Memorandum by the Centre for Urban and
Regional Studies (CURS), School of Public Policy, University of
Birmingham (AH 10)
1. INTRODUCTION
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. DETAILED RESPONSE
TO THE
INQUIRY
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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