Housing: What Crisis?

7/24/2019 Housing: What Crisis?

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November 2015

Housing: What Crisis?

Alex Marsh

School for Policy StudiesUniversity of Bristol


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Housing: What Crisis?

Introduction1

We meet at a time of great uncertainty for housing policy. Not only is the Housing and Planning

Bill making its way through the Houses of Parliament at the moment but there are rumours that

the imminent CSR may present us with further challenges. In particular, it has been suggested

that the Chancellor may further cut Housing Benefit as a means of dealing with the political

obstacles he faces in delivering his promised cuts in tax credits. There have also been suggestions

in the housing policy community that the Chancellor may be considering increasing the enforced

reduction in social rents from 1% to 2% per annum. That way lies carnage.

We meet at a time when the Liberal Democrats' new party leader seems to be getting into his

stride. Tim Farron has made housing one of his central priorities. He has spoken eloquently of

the importance of stable and affordable housing as the foundation upon which to build a life.Good quality housing offers the platform for realizing potential. Housing impactspositively or

negatively - upon almost all aspects of our economy and society.

We meet at a time when it appears that sentiment is shifting. We are seeing clear signs not only

that the significance of the housing problem is being more widely accepted, but also acceptance

that action will need to be taken. At least some of those who are themselves wealthy and well

housed are recognising that their children and grandchildren are struggling. There is, I think, a

growing acknowledgement that those situations are related.

There is no single UK housing market. London is different, we know. But it casts a long shadowover the rest of the country. Prices rises there radiate and ripple across the country, affecting us

all directly or indirectly. There is no single housing market but many interrelated local markets.

And there is no single housing problem. We face many interconnected issues. That is why we

need to think systemically about housing. And we need to think beyond symptoms to causes.

Some of those causes are local: things we can do something about at our level. But some of them

are most definitely not local: solutions lie a long way out of our reach. So for us, and for now,

some of what we are about is attempting to ameliorate symptoms, while continuing to press

those who can act on a broader scale and a bigger stage to address the causes.

I want to discuss our current housing problems under six headings.

1. Access and affordability

The issue that dominates housing debate is the inadequate supply of new housing. In the owner

occupied sector high prices relative to income are taken as a key indicator of a housing market

out of equilibrium. Housing supply consistently falls short of the level estimated as necessary to

1This paper is a modified and amplified version of a presentation given to South Gloucestershire Liberal Democratson 20thNovember 2015.


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meet the housing needs of a growing population. This is seen as at the root of our housing

problems. Constrained supply in the face of growing demand can only lead in one direction

increasing competition for scarce resources which pushes up prices. Increasing supply is

identified as the route to dealing with access and affordability problems.

We see, for example, that the recent West of England SHMA is proposing that we should plan

for 85,000 new dwellings in the sub-region between 2016-2036. This includes a chunk of

properties aimed at remedying the shortfall in provision over the last four years.

In policy circles the principal culprit in this story of inadequate supply is the planning system

overly tight constraints on land designated for development, including treating the Green Belt as

sacrosanct, and a planning system that capitulates too easily to the NIMBY tendency.

Planning is surely part of the story. We certainly need to look more critically at the Green Belt.

We must accept that while some of Green Belt land is absolutely worth preserving some of itcould be more productively used for housing. Society overall would benefit as a result. One key

challenge in tackling the Green Belt issue is doing so in a way that instills confidence: confidence

that it is genuinely motivated by seeking societal benefit, rather than rampant profiteering.

But planning is only part of the story. We need to look at the whole of the housing supply

system, as I've said many times on my blog. It is noticeable that the nature and operation of the

house building industry is starting to attract more attention. The profit maximising strategies of

players in an increasingly concentrated industry are being questioned: how much do they

contribute to the shortfall in new supply? Claims that the industry is highly competitive, and

hence this can't be an issue, are, I think, being treated with greater scepticism.

The issue of the quality of newly built properties has received less attention than it merits. Poor

quality building arguably does less than it might to address the shortfall in supply. We also need

to think about housing supply as a question of stewardship. Everything that is built now needs to

have a useful life of decades. There is little point pursuing numbers via deregulation at the

expense of adequate quality. The all-out pursuit of numbers was the mistake that governments

made in the 1960s social housing boom. We are still dealing with the consequences.

