This is not being heralded as good news by everyone (although The Express has followed its time honoured tradition of solely reporting on speculation about house prices with a very positive story)

But why would it be a bad thing for house prices to go up? We don’t worry so much when share prices go up, why are house prices any different?

Three of the most important reasons for concern about booming house prices are;

• It could be a bubble followed by a housing crash leaving people in ‘negative equity’

• Rising house prices can make it harder for first time buyers to afford to buy (especially if they do not have help from the bank of mum and dad)

• Less commented on, but still important, richer people might benefit disproportionately from rising house prices since they own more property wealth than the rest of us

So, as Lenin famously once said, what is to be done?

There is a healthy debate in think-tank land about so-called ‘de-coupling’, the idea that as the economy grows middle and low income people do not benefit because their wages do not keep up. This has lead to proposals such as living wage zones and representation of low paid workers on remuneration committees.

Perhaps we need a similar debate around how we can ensure that everyone benefits from rising house prices.

This could involve ways of re-distributing housing wealth including;

- A land value tax

- A ‘mansion tax’

- Or even more technical reforms of how we tax land and property which can be found in the Mirrelees Review

The money that these measures raise could then in turn be used to benefit those who do not have the good fortune of owning expensive properties that have gone up in value.

This could happen, for example, through;

- Funding a programme of housing associations or council built starter homes

- Funding part of the state pension as it becomes increasingly contributory

- Paying for part of a new universal adult social care system

Of course, as with so many questions of public policy, there is a possibility that any attempt to both take the heat out of the housing market and distribute gains more fairly, could be self defeating if they dampen the market too much.

However, this does not take away from the principle, that, currently, wealthy people disproportionately benefit from rising house prices and that we need to think about how we create a system in which more and more people, especially those on low and middle incomes, can benefit.

]]> http://housingdreams.wordpress.com/2013/05/10/whats-wrong-with-rising-house-prices/feed/ 1 thomasneumark http://housingdreams.wordpress.com/2013/05/02/housing-wealth/ http://housingdreams.wordpress.com/2013/05/02/housing-wealth/#comments Thu, 02 May 2013 11:39:40 +0000 Thomas Neumark http://housingdreams.wordpress.com/?p=519 Continue reading →]]> There has been lots of discussion recently about how much more the ’1%’ earn than everyone else. There has been less attention paid to how much more they own.

In fact, wealth (what people own) is more unequally distributed than income.

This chart gives you an idea of just how unequally distributed wealth is in the UK.

Wealth includes things like pensions and stocks. If we just concentrate on housing wealth (Total housing wealth in the UK stands at something like £3,375 billion) we see a similar picture. Here is how housing wealth is distributed.

House prices have increased significantly, even adjusting for inflation, since the 1970s as this chart shows.

However, this has not uniformly benefited all homeowners.

But has hugely benefitted those who own expensive houses.

Many of whom are not born in the UK.

Much has been written about how much the abuse and neglect that took place in Mid Staffordshire NHS Trust between 2005 and 2008 tells us about how the NHS should be reformed. Much less has been written about what the measles outbreaks tell us about reforming public services (since so much attention has been on the role the media played in causing the outbreaks).

Radio 4′s Today programme featured interviews with mothers in Manchester on why they had or had not got their children vaccinated against measles.

What can an organisation like the NHS do in the face of these community pressures?

Clearly, simply doing traditional public information campaigns using leaflets and posters is insufficient. In addition, the NHS needs to be have a better understanding of how information flows through communities and a better ability to tap into these networks (more on this general argument here).

This leads to 1 of Tony Blair’s 7 questions that the Labour party needs to answer.

How do we take the health and education reforms of the last Labour government to a new level, given the huge improvement in results they brought about?

My answer would be that in general schools and hospitals should be reformed so that they have a better, more dynamic relationship with the communities in which they operate.

Education doesn’t only happen at school

Much of the energy around educational reforms is based on improving the performance of schools. This is an understandable but limited approach.

As we all know, a lot of education happens outside of schools. We learn from our friends and families and we do homework at home or in the library. There is an extensive amount of academic research which shows that the degree of ‘parental involvement‘ is one of the key factors determining a child’s level of educational achievement.

However, many schools and teachers have quite limited interaction with parents. There are parents evenings most terms and parents of poorly performing children are often brought into school for special meetings. In addition, there are often parents represented on governing boards and in PTAs.

