I don’t claim any great originality in what I covered. But I thought it might be useful to set the points out here.
The next stage is to draw up some thoughts on what we might do to address these challenges.
Since the financial crisis very little action has, in reality, been taken to dampen the amplitude of the housing market cycle. There has been some limited increase in regulatory oversight of the mortgage market, but any moves towards measures that would come to grips with volatility – such as regulation of loan-to-income or loan-to-value ratios, or property or land value taxes – have been successfully rebuffed.
In the aftermath of the crash there was a window of opportunity to make significant change. But as the dangers recede and the fear subsides that window closes. Securing significant change becomes increasingly unlikely.
Without structural reform we are destined to repeat the boom and bust cycle. All we need to do is give it time to reassert itself.
Shortfalls in new construction have been identified as a failing of the UK housing market for more than a decade. At the moment the picture is particularly bleak. The system is misfiring more badly than usual.
There are three challenges here:
- When is the Government going to conclude that its flagship policy – the New Homes Bonus – is an utterly inadequate substitute for the top-down planning system it abolished, and, if it isn’t going to go back to planning, what else is it going to do to stimulate supply?
- The move to localism would appear to be leading to an outbreak of NIMBYism, so even if action is taken to boost supply, where is it going to be located? Policy has been toying with reinvigorating the New Towns idea. If the localism approach leads to the silting up of development in existing settlements then a move to start afresh in virgin territory may well be the line of least resistance. But that raises much bigger issues of spatial planning than simply where to put new homes.
- Expanding total new construction is desirable, but we’re heading for a particular problem with social housing. It seems that some local authorities are already reluctant to give planning permission for social housing. Equally importantly, as the Government reduces levels of grant funding achieving affordability gets increasingly difficult. The supply of new genuinely low-cost rental housing could dry up relatively soon. It may be that we need to move away entirely from thinking in terms of conventional social housing. But that is a big issue we haven’t really considered, and it puts all the burden of ensuring affordability on housing allowances. We appear to be moving that way by default.
Access, affordability and intergenerational justice
A gulf has opened up between households in middle age and beyond who are relatively securely housed in owner occupation and younger household who face almost insurmountable barriers to entry in to owner occupation. Private renting is growing rapidly. Unlike in the 1990s this is unlikely to be a temporary aberration. It is a product of lack of access and affordability in the owner occupied sector, which this is reinforced by high rents and stagnating wages reducing the scope to save for a deposit.
There are at least two alternative scenarios for the development of the tenure structure in Britain. One option is that the current scenario becomes normalised. Britain becomes more like other continental countries. Home ownership is a tenure that few enter before middle age. If policy doesn’t seek to shift some of the fundamental parameters then changing the narrative would be wise. It would do something to moderate the level of discontent among those who are “shut out” of the owner occupied market. The other option is that neither the narrative nor the policy parameters change. This results in a debate about intergenerational justice. This is the route we appear to be going down at the moment. This is inevitable when policy more broadly has been framed around the importance of asset ownership and wealth accumulation.
Housing safety nets
State assistance with housing costs to households who get into financial difficulty is increasingly restricted. This isn’t a new phenomenon. The restrictions on assistance to owner occupiers in the mid-1990s was the first hard tug on the threads of the safety net. Research has demonstrated how this resulted in some households falling through the gaps. But with recent restrictions on housing allowances – underpinned by a stridently anti-welfare discourse – the net has started to fray alarmingly.
There needs to be a rethink on how, and in what circumstances, the state should provide assistance to allow households to keep a roof over their heads. We appear to be careering towards a future in which state assistance is pared back to a minimum. The knock-on consequences of this are going to be profound. The failure to recognise the foundational role of housing in life chances will prove costly. A new settlement is required.
Quality and security
The way the housing market is evolving suggests a future of reduced security for many households. More families living in private renting and reduced tenancy security in social housing are key drivers. For those who are able to access home ownership the weakness of the labour market presents a challenge to keeping the roof over their heads. The current recession has not so far seen as large an increase in repossessions as had been expected. But interest rates look like they are starting to creep up which, in the context of stagnant or declining real incomes, will create more distressed sellers.
The broad current in housing policies – especially constraining housing allowances – is progressively reconnecting housing access and consumption with income. Combined with labour market weakness, the inevitable outcome is more poor people living in poor and overcrowded housing conditions.
To avoid this future we need to rediscover the reasons why Government started to intervene in housing markets in the first place.
Spatial segregation, social cohesion and social identification
Partly because of the increasing correlation between income and housing conditions, we are witnessing increased residential mobility among low income households who are no longer able to afford their current accommodation. We are seeing stable communities disrupted and attitudes to assisting people with their housing costs harden.
Over the coming years we can expect increased spatial sorting of households by income, resulting in more homogenous neighbourhoods and more spatial segregation by income. The implications of this for social cohesion and social identification could be profound. There are also likely to be political implications as electoral constituencies change their social composition.
Homes for heroes and a bulwark against Bolshevism
Prediction is, of course, a risky business. Events have a habit of rendering such predictions irrelevant. I don’t anticipate the current Government making any fundamental changes in the direction of housing policy, apart perhaps from finally accepting the case for using housing as the vehicle for infrastructure investment to stimulate an economy that seems stuck in the doldrums.
However, if we look at political events in continental Europe, with political parties on the political left and the far right gathering support then we might speculate on the possibility of a significant rethink as a defensive measure.
What caused Governments in Britain to accept responsibility for active housing policy? In the aftermath of the First World War it was felt necessary to produce housing of adequate quality in recognition for the war-time sacrifices of many working class households. And, looking further afield, political elites observed the Russian Revolution and recognised that moves to embed working class households more fully in the existing social order through giving them a greater stake in society would be prudent.
It may be that a significant political reaction to austerity in continental Europe may force the British Government’s hand. A move to deal more decisively and more effectively with long-standing problems of housing costs, quality and security may once again be seen as a prudent political move. However ideologically unpalatable that might be to the incumbents.
We can but hope.
Images: (1) © Artem Shcherbakov (2) © Peter Fox (3) © forestpath (All via Fotolia.com)