The debate over housing supply is yet to expand to encompass the functioning of the landmarket. Land reform is a big issue in Scotland, for specific reasons. You get the sense things are

slowly edging in a similar direction south of the border. Or perhaps that is wishful thinking.

One of the positive moves on housing supply since 2010 is the attempt to boost smaller-scale

builders and aid the identification of land parcels suitable for residential development. One of

the less positive things the current government is doing is expanding the definition of affordable

housing under s106 to include discounted starter homes for those under 40 years old. That gives

developers the discretion they need to avoid building any social rented housing at all.


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2. Distribution

A radically different perspective on the shortage of supply is gaining ground, in academic circles

at least. The starting point is not the poor performance of the housing supply system but the

utilisation of the existing housing stock. The argument was first and most prominently advanced

by Danny Dorling of Oxford University. Danny makes the point that there are enough rooms in

our housing stock to accommodate the number of people in the population. The issue is the way

in which these rooms are distributed. There has been a significant increase in the inequality of

the distribution of rooms, as a recent paper by Rebecca Tunstall of York University illustrates.

The most generously housed 10% of the population now occupyor rather underoccupy -

properties at a rate of five rooms per person. The bottom 10% have access to, at best, one room

per person.

If we think the housing stock is underutilised, how do we improve its distribution? If

underoccupancy were mostly concentrated in the social housing sector then the government hasproved ready and willing to intervene with the aim of 'improving' the situation, in respect of non-

pensioner households at least. But underoccupancy is more pervasive, and more extreme, in the

owner occupied sector. No policy that compels households to leave their homes is likely to be

seen as politically feasible or desirable. So the issue becomes how households might be induced

to move in order to align their housing consumption with their current housing needs.

The use of an extended range of council tax bands is one possibility: higher rate bands which

have some significant steps up for high value properties could encourage underoccupiers to

reflect on whether they wish to continue to consume so much space. Given that we are often

talking about mature households and empty nesters there is also a case for looking locally at the

provision of age appropriate housing or lifetime homes and at mechanisms for assisting mobility

in older age. Some people are concerned about moving because they worry about both the hassle

and the possibility of being ripped off. There would also be a case for looking at transaction

taxes, to ensure that trading down in retirement released sufficient resources to make it

financially worthwhile.

These sorts of mechanisms are likely to make a positive difference to the allocation of property,

but are unlikely to deal fully with the distributional issues, if for no other reason that disparities

in housing consumption are in part simply a reflection of underlying disparities in income andwealth.

A focus on distribution and redistribution does not deny the need for new house building,

because we know the population is continuing to grow. But it argues that building new housing

is not the onlyor necessarily the primarymeans by which housing need can be met. When

building occurs it needs to be of types and in locations that work with the grain of the housing

system and enhance geographical and social mobility.

3. Credit

Our liberalised credit system significantly exacerbates house price volatility. While insiders might


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claim that the reforms to the global financial system over the last seven years have done enough

to stave off the type of crisis we experienced during 2007-2008, there is more than one type of

crisis. And critics would argue that reform has gone nowhere near far enough. Reform of the

financial system has barely touch some of the most problematic underlying incentive issues, for

example. And government responses to the economic downturn following the GFCin

particular the extensive use of QEhave given house prices further momentum and encouraged

more reckless behaviour by investors in the search for yield. The Bank of England now has

greater powers to engage in macroprudential regulation. While embracing macroprudential tools

has become a popular policy response internationally since 2008 we are still in a phase of policy

experimentation: we are still discovering just how effective- or not - such powers and tools are.

We have a system in the UK where a large majority of bank lending goes on property rather than

productive activity, and something like 80% of the value of all the UK's tangible assets is tied up

in inflated property values (both residential and commercial). This is in no way a sensible basis

for an entire economy. Yet meaningful strategies to move the economy on to a more sustainablebasis are lacking. Indeed, many of the tentative steps taken by the Coalition government of 2010-

2015 to try to build more areas of genuine economic strength in the real economy are being

erased by Conservative budget cuts since May 2015.

