Lyons leaps to height?

collage of photos of the industry of construction and buildingThe final report of the Lyons Housing Review – which may well be the last major party political publication on housing before the election – was published this week. How does it measure up? Has it delivered on the ambition to sort out the chronic problems of the UK’s housing supply system?

We’ve already seen plenty of political and professional reaction. And that reaction has been mixed.

Some see the Review’s 39 recommendations as adding up to a bold intervention to address the deeply-ingrained problems facing Britain’s misfiring housing market. Others have characterised the Review as representing a rather modest set of technocratic suggestions to deal with particular problems in the supply chain. Those looking for a bold new vision for housing are likely to have come away disappointed.

But we need to understand the nature and scope of the Review itself.

Lyons was looking at ways to address the key failings of the housing supply system not deliver a comprehensive housing policy. And he was, presumably, obliged to produce a report that doesn’t trample on the toes of the Labour party’s current overall policy stance. You’d have to say that he’s largely done that. The proposals for dealing with housing supply problems combine the relatively technical, the microlevel, and the more ambitious; they combine the relatively familiar with the slightly more novel. Importantly, the report explicitly addresses not only the need to streamline the planning system but also the operation of the land market and the performance of the housebuilding industry. Overall, there is much here that is sensible. But, at the same time, you get the sense from the tone of the report that the review team is not entirely convinced that the measures proposed will be sufficient to deal with the problem.

There appears to be plenty of cross-party agreement on the elements of a solution – more new towns (but how many and where?), reducing planning complexity on small sites, stimulation of the SME construction sector, boosting skills in the housebuilding industry, more use of off-site manufacturing. Indeed it would be interesting to conduct a compare and contrast on the Lyons recommendations and the affordable housing motion recently passed by the Liberal Democrats. There would be substantial overlap, although the Liberal Democrat version is rather more ambitious in some of its aspirations.

The Liberal Democrats have adopted the position that housing supply of 300,000 dwellings per year is necessary to address Britain’s housing needs, although they have still to flesh out how that would be delivered. Lyons is working towards the aim of delivering 200,000 dwellings per year by 2020. Given that we already have a backlog in housing supply and an estimated need for 240,000(ish) dwellings per year, the Labour/Lyons position inevitably means that the housing crisis is going to get worse. In that sense the overarching objective is rather underwhelming.

It feels like someone outside the party political system needs to set out what sort of radical action would be required to get anywhere near 240,000 dwellings per year on a sustained basis.

Another difference between the two parties is the extent to which the solution to the housing crisis will require top-down co-ordination. The Lyons review is shot through with the presumption that top down co-ordination is the way forward. It strikes a slightly uneasy position in relation to locally-driven planning processes. While it is positive about the scope for neighbourhood planning processes to defuse conflict and build local consensus around the need for new development, it also leaves no doubt that if local decision making doesn’t come up with the right answer – plenty more homes – then central government or its agents should step in and push for more development.

The Lyons report gestures in the direction of the bigger picture with its references to coordinating housing supply with national infrastructure planning, but doesn’t really capture the big questions about the underlying drivers of spatial development as effectively as Kate Barker’s recent book. On the other hand, it addresses issues of space standards and zero-carbon homes head on.

As Jules has pointed out, the review is stronger on the supply of private housing than it is on what to do about social housing supply. It is in the area of social housing supply that the critics have argued the report falls short. Many were hoping for the cap on local authority borrowing to be lifted. But Lyons toes the party line on that point and adopts a position in line with Ed Balls’ recent announcements on the topic. Lyons clearly makes the case that greater investment in bricks and mortar makes all kinds of sense. And he notes that such investment is the only way to bring the housing benefit budget down, produce genuinely affordable housing in high cost parts of the country, and get close to meeting the sort of net new supply targets that are deemed necessary to meet need. But he is constrained to accept that a Labour party hell-bent on demonstrating fiscal rectitude is not going to put lots more money into social housing any time soon. The problem is that local authority borrowing counts towards the public deficit, given the definition of public borrowing used in the UK.

But it is here that Lyons starts to come a bit unstuck. Rather than local authorities borrowing more money, he has his eye on housing association assets and how they can be encouraged to increase their leverage – sorry, I mean Government “should hold discussions with the sector about how to mobilise the surpluses and headroom to unlock further investment which could include consideration of partnerships and mergers”. This all sounds rather reminiscent of the position Boris set out in his housing plan for London at the end of 2013. The problem is these pesky risk-averse housing associations, more interested in cautious stewardship of assets than exotic financial engineering.

This approach, as Nick Duxbury has noted, is somewhat problematic at the level of principle because housing associations are independent organisations. The Government cannot, at the moment, very easily compel housing associations to act in a way that would worsen their financial health and increase risk. Equally importantly, there is a risk that if it tries then it will get caught by the definition of public borrowing from a different direction. Housing association borrowing doesn’t count as public borrowing in quite the same way precisely because housing associations are independent. If they are to be more clearly directed to act by Government then the various statistical authorities may conclude that they aren’t independent after all. So their borrowing goes back on the public accounts. Rather as we’ve just seen happen to Network Rail.

This highlights the real dilemma of housing policy. The parties seem set on trying to solve the housing crisis without conceding that to do so will require more public money to be spent, at least in the short term. So they are expending effort on trying to find new financial mechanisms and vehicles that will allow housing organisations to access private sector resources. Guarantees are used to try to stop the cost differentials associated with this approach getting truly out of hand. The discourse is still one of delivering affordable housing, but the fiscal challenges associated with operating in this environment can mean that the concept of affordability becomes ever more elastic.

If this type of policy is successful in its own terms then it will continue to strengthen the connection between the fate of global capital markets and the providers of affordable housing. One of the causes of the Global Financial Crisis of 2007-8 was that no one was really monitoring systemic risk very effectively. It strikes me that as we head down the route we appear to be following the issue of systemic risk is going to be looming ever larger in the housing association world. And it can only partly be understood through stress testing at the level of individual Boards. The risks of commodifying the funding system for affordable housing may become only too apparent the next time the global economy heads south, as it surely will.


Image: © JPchret – Fotolia.com

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  1. While the report highlighted the high cost of renting, it provided no short/medium term solutions to this issue.

    Similar with the Labour/LibDem/Tory stance the critical issue of housing will not be solved unless they make renting work. Which means stopping evictions, providing stability but it also means reducing its cost.