen and reassert its principles of sustainability, through higher brownfield targets; a stronger and more formalised sequential approach (which includes reference to existing infrastructure and service provision). There will continue to be pressure to release new land for housing, because the investment in housing—especially in the hinterland around conurbations—is so great. Recycling land and responding to the interface between housing and the economy is less attractive to developers, therefore the supply is slow. Developers have shown that they can respond profitably to changing planning rules if they have no alternative. But the planning system isn't the major player here. On the demand side, households defer where there is not the choice of housing available or where the "neighbourhood offer" is not attractive. The latest evidence from the Key Worker Living scheme suggests that households are receiving subsidy in the form of Homebuy grant to purchase properties outside the Homebuy catchment area.[10] Households are also buying in slightly better areas than they could have afforded, implying that they are using Homebuy to subsidise housing—and neighbourhood trade-ups—rather than moving into a similar neighbourhoods or properties than they currently occupy. The planning system and housing professionals are in some ways endogenous to a process where the drivers of demand and supply are occurring outside the system: an ageing welfare state which polarises experience; a distorted economy based on wealth creation through property; and a spatial mismatch between natural population increase (ie, the BME community) and where the jobs are. This implies the need to consider planning, housing and economic strategy at a national scale.

The scale of housing development required to influence house prices and the impact of promoting such a programme on the natural and historical environment and infrastructure provision

  2.16  The promotion of any house-building programme must be strategically considered within a wider land use planning and sustainability framework. One of the key tenets of this is public transport provision. Current patterns of land use and densities undermine the feasibility of public transport provision. This is notwithstanding the additional problem of insufficient public transport subsidy and the failure of the deregulation model outside London. Further housing provision must be intelligently sited to increase the feasibility of high quality public transport provision and to secure economies of scale in other infrastructure and service provision. It would appear that, even in areas designated as Housing Market Renewal Pathfinders, local planning authorities are not being sufficiently strategic or hard-nosed to bring about improvements in re-densification and sustainable communities. Our experience suggests that the tendency to sprawl continues unabated, even in terms of policies and applications coming forward in the context of the new Local Development Frameworks.

  2.17  New housing provision can be sensitive to existing natural and historical environments if sensitively handled. We would consider this to be a question of detail at the planning application stage, save for stating the obvious that the rehabilitation and reuse of previously developed land is clearly more environmentally acceptable in the long term than other forms of development.

The regional disparities in the supply and demand for housing and how they might be tackled

  2.18  Whilst government funded research tends to support growth in the South East[11] this is a one-sided argument based on maintaining economic growth without looking at the potential of economic growth beyond London and the South East and the equity and sustainability of that investment. The growth agenda that Barker underlies reflects the worst elements of path dependency and institutional lock-in that pervade public policy making. This tends to favour the path of least resistance rather then exploring the possibility of regenerating and reviving regions that are experiencing decline. In the private sector this path dependency is reflected in the level of land banking on the part of land-owners and private developers who would rather disinvest than invest in areas or dwelling types and tenures that do not yield the right returns. A National Spatial Strategy seems a starting point for addressing regional disparities. This would require strong leadership to a framework for economic and housing investment that may seem too interventionist for some.

Peter Lee and Ed Ferrari, CURS

November 2005

1   Census 2001. Back

2   See for example Henley, A (1998). "Residential mobility, housing equity and the labour market". The economic journal 108 (March): 414-427. Back

3   Birmingham City Council Housing Strategy 2005-06. Back

4   See next section and footnotes 8 and 9 for more information. Back

5   The concept of filtering was first implied in Hoyt's 1930s "sector" models of land use. See Hoyt, H (1939) Housing markets and public policy. Philadelphia, University of Philadelphia Press. Back

6   Galster, G (1997) "Comparing demand-side and supply-side housing policies: sub-market and spatial perspectives". Housing studies 33 (10): 561-577. Back

7   Sources: data from ODPM (England HIP HSSA 2004), and from ONS (Wales) and GROS (Scotland) cited in Halifax Bank of Scotland (2004) Empty homes-a Scottish snapshot (press release). Edinburgh, HBOS plc. Back

8   Council for Mortgage Lenders' Buy to Let market summary (up to and including quarter 2, 2005). Back

9   Approximately £30 billion from 1988-89-2003-04. Sources: Williams and Wilcox (2001) "Funding social housing: changing times, changing markets". Housing finance, November 2001; National Housing Federation and Housing Corporation (2004) 2004 private finance monitoring bulletin. London, National Housing Federation. Back

10   Interim research evidence from the national evaluation of Key Worker Living, being carried out for ODPM by GHK and CURS. Back

11   English Regions Network, RDA Planning Leads Group, ODPM and DfT (2005) Regional futures: England's regions in 2030. London: Ove Arup and Partners, Ltd. Back

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