It seems inevitable that there will be a house price downturn some time soon. The current

situation is unsustainable. To my mind there follow at least two questions.

The first question is whether the downturn will be a soft landing or a crash. Few pundits foretell

a crash. They mostly weren't doing so in 2005 and 2006 either. Then they were talking about a

softening of house prices and a soft landing for the market. Yet such a view of the way our

housing system operates rather ignores previous experience. A market sustained largely by

unrealistic expectations and ultra-lax monetary policy is eventually going to fall off the edge of a

cliff when positive sentiment evaporates.

When we ask Housing: What Crisis? one part of the answer is that we face a crisis delayed.

There are many hundreds of thousands of households relying in near-zero interest rates and/or

interest-only mortgages to keep the roof over their heads. They are being protected by this

extraordinary policy environment. As and when interest rates finally move north and prices

move south it will generate considerable distress.

The second question is how much further the process of rapid tenure transformation that we

have witnessed over the last decade will have proceeded before the downturn arrives.

4. Tenure transformation

The most striking change in our housing system over the last decadeamong a range of striking

changesis the revival of the private rented sector. The sector has effectively doubled as a

proportion of the housing stock in Great Britain since the turn of the millennium. It has not

simply increased in size but changed its role in the housing system. It now houses a wider rangeof households, including a significant number of families with children. A million children now


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live in households that rent privately. These are people who would previously have been housed

in the owner occupied sector but who are unable to access home ownership.

Some are people who may well be able to service a mortgage at prevailing interest rates. But they

struggle to assemble an adequate deposit and/or are being outbid by cash buyers of second

homes and investment properties to let. The underlying change in the distribution of wealth is

allowing those who already have to acquire more. This is self-reinforcing process. As prices are

pushed up by those seeking to use housing as an investment rents are pushed up further. This

means that renters face a reduction in post-housing cost income and an even bigger struggle to

assemble a deposit. Changes in the supply of private rented housing are creating their own

demand.

A key point here is that this move to greater reliance on private renting has not been

accompanied by significant changes in tenancy terms, in England at least. More households are

living with the minimal security offered by a six month assured shorthold tenancy. Householdswho would like to settle and put down roots are unable to. Regular relocation can disrupt

schooling and mean that children are unable to realize their full potential. We know that ending

an assured shorthold tenancy is a growing cause statutory homelessness in England. As and

when there is a housing market downturn there is a risk that distress among private landlords will

very rapidly be transmitted to distress among private (ex)tenants, given their relatively limited

security of tenure.

A second key point is the need to understand developments in the private rented sector in

context. The attractions of housing as an investment have to be seen in the context of the poor

returns on other classes of asset. If policy makers want to do something about diverting

investment away from housing then it isn't just about reducing the attractions of housing it is

also about thinking hard about alternative, credible, trustworthy investment vehicles that deliver

comparable - or at least plausible - returns. Without that, housing will continue to dominate

thinking. The other contextual point is the relation to social care funding. The safety net

provided by the welfare state is increasingly threadbare, if not totally shredded. It is perfectly

understandable for people to invest in housing and seek to maintain the value of their assets if

they believe they are going to be needed to pay for care in older age. The uncertainties in this

area are huge, particularly following the postponement of the Dilnot reforms to cap individual

contributions to social care funding. And that uncertainty is almost entirely policy-generated.

A third key point is that the private rented sector is the most flexible part of the housing system

and can absorb increases in demand in a number of ways. It can lead to rents being pushed up.

But it can also lead to increased subdivision of properties, increased sharing and increased

overcrowding. These trends are all evident in high pressure housing markets at the moment.

At the tail end of the Coalition Government two potentially important housing-related moves

occurred.

First, legislation was passed to make retaliatory eviction unlawful under particular circumstances.Retaliatory eviction has been a campaigning issue in the private rented sector for many years.


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Tenants have been unwilling to complain to their landlords for fear of losing their home. The

legislation is a positive move. If a tenant complains to their landlord about disrepair, for

example, as long as the complaint takes a particular formloosely, that it can be demonstrated

that the complaint was submitted in writing/via emailthen that gives the tenant some

protection against the landlord serving notice to quit instead of dealing with the complaint. But

this legislative move is perhaps less widely known than it should be. This is a new resource for

tenants to draw on in asserting their rights.

