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UK Housing Policy: Sold Down the River

Peter Ambrose's "Sold down the River" Programe Two: Failures of Housing Policy

Notes 00.30 Profiting from land - housebuilders and speculative investors of various kinds buy up potential building land well in advance of its zoning for housing development. They normally use the ‘residual’ method of arriving at a bid for the land. This means they start with the expected sales revenue from the completed houses, deduct the expected building costs and the profit margin they wish to take and thus arrive at a figure to bid for the land. So the higher house prices are expected to go, the higher the bid for the land will be. High house prices, and the expectation of continuing high prices, normally bid up land values. High land values are the consequence of high house prices – not the cause. In some states of the market housebuilders can make more money from land dealing, and holding land off the market for speculative purposes, than they can from actual construction. This can work to inhibit technological innovation in the construction industry and sometimes provides a reverse incentive to produce. 01.20 Nye Bevan was the charismatic leader of the left in Attlee’s post-1945 Labour Government. As well as being the main architect of the National Health Service he also had responsibility for housing. He worked so vigorously at the task that in 1948, in difficult post-war circumstances, nearly 230,000 homes were completed – a high proportion of these Local Authority housing of good quality. One of his more memorable quotes was that ‘…the housebuilder is not, by nature, a plannable instrument.’ In 1951 Harold Macmillan became Minister of Housing in Churchill’s government. He aimed for, and achieved, a target of 300,000 houses a year. A high proportion of these were for sale and this helped to create the ‘property-owning democracy’ close to the heart of Conservative thinking. Unlike most recent holders of the housing portfolio, including the present disaster, both Bevan and Macmillan were considerable politicians and had clear, if contrasting, views of the importance of sufficient decent standard housing to the economy. 02.10 ‘Holistic’ means that the relationship between housing conditions and other aspects of life are fully understood. It means an acceptance that the consequences of poor housing quality and supply for other spending heads such as health, education, policing and the emergency services need to be carefully identified and assessed. It requires that the cost of not providing enough decent, appropriate and affordable housing in the right places be researched and counted. ‘Strategic’ means that issues of strategy – such as how best to apply subsidy (to the demand or supply side), how best to match the profile of housing costs to the profile of incomes and how to assess the redistributional effects of alternative subsidy arrangements – are explicitly addressed. They are clearly not being considered at the moment. For example, in relation to the redistributional effects, it could well be that the regressive effect of housing subsidy (i.e. feeding more subsidy to the better off and less to the worse off) could be more than cancelling out all the so-called progressive effects of, for example, state benefits and progressive income tax patterns. We just don’t know. A full analysis of what has gone wrong is offered in the Zacchaeus 2000 Trust Memorandum to the Prime Minister on Unaffordable Housing edited in 2005 by Peter Ambrose 02.50 Many recent policies – ‘housing plus’, ‘choice based lettings’, key worker schemes’, etc. have been purely tactical and reactive, often poorly financed and very often simply ways of re-arranging the queue for decent affordable housing. This tends to divert attention from the fundamental question - ‘why, in a rich country, should there be a queue anyway?’ 03.45 What might a set of aims look like? They might look as follows: 1. Work to bring the profile of housing costs more into line with the profile of earnings – and take steps to maintain this relationship of balance between the two. 2. Work to apply scarce resources in the shape of housing subsidy in such a way that output is maximised rather than prices and rents stimulated. 3. Apply housing support in such a way that the effect is distributionally neutral – or even progressive if that in the intention. 4. Reform land supply arrangements so that there is no incentive to owners to hold land off the market and delay development. 5. Carry out research to evaluate the widespread costs of under-investment in housing. These are not offered as definitive or in any prescriptive way. There would be many views about the strategic aims that should be adopted depending on totally defensible variation in political position. The key point is to have the debate – and in as non-party-political a way as possible. The issue should transcend party politics. It has been evident from recent events and alliances that almost all interests will benefit from the better functioning of the housing system – old and young, employers and employees, better off and worse off, taxpayers and benefit recipients – and that there are social, economic, political and health benefits to be derived. 04.30 Northern Rock – one of a number of large-scale lenders or guarantors who became committed in the US ‘sub-prime’ lending market where borrowers were encouraged to take out loans far in excess of their capacity to repay should economic or household circumstances change – as they frequently do. The necessary provision for bad debts has brought this particular lender to insolvency and very much affected the trading, asset position and share price of many other large banks and building societies. The fall out may very well affect large numbers of small savers. Clearly this is an unintended consequence of policy – or rather non-policy. It is a clear example of market failure when too many important processes are left too much to ‘market forces’. 