This could be dramatically expanded. In America the Learning Dreams approach involves supporting the parents of children who are struggling at school, so that these parents develop a more positive attitude towards education. Closer to home, the Ocean Maths approach does a similar thing.

Health doesn’t only happen in hospitals

Talk to any doctor or nurse and they will tell you about their annoyance with patients. They don’t take their medicine, they miss appointments and they don’t do their exercises.

Behind these frustrations is the simple fact that patients have to put work in to get healthy.

Approaches like the Expert Patient Programme give patients the skills they need to manage their conditions. This is especially important given the rising cost of outpatient admissions for the NHS.

The NHS could learn a lot from the “People Powered Health” movement on how you can work with patients to empower them to better deal with their illnesses and become more healthy.

For a practical example of how this works you can look at the “Connecting People” study. Here is the diagram that shows their approach.

What you can see is that the worker sees that their role is not just to use their skills to assist the individual being helped but also to support that person to develop their skills, connections and confidence.

Public services in the community

Many people involved with reforming public services rightly concentrate on improving the quality of these services. They are right to do so. But if we are to take the reforms of the last Labour government to the next level we need to do some from an understanding that education doesn’t just happen in schools and healing does not just happen in hospitals. Once we recognise that we can begin to think about how schools and hospitals can work with the communities in which they operate to make them better educated and healthier.

The famous right to buy policy is still seen by many people as her greatest achievement. I doubt even their biggest supporters would list the housing policies of Major or Blair as among their greatest achievements.

As I argued last week the Labour party has yet to fully detail a decent, popular housing policy. This post will attempt an initial outline of what such a policy might look like.

***

Public Opinion

To design a decent, popular housing policy we need to understand the public’s views on housing.

The most obvious thing to say here is that the public, broadly, want to own a home.

64% of people who rent privately want to own a home and 70% of people living with friends or relatives want to own a home. Fully a quarter of people who live in social housing also want to own a home.

Why do the public think it’s hard to buy a home?

As you can see from this chart, many people say that houses are too expensive for them to buy, that it’s hard for them to get a mortgage or that mortgage repayments are too high.

Finally, what do the public think could or should be done to make it easier to buy a home?

Lots of people are hoping for a windfall to help them buy a home. Short of that, or a pay rise, ideas around reducing house prices or making mortgages cheaper or more accessible are clearly popular.

***

State of the industry

As well as understanding public opinion, to design a popular housing policy we need to understand the current state of the housing industry.

Since the credit crunch there has been a dramatic reduction in the number of households getting mortgages. This number seems to have stablised but shows no sign of returning to the numbers we say before the recession.

Similarly, the percentage of households that own their home has been steadily declining since before the recession.

So, fewer and fewer people own their home, fewer people are able to get mortgages and yet people would very much like to own their home.

While that is the overall picture, the facts of the matter look very different depending on where you live. The map above shows the ratio between low wages and cheaper homes in different areas of England. You can see that there are many areas (such as the North East) where cheap homes are not expensive when compared to low wages, while there are other areas (obviously West London but also the South coast) where cheap homes are essentially out of the reach of people on low incomes.

***

Principles of a popular left wing housing policy

Before we take the plunge and outline some specific ideas for a popular decent housing policy for the Labour party it is worth pausing and asking, what makes up popular decent Labour policies in general?

I would point to three characteristics (there is not much method here other than this excellent blog by Nick Pierce)

1. They build institutions

You only have to think about how much popular the NHS is than tax credits to understand that people can have much stronger positive feelings towards institutions than other types of public policy.

2. They pool or share risk

The NHS, unemployment benefit (actually a Liberal policy, but there you go) or, to a lesser extent, schools and even the BBC, are delivered by at such incredibly low costs because everyone pays in. This means we can all benefit from sharing the risk in a way that schemes that were offered to much fewer people could not provide.

3. They build a better economy

The modernisation of British industry after the Second World War, through nationalisation, or the introduction of the minimum wage, are both examples of popular Labour policies (at the time!) that not only improved the economy in a dry GDP type of sense but also built an economy that people felt more comfortable with

***

Towards a popular left wing housing policy

All that is left for us to do then is to mix together what we have learned about public opinion, the state of the housing industry and the characteristics of popular Labour policies and we can come up with some decent popular policies. Easy, right? Perhaps not. 