Second, DCLG issued new national minimum room standards in an attempt to ensure that

dwellings remain livable. This is the first time we've had national standards since 1980 when the

Thatcher government abolished the Parker Morris standards for social housing. This is again a

positive move, but two issues follow. The first is whether local government has the resources to

enforce these standards in the new and existing stock. The second is the perennial concern that

enforcing minimum standards will, in high pressure housing markets, force some households out

of the market entirely because they don't have sufficient resources to secure even the regulatedminimum. This takes us back to the question of incomes.

5. Welfare reform

The welfare reforms introduced by the Coalition Government contained their own horrors. The

rebasing of local housing allowances, the constraints on uprating, localisation of council tax, the

so-called 'bedroom tax', the overall benefit cap at 26,000: they all substantially increased

financial strain for some of the poorest members of society. Under a rhetoric of fairness, policies

impacting negatively on some very large groups of poor people and policies impacting on some

very specific groups of vulnerable people were implemented. Claims to the right to assistance

were challenged and frequently denied.

But in the short term many people coped. It has been difficult. It has been painful. They've gone

without. But they kept their heads above water. Just about. Many social landlords have put a lot

of additional effort into money management and advice services in order to try to help their

tenants cope in more straitened times. For some it is the availability of discretionary housing

payments that has made the difference between sink or swim. But such assistance was always

intended to be temporary and transitional.

Of course, while many coped, others have already got into significant financial difficulty as a

result of the benefit cuts.

While people may have coped in the short term we need to recognise that some of the forces

already unleashed continue to do their work in the background. The reduced generosity of

benefit uprating slowly increases the gap between the cost of living and the assistance available.

Some had forecast mass internal migration as households who relied on housing benefit were no

longer able to afford to live in high cost housing markets. There is some evidence of this. But

equally people can be very attached to particular localities for all sort of perfectly understandable

reasons. So in order to stay in their area they compromise on their housing conditionsgivingrise to the increased rates of sharing and overcrowding mentioned in the previous section.


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The equally important issue is that the future changes planned by the Conservative government,

particular the reduction in the overall benefit cap, the freezing of working age benefits, and the

restrictions on access to assistance to two children per family are all going to significantly

intensify pressure. Some of those who have been coping under the previous wave of cuts will be

submerged as the next wave crashes over them.

Back in 1982 the Environment Select Committee highlighted what they called the fundamental

dilemma of the private rented sector: that the amount of money that landlords are looking for

in rent is greater than the amount that tenants are able to pay. The next year the national system

of Housing Benefit was implemented.

It is clear that we are busily recreating this fundamental dilemma through welfare reform. More

households are being pushed into post-housing cost poverty. More households are being pushed

into inadequate accommodation because that is all they can afford. There is a risk that inadequatehousing situationsof the sort that would have been viewed as utterly unacceptable a few years

agobecome normalized.

6. Social housing

Many social landlords have been able to absorb the impact of the bedroom tax and through

better customer intelligence and advice have prevented bad debt spiralling. Some embraced the

Coalition Government's affordable rent regime, while others were more circumspect. Some who

embraced affordable rents have perhaps come to rue that decision. The arrival of the majority

Conservative government, unrestrained by the Liberal Democrats, has placed in question the

wisdom of making extensive use of affordable rents.

The policy changes that are now coming down the pipethe imposed 1% rent reduction for

four years, Pay to Stay, extending the Right to Buy to housing associations, selling off high value

local authority propertiesmake the social landlordstask considerably harder. The overall

benefit cap at 26,000 affected relatively small groups of tenants. This was manageable. If it is

reduced to 20,000 outside London then that is a whole different ball gamethe effect will be

felt far more widely. There are rumours that government-imposed rent reductions may be in

place for longer or be made more severe than those already confirmed. Business plans need to betested against such possibilities. Some will break under the stress.

There is little doubt that some landlords will not survive in this much harsher environment.

