There’s room for everyone but will everyone benefit?

There are more and more people living in inner London. Some residents are benefiting more than others from this trend. The principle question this raises for public policy is how to ensure that any new wealth that is created is shared more equally.

You might be surprised to hear that the population of inner London is increasing. Surely the poor and those on middle incomes are being priced out by foreign billionaires! Some articles on this topic remind me of the old joke about New York, no one drives, there are too many cars.

Robbie de Santos‘s piece for Changing London is too nuanced to fall into this trap. In it he argues that, in rapidly gentrifying areas, more should be done to provide housing that households on £30-45,000 per year can afford.

Dave Hill at the Guardian has already pointed out that it might be controversial to argue for increasing spending on shared ownership housing when the amount being spent on social housing has been cut so dramatically.

In addition to this we need to remember that the population of inner London is increasing. As a result there are now actually more people on middle incomes living in inner London than previously.

This chart (all data from the 2001 and 2011 census) shows the significant increase in the number of people in ‘intermediate occupations’ living in a few inner London boroughs.

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Here is a similar chart for people in ‘higher managerial’ jobs;

chart6Here is a similar chart for people in ‘routine’ jobs

chart8

 

This is what the overall picture looks like.

chart9

 

Although some people on middle incomes may be being priced out of inner London, overall the number of people on middle incomes living in inner London is increasing, as is the number of people on high incomes, and on low incomes.

How is the increased population of inner London being housed? Robbie will be glad to see that there has been an increase in the numbers living in shared ownership, although this still accounts for a very small number of people.

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There has certainly not been a general increase in the number of people who own their own home (although those that do have, on paper, in general made a lot of money).

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And there has been a noticeable and much commented upon decrease in the number of people who rent from housing associations or local authorities.

chart3 (1)

 

Most importantly, there has been a dramatic increase in the number of people who rent privately (lots of these will be houses that have been split into flats).

chart4 (1)

 

This chart puts the rise in private renting into perspective.

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The story then is not so much that people on middle incomes are being prices out of the inner London boroughs (although some may be and more may be being priced out of certain neighbourhoods within these boroughs).

In fact, there are more people on middle incomes living in the inner London boroughs but they are more likely to being renting privately than people on similar incomes would have been a decade ago. This means that rising house prices do not benefit them and in fact probably harm them, since their rents go up.

Robbie’s argument is not only that people on middle incomes are increasingly being priced out, but also that this has a negative impact on community life and the diversity of businesses in an area. This is an interesting argument. I am not sure that the splits between tenures by itself, can guarantee much about community life, which is as much a result of interaction and institutions as it is a result of population composition.

However, if we look that the situation in terms of how the new wealth that has been created by the increased population can be shared more fairly perhaps we get different answers (some earlier thoughts from me on a related topic can be found here). For example, we might start thinking about how newly built houses can be part of community land trusts, so that increased housing wealth is invested in the community and does not just go into the hands of the owners. Similarly, there may be a case for more flexible local property taxes and co-operative ownership of local businesses.

Who knows how long the current increase in population in inner London will last. As long as it does the key questions are how we can build enough houses so that rents do not force people into poverty and overcrowding and how we can spread the newly created wealth so that everyone, not just home owners, benefit.

 

Crowded house

In the rush to condemn the so-called ‘Bedroom tax’ some commentators have been tempted to down play the problem of overcrowded housing in England.

Using the so-called ‘bedroom standard’ (more details on that measure here) there were, at the time of the last census, over a million households living in overcrowded accommodation.

This is a serious policy problem. Living in overcrowded accommodation is bad for your health and your wellbeing.

There are at least three things worth bearing in mind about overcrowding in England.

1. Overcrowding is a massive problem in London

This map (made from the census data here) shows overcrowding in different neighbourhoods of London. The darker the colour the more overcrowding there is.

London

In some areas of Newham nearly a third of households are overcrowded and the problem is not restricted to East London.

2. Overcrowding is a problem in many other cities of the UK

While people often claim that there is only a housing problem in London and the South East, this is not the case with overcrowding. This map shows overcrowding in England.

England

You can just about see that there are darker coloured sections in most towns.

For example, here is a map of overcrowding in areas of Birmingham.

Birmingham

And Sheffield

Sheffield

And even Stoke-on-Trent (which has quite affordable housing by English standards).

Stoke

As you can see from these maps, while cities outside of London do not have as systemic a problem with overcrowding as the capital, it is still a problem for a sizeable number of people in different neighbourhoods of our major cities.

Over 20% of households in Washwood Heath in Birmingham are overcrowded and 13% in Hanley Park in Stoke and Burngreave in Sheffield.

3. In most overcrowded areas there are a number of under used houses, although these are mostly privately owned

A large part of the solution to this problem, as to quite a few housing problems, would be to build more houses.

Having said that, there are a large number of under used houses, even in areas with a large number of overcrowded households.

chart1 (9)

In Green Street East in Newham over 10% of houses have 2 or more spare bedrooms, while 35% are overcrowded.

In Washwood Heath in Birmingham 23% of households are overcrowded while 17% have 2 or more spare bedrooms.

In Hanley Park in Stoke and Burngreave in Sheffield there are more houses with spare bedrooms than there are overcrowded houses.

The problem for those who have proposed the so-called ‘bedroom tax’ as a solution to overcrowding is that most of the houses with spare bedrooms in are not social housing they are privately owned, as this chart from Savills makes clear.

underooccupancyIf we want to solve the problem of overcrowding without building new homes in inner cities but instead by making sure all the bedrooms in larger houses are used, we would need to think about how we can encourage home owners to use their spare bedrooms.

Towards a popular left wing housing policy

The death of Margret Thatcher reminds us that she was the last Prime Minister to have a popular housing policy.

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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.

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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.

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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?

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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?

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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

Housing ideas for Local Authorities in tough times

Local Authorities wishing to tackle major problems relating to housing find themselves in a tough situation.

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.

Randomly criticizing randomly controlled trials

Are people who design government programmes like doctors who prescribe drugs to patients?

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.

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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.

Mortgage advice

Mortgage lenders and house builders are more concerned with rebuilding their balance sheets than in building the number of new homes the UK needs.

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;

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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);

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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;

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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.

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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.