Here are some initial thoughts though

- The People’s House

Labour could pledge to begin the construction of a selection of basic homes to buy at low cost. This could be done in a number of ways including allowing councils to set up their own house building companies, having a state owned house builder (as they do in, for example Korea) or, more simply, by giving more support to housing associations to develop homes for sale.

- A People’s Mortgage

Similarly, Labour could pledge to introduce a basic, low cost mortgage for people on low or middle incomes seeking to buy their first homes. This could be done in a number of ways including through the Post Office, credit unions or even the state owned banks.

- Local Homes

Labour should seek to ensure that these housing policies are delivered in a way that is sensitive to the specifics of each area. This could mean using processes like participative design where people get a say on what their future home will look like as well as giving a prominent role to local authorities and other agencies that operate closer to the ground.

- Reforming housing benefit

Housing benefit and local housing allowance currently cover renting. There are other types of government support for people having trouble paying their mortgage and other schemes to help people buy a new home (such as shared ownership homes).

An interesting policy area for Labour might be to look at reforming benefits that are currently given to people to help them pay for their rent so that these benefits could actually go towards buying a home. Countries such as South Africa have given people on low incomes one off grants to help them buy homes. At present, with our high house prices, this seems unthinkable, but perhaps could become a possibility if government was building low cost houses.

***

These are some initial thoughts. I would be interested in comments on any aspect of this.

For those of who are interested in this kind of thing you might read IPPR’s recent(ish) housing report, the Labour Party’s policy document on renting or the Resolution Foundation’s work on housing

Three of the most pressing and controversial areas of government policy in the UK at present are; childcare, housing and adult social care (see for example Nick Pearce’s blog on the subject).

It was no surprise when in his recent budget, George Osborne included announcements of extra money in these three areas.

Briefly, he announced tax cuts to help families with childcare costs, government guarantees for people trying to get a mortgage and a cap on the maximum people can spend on care in later life (the cap will be £72,000).

The left in British politics has been developing strong counter arguments on these topics in recent years. However, I do not believe that the left has yet developed a strong idea that the public will back on how to reform the housing system on the UK.

The left has stronger arguments on adult social care and child care.

On adult social care, the government is doing far less than the Dilnot commission recommended (they recommended a cap of more like £35,000). More impressively, Andy Burnham has been floating the idea of a national care service that would be free at the point of use.

On childcare the government’s announcements seems to disproportionately benefit richer households. In contrast, the Resolution Foundation and others have been making the argument for more universal, high quality childcare services.

In both cases, the left has developed a case that a sizeable percentage of the public would support.

Despite a lot of work I do not think that the same could be said for housing.

For example, Jack Dromey’s response to the new housing policies announced in the budget rightly pointed out the government’s failure to stimulate the construction industry. However, it was weaker on what Labour’s alternative approach would look like.

For many on the left the default housing policy is to build more council houses. One of the major problems with this policy is that it is not popular with the public.

In general the public do not support the idea of building new homes of any type.

By a massive majority the public far prefer the idea of owning than renting.

And, when asked to say which housing policies they most support they chose giving assistance to first time buyers and increasing access to mortgages more than they chose building more council housing.

The challenge for the left then is, can they develop housing policies that both address the major problems of housing need facing the country and are popular with the public.

Any thoughts from readers would be most appreciated.

This comes at the same time as a highly commented on article in the American magazine The Atlantic on rent controls. The argument is a familiar one but is worth re-stating;

at best, rent control does little harm but probably not much good and, at worst, it has negative impacts on landlords and tenants.

 

I have already written here about the fact that too much discussion of rent controls does not consider the importance of public housing. In short, having rent controls and little to no public housing is very different to having rent controls and well funded public housing.

But it’s also worth noting that there are different varieties of rent controls. New York city, for example, is famous for having some apartments that are “rent controlled” and others that are not. What effect does this have?

This study found that tenants in rent controlled properties were not anymore likely to be on low incomes than tenants in other properties. The authors also looked at how much money different types of people saved by getting rent controlled properties. They found that middle class households  saved a lot more on rent by securing rent controlled units (when compared to other middle class households) than lower income households did.

This is an important aspect of partial or voluntary legislation. When there are no rules controlling access and when take up is voluntary or partial middle class households often disproportionally benefit.

Take the example of conservation areas. The idea behind conservation areas is that certain areas have distinct or special architecture and therefore additional restrictions apply when developing new houses or altering existing one.