Which ones will not survive is an interesting and important question. It could be that the

organisations that have already done all they can to maximise efficiency are most at risk because

they have little fat left to trim. Yet these are the relatively good performers. On the other hand,

the inefficient may simply not have strong enough leadership to steer their way through the

troubled waters ahead.

It is inevitable that the social housing sector will concentrate. Fewer, bigger organisations willemerge out the other side. That is, if the Government doesn't take the radical step of


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nationalising and privatising the whole sector in the light of the recent ONS reclassification of

housing associations as non-financial public bodies.

A key question is whether the period of merger and acquisition that we are going to experience

will be orderly or chaotic. Can it be managed to minimize the detriment to tenants' wellbeing?

One further policy on the horizon is fixed-term tenancies. Fixed-term tenancies were introduced

under the Coalition but take up by social landlords has been relatively modest. Only about one in

eight new tenancies in England is fixed term. The Conservative government is looking at the

possibility of making fixed-term tenancies the default.

The impact of this change would depend crucially on the detail. For example, it would depend

on whether tenancy renewal is allowed and under what circumstances. If renewal were not to be

allowed then we are moving towards a social housing system which some academics have

described as an 'ambulance service'. Social housing would only be there for those who are inacute need for the period that they are in acute need. Households are expected to make way and

make their own way once the acute need has passed. Social housing would not be a tenure in

which to settle and live long term.

If the government decides to go down this route then it will have significant management

implications for landlordsall the new tenants they house will have acute needs of some sort

and it will have significant implications for the tenuresocial housing will become increasingly

stigmatisedand it will have significant implications for neighbourhoodssocial problems

could become more concentrated in particular locations.

Conclusion

In some senses characterising our situation as a housing crisis could be considered a little off the

mark. A crisis could be taken to imply an acute episode departing from the norm. Yet a number

of the factors creating our housing challenges are long-standing and deep-rooted. Overlaid upon

these are a number of shorter term policy-induced problems. The policy direction of travel is

unlikely to undergo a significant change of direction any time soon. It is tempting to think that

trying to cope with an increased range of more severe housing problems is not so much a crisis

as the new normal.

The problems of access and affordability are well-established concerns. With increasing numbers

of households living on assured shorthold tenancies; many families with mortgages only an

interest rate rise away from finding their tenuous grip on their home slipping; and the prospect

of fixed-term tenancies becoming more pervasive in the social rented sector we need to add

pervasive insecurity to the list.

And we need to return to the argument, eloquently articulated by Tim Farron, that secure good

quality housing is the foundation upon which to build a life, a life that allows each individuals

potential to be fully realized. The key to making progress in addressing our housing challenges isto start by recognising the profound significance of secure housing for our economy and society.


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Only then are we likely to shift policy priorities away from the current obsession with home

ownership, which sees the Government persistently directing subsidy towards those who are

already relatively well off.

And most of all we need to keep hold of the idea that we don't face a swathe of discrete

problems that can be tackled independently. We need to adopt a systemic perspective that is

attuned to their diverse and intricate interconnections.


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About the author

Alex Marsh is Professor of Public Policy at the University of Bristol. He was Head of the

School for Policy Studies between September 2007 and July 2015. Alexs research and

writing has encompassed a wide range of topics in the fields of housing studies, public

policy and regulation. He is currently on the Advisory Boards for theJoseph Rowntree

FoundationHousing and Poverty Programme and for What Works Scotland.

Between 2005 and 2009 Alex was Managing Editor of Housing Studies, the leading

international academicjournal in the field. He continues as a member of the journals

Management Board. He chairs the Management Board for the journal Policy & Politics.

Alex was a Visiting Academic Consultant to the Public Law team at the Law Commission

between 2006 and 2010. His work with the Commission addressed compliance issues in the

private rented sector and systems of redress against public bodies.

Between 2004 and 2012 Alex was a trustee of Brunelcare, a Bristol-based charity providing

housing, care and support for older people. For six years he chaired Brunelcare's Audit and

Scrutiny Committee. In October 2013 he joined the board of Curo Groupas a Non-Executive

Director.

All views expressed here are personal. They should not be attributed to any of the

organisations with which Alex is associated.

www.alex-marsh.net

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