05.20 It is the function of central banks, and organisations such as the Financial Services Authority, to regulate and monitor the behaviour of companies operating in the financial sector of the economy. The Bank of England and the FSA are part of the state apparatus that should ensure that the search for short term profits does not lead to lending behaviour that might carry long term adverse consequences for the economy and society as a whole or for vulnerable individuals and households. In a series of Acts in the 1980s the Thatcher administrations, with heavy reliance on ‘new right’ ideologies, progressively removed many aspects of regulation covering financial institutions. In the resultant competitive ‘free market’ environment banks and building societies competed by over-lending massively. Methods included: 1. Increasing the amount lent in relation to household income 2. Increasingly taking the earnings of the second earner into account 3. Lengthening repayment terms so sometimes they last into retirement 4. Developing a range of ‘low start’ products to minimise the repayment impact in the early years of a loan and even in some cases encouraging the fraudulent over-statement of income so that a bigger loan can be offered. As Programme Three will show, this massive explosion of lending has led over three decades or so to a massive inflation of house prices – and indirectly rents. This has been entirely in the interests of the land, housebuilding and real estate industries with which the lending industry is closely allied by directorship overlaps. The inevitable sharp correction to this trend in the shape of falling prices, near-panic and market stagnation is in nobody’s interest – except those who take the chance to pick up repossessed properties at bargain prices. 5.50 Early in 2006 the Zacchaeus 2000 Trust approached the Chair and Members of the Government’s Enquiry into Unaffordable Housing . We argued to her that there was no clear definition of the word ‘affordable’ other than ‘sub-market’ and that this must provide a shaky foundation for their work. We offered the definition in the Z2K 2005 Memorandum – that housing is ‘affordable’ for a household only if it can be paid for after all other essential items of household spending such as food, heating, childcare, transport, recreation, social life, etc, have been covered. The Chair dismissed this argument on two grounds: 1. The difference between the two definitions is merely semantic and 2. If we pressed this definition it would undermine the work of her enquiry. Professor Peter Ambrose BA, AKC, MA, D.Phil, FRSA Visiting Professor in Housing Studies Health and Social Policy Research Centre Brighton University Friend of London Citizens Associate of the Zacchaeus 2000 Trust Links: Profile of Peter Ambrose Urban Process and Power Article on Affordable Housing Housing Affordability Standard - April 2008 (2,454 KB) Professor Ambrose works with the Zacchaeus 2000 Trust and their principles are as follows: We will combat poverty, and related ill health and educational underachievement; We will promote the improvement of living and working conditions on the basis of economic and social justice in pursuit of a society that is fully inclusive of people of every race, colour and creed through the provision of evidence based policy alternatives to government. We will pursue policies that are rooted in the experiences of the disadvantaged and excluded people of the United Kingdom, and the work of NGOs among them. They will be designed to reform the structures that create those conditions. We oppose discrimination and inequality, both between men and women and between generations. Aware of the pressures placed on the national economy and society by the globalised free market we will promote an economy in the United Kingdom aiming to generate the conditions of full employment in which all can share the financial burdens and opportunities of a democratic nation. We will operate without allegiance to any political party while promoting, vigorously, policies that are consistent with this statement of principles to all political parties and to the government of the day. 38 Ebury Street, London SW1W 0LU Telephone: 020 7259 0801 - Fax 020 7259 0701 - Mobile: 0796 11 77 88 9 e-mail: admin@z2k.org Andrey Vinogradov supplied the music for this programme for which we are all very grateful. Born in 1959 in Ekaterinburg (Northern Ural), Andrey Vinogradov has studied and been exposed to a variety of musical genres, everything from classical jazz to jazz-rock. He has now settled down in folky niche, where he creates his classic but unique blend of sounds. He graduated with highest honors from the Moscow Gnessin Music College and completed his education at Gnessin Academy of Music. Later, as part of well-known Russian jazz-rock group, he recorded two LPs: The Arsenal, directed by revered saxophonist Alexei Kozlov, The second, Wind and Pulse 3, which were later released on the CDs Time-scorched III and Time-scorched IV (1997-1998). Ever since his youth, Andrey's goal has been to create innovative unions between the most diverse of musical genres by combining elements of classical, jazz and folk music. Fair Use Notice This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. 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