An area is designated as a conservation area through a complex set of negotiations. Often middle class home owners are better at pressing for this designation. They are then rewarded by increased property prices. In fact, a recent report by English Heritage found that houses in conservation areas sell for 37% more than other houses.

Similarly, while it is still early days for ‘neighbourhood planning‘ based on my own experiences in Camden, I would hazard a guess that more middle class areas are further along with developing neighbourhood plans. I would also guess that in mixed income areas middle class views on what should be included in the plans is taking precedent over the views of working class residents.

What does this mean for rents in London?

I think it means that there is a risk that middle class households will disproportionally benefit from reforms which lead to some properties being rented out at controlled prices while others are not, if there is no control over who gets these tenancies.

Grant for building new council housing is very limited. The ability of Councils to borrow money to build new housing is very limited. Large numbers of people are out of work, benefits are being cut and wages are stagnant so more and more people are finding it difficult to make rent or mortgage payments. The government seem complacent in the face of these challenges.

So what is a local authority to do? Well, there is only so much that they can do in the current circumstances. However, within the limits of our times, here are some ideas for what an ambitious local authority might do;

1. Stop all evictions for rent arrears from council housing

I have seen households evicted for rent arrears of less than a thousand pounds. Evicting people for rent arrears does not help anyone. It makes a household homeless, it means lots of money spend on legal fees and it gives up any chance of recovering the lost rent. Far better to have better benefit and debt advice services and, if necessary, to go to bailiffs to take and sell tenants’ possessions.

2. Use the pension fund to develop private rented housing for those on middle incomes

Local Authorities have been used to helping housing associations to build houses for people on very low incomes. Households on middle incomes were left to rent privately or to buy their own homes.

Increasingly, households on middle incomes are renting since the amount needed for a deposit is so high. Rather than propping up the already very high house prices by offering discounted mortgages and the like, local authorities could start building homes for these households to rent.

This would probably have to be done by a new company set up by the council. Part of the money needed to acquire land and so on could come from the council’s own pension funds (which already invest a lot in property).

3. Establish your own letting’s agency

Lots of landlords only own one or two properties. This means they often do not know the first thing about being a landlord. Instead, they trust a lettings agency. Some agents are good and others aren’t but the industry is not well regulated. This can mean shorter term tenancies are promoted and fees constantly increase.

Local authorities could establish their own letting agents to provide more impartial advice to tenants and landlords. This could go along with other initiatives such as requiring landlords to be licensed, as is happening in Newham.

4. Promote room sharing schemes

We hear a lot about how many spare rooms there are in council housing. Indeed, the government is introducing a new scheme (‘the bedroom tax’) which takes money off people’s housing benefit if they have spare rooms and live in council housing.

We hear less about how many spare rooms there are in properties which households own themselves.

A number of properties with empty rooms are owned by people with some kind of limiting long term health condition. These people will often get support from the local authority. There are already some schemes like Homeshare where;

someone who needs a small amount of help to live independently in their own home is matched with someone who has a housing need and can provide support or companionship

 

These schemes could be made central to the way a local authority supports someone with long term health conditions.

This is the question that Ben Goldacre asks in his recent documentary (which you can listen to here for a while). In fact, he doesn’t so much ask the question as attempt to convince us that the people who design government programmes should use randomized control trials to test the effectiveness of their ideas before they roll out new programmes.

For a limit range of things this seems a perfectly sensible way to go. He features an interview with a senior civil servant who explains that by using a different approach they were able to collect more fines for a magistrate’s court than traditional approaches.

An effective administrator would surely be interested in trialling new methods and reassessing current ways of doing things and randomized control trials are one good way of doing this.

If I was to be critical of the documentary I would make the following points;

1. Little understanding of conflicts in values

In lots of the most important areas of public policy there is not an agreement about goals. This means trials cannot be used to settle debates.

Goldacre discusses sentencing criminals and this is a classic example. Should the court punish the criminal or rehabilitate them? You could set up a trial to find what is the most effective of a number of options for punishing a criminal but you could not set up a trial to find out whether the criminal justice system should punish or rehabilitate.

2. There’s more to life than public services

What makes us healthy, educated and safe? And what makes us sick, ill-educated and victims of crime? It is mostly not public services. While trials are useful for assessing the effectiveness of specific programmes delivered by public services I am not sure they are so useful when thinking about how to change the broader context which public services operate in.

Take the example of education, which is touched on in the documentary. Goldacre talks to the boss of the Educational Endowment Foundation about a new programme to reduce the number of people who cannot read at a certain standard by a certain age. This seems a perfectly sensible time to trial a number of methods for teaching reading.

However, take another challenge. Students from families on low incomes do worse at school than families from high incomes. This is true in ‘good schools’ and in ‘poor schools’. Is this the type of problem that randomized control trials will help us solve?

I am not so sure. At least, I do not think it is the kind of problem that conducting trials in schools will solve. I am open to suggestions here but I am unconvinced.

3. Focuses on results and not institutions

There is certainly something attractive about the idea of proving that a certain policy has a certain effect. But there remains a question of who does the testing, and what happens after the results are in.

We can imagine one direction of travel where a brains trust like the Behavioural Insights Team in the Cabinet Office (featured in the documentary), test out lots of ways of teaching kids how to read. They then find the best way to teach kids to read and tell all teachers in all schools to use this method from now on.

We can imagine another direction of travel in which schools and local authorities become the kind of institutions that are constantly trialling different ways of teaching and then evaluating the results of these trials in partnership with parents.

I am not saying that one outcome or the other is more likely or is being advocated by Goldacre. I am saying that it is important to focus on what type of institutions we build and maintain as what type of programmes are run by these institutions.

***

Although this piece is a critical take on Goldacre’s show I would not want the reader to think that I thought it was a bad or malign documentary. The idea of using more randomized control trials to establish the relative effectiveness of public programmes makes a lot of sense and is happening more and more.

However, I am afraid that using more randomized control trials will not solve all our problems, partly because we don’t even agree on what our problems are.

Some facts for you;

• UBS, the ‘financial services’ company, have been fined $1.5 bn for rigging markets.
• HSBC have been fined $1.9 bn for laundering money from drug cartels.
• The new Governor of the Bank of England will be paid an additional £250,000 per year to cover his housing costs.
• Over the next 20 years there will be 232,000 new households formed each year in the UK
• In the middle of 2012 mortgage lenders lend half as much money in mortgages as they did in the same time in 2007
• Private house builders built under 100,000 new houses in 2011
• UK companies currently have cash reserves of over £700 billion

What does this all add up to?

Evidently there are deep problems in the UK banking industry and the UK house building industry.

Mortgage lenders are less keen to lend. Here is a graph of the amount of money lent for mortgages in the UK over the past 5 years;

Not only has there been a dramatic decline in the amount that is being lent for mortgages, there appears to be some stablization. We seem to be in a new equilibrium, a new normal. There is just a lot less money being lent out to people to buy houses.

This is having the expect impact on house building. Here is a chart of the number of houses that were build by private house builders (i.e. by private businesses not by housing associations or councils);

Again, we see a dramatic reduction in the numbers, and an apparent stablization of the numbers. This appears to be the new normal. Less money being lent out, fewer homes being built. Here is a chart showing the two trends together;

There is little prospect of any of this improving. As Robert Peston, the BBC’s Business Editor, recently wrote;

“Banks are trying to shrink the loans and investments on their balance sheets, relative to the capital they hold as protection against losses.”

A similar movement is taking place in the house building industry. Taylor Wimpey, one of the largest house builders in the UK, said in their annual report;

“we continue to prioritise margin performance ahead of volume growth”

This is understandable. As a trade publication put it,

It has been a long road back, but the UK house-building sector is finally starting to make money again. The top 20 house builders have returned a healthy aggregate profit in 2012 of £538.7m – four years ago, they lost almost £4bn. In 2008, as the housing bubble burst spectacularly, the house-building sector imploded with such force that the survival of many of its biggest names seemed unlikely.

This chart shows this return from the brink (data from here). It shows the combined profits of the 5 largest house builders in the UK and quite how badly they were doing a few years ago.

The sector is now making profits, although modest ones. However, they are doing so through a model that focuses on getting large profit margins through building (relatively) small numbers of houses.

For the country, this is a terrible equilibrium to have hit upon. We are not building enough houses to keep up with the number of new households being formed. We are not building anywhere near enough houses. The longer we build too few houses the harder it will be to build enough houses for these households.

The irony is that if policy makers could come up with a clever investment vehicle to fund the building of these new homes it would be exactly the kind of thing that non-financial corporations would be interest in investing in, and this in turn would be exactly the kind of thing that would stimulate growth in the economy.