Self-build, Community Land Trusts and the Housing Crisis

What follows isn’t meant as opinion, but an attempt to research the extent to which self-build and Community Land Trusts have a role in helping solve the housing crisis. Writing it, I find I want to research more, and ask questions of various contacts who know more about aspects of the subject than me.  So, I am publishing it here, and seeking their comments before any attempt to develop an argument. 

Continue reading Self-build, Community Land Trusts and the Housing Crisis

A solution to the asset rich, cash poor problem

This is something I wrote last year, but didn’t publish. I just saw a tweet to which it seems relevant, so with some minor changes I’m publishing it here now. On rereading, I feel it deserves a more thorough rewrite, but I think the central idea, a revenue neutral, non market distorting change to the operation of the Land Registry to allow more efficient property taxation is a good one.  Happy to discuss further. Continue reading A solution to the asset rich, cash poor problem

The Long Short for Generation Rent

How are Generation Renters supposed to get on with their lives when housing is so unaffordable that they have no realistic hope of buying their own property – and quite possibly would be ill advised to do so anyway?

It’s an agonising personal question for millions of young people, but I’m not aware of any policy responses to it – handwringing doesn’t count.  I did hear something constructive last night when I went to the inaugural lecture of the LSE’s new Professor of Economic Geography, Christian Hilber

who explained very clearly how to make housing more affordable – build more – but that is a different question, which is going to take a long time in any case, since the politics aren’t going to be easy.

Most of those young people, to whose plight the political classes pay lip service, but give no answers, probably still hope vaguely for some political answer, although many will have given up hope.  Here I want to suggest a social response, although it emerges from thinking about the economics of the problem, and from the social response there could be political consequences.

Why ‘The Long Short’?

Although I have followed the writings of Christian Hilber and others in the LSE SERC department, I hadn’t realised that he had been working in Fannie Mae at the same time as the unlikely collection of odd balls described by Michael Lewis in The Big Short were looking at the same numbers, and coming to the same conclusion, that the status quo was unsustainable.  As Prof. Hilber explained, he isn’t that sort of market animal, and now, in the UK, it is even harder to imagine an arbitrageur finding a way to put on the big short.  However, our young people, wanting to own somewhere but realising they cannot, already, in effect, have a short position,  but one which will only pay off in the long run.  In the meantime, it needs to be financed, and that can be painful.

Financing the Long Short

The easy part of this is saying what’s involved – the hard part is accepting it.  In essence, the financing is just keep on paying the rent, but there’s a bit more to it than that.  As a renter, you will want a relationship with your landlord which is as healthy and professional as possible, so that they, as a matter of business, prefer to have you as a tenant than go to the trouble of finding a new tenant.  Agents’ fees for new lets, paid by landlords or tenants, are a bad sign, suggesting that agents are making money out of undue tenant churn.  

If rents for similar properties as yours come down, you’d want to have an agreement with your landlord that your rent should come down in line, without you having to move to such a similar but lower rent property.  In areas like London, it’s sometimes hard to believe that rents can come down, but supply and demand really does operate in the rental market.  Here’s one recent story from the BBC

Rents fall for first time in six years

Conversely, your landlord will want the agreement to allow your rent to rise in line with rents on similar properties if they go up.  That is only fair – and the alternative, which is what we have now, is a system of short term lets where landlords can increase the rent as much as they can anyway.

In either case, it will be helpful if authoritative numbers are being published for what rents on similar properties are doing.  This raises a policy question – can local authorities provide such a service?  It would need financing, but it has been done in Germany for years, and where stable renting is entirely normal, and being in ‘Generation Rent’ is not an issue.

Financing any position in housing involves paying for the maintenance of the property.  Someone has to do it, and most of the costs will be borne by the renter, so the renter will want to find a landlord whose property managers can deliver good long term value for money.  Easier said than done, but as a rule of thumb, large landlords, especially if they have a reputation to maintain, will be better, although small landlords may also be able to subcontract these responsibilities to a proven property maintenance company.  Having a landlord take responsibility for the maintenance is also likely to be better than doing it yourself.  Some people will have the skills to maintain properties more economically than professionals, but in blocks of flats, this will often be out of the owner’s hands.  There should be a way to find out how well landlords do maintenance.  Either I do not know of it, or else there is an opportunity for someone to provide such a service – call it Which Landlord?

Living the Long Short

This is where the sociology comes in.  In the UK, property ownership carries an extraordinary social weight.  ‘Buying your first property’ feels like an essential marker of having become a full member of society, and renters are often seen as not having put roots down where they live, so not quite accepted into community decision making, even if they felt inclined to participate anyway.  To suggest to anyone that they should accept the idea of renting while they get on with their lives will, to most people, be offensive.  To that significant but well connected group within Generation Rent with access to the Bank of Mum and Dad, or just well enough paid jobs that they can see their way to getting a deposit, it may also seem unnecessary.  Psychologically it will be easier to conform to their elders’ social norms, and proudly – nervously? – step on to the housing ladder.  Once in position, with the danger of negative equity if housing does become more affordable, they will become some of the strongest defenders of the status quo.  It will not be easy for their peers – school friends and work colleagues – to follow their alternative life choice with pride, living the long short.

However, the economics of housing mean there are millions who face this choice, between complacency, embarrassment or a sense of victimhood, and getting on with their lives undamaged.  And those who can could transform our politics.  In many ways, they would be like an earlier generation of a reformist Left:

  • driven by economic interests to achieve a fairer society, but
  • dealing with professionally with others, e.g. landlords,
  • using municipal power to publish information about rents to help markets work more effectively, and
  • pushing for good quality independent information about landlords

They would also campaign for an adequate supply of new housing, in well planned developments, but with no ideological demands for it to be owner occupied, social or private rented sector.  Even so, those who have bought into the norms of the previous generation will attack them as dangerous subversives.

So, for the time being, no political party shows much interest in doing anything for this Generation Rent, even though social attitudes should encourage them to do so – this taken from Professor Hilber’s lecture.

ChangingAttitudes

Nimbyism explained – 2

A while back – August 2013 – I posted this on my local Forum:

I had a eureka moment about this a few days ago – the rise of the NIMBY is a consequence of greater fragmentation of freeholding. It’s obvious really – if more occupiers have the legal rights of freeholders, they will use them to oppose development, and if there are fewer opportunities for large scale freeholders to redevelop areas, coherently and benefiting from economies of scale, fewer houses will be built, and in retail commercial property, High streets will be left to decline. So it’s unhelpful to blame the individual nimby, or even their organised representatives, as also it is unhelpful to blame developers for being greedier and more short-sighted than those of previous generations.

Nimbyism explained?

I still think all that is true, but in looking back just to the post war era, I realise now I was missing a much longer history.  So it was that I felt blown away seeing this recently, written in 1685, referring to an Act of parliament from 1588:

Now the reason of this was the People of England were a little before that time under the same mistake, as they are generally now, and cried out against the Builders, that the City would grow too big; and therefore in the 38 of Queen Elizabeth they made a Law to prohibit Buildings in the City of London; which though it was but a probationary Act, to continue only to the next Sessions of Parliament (which was but a short time) yet its effects were long; For it frighted the Builders, and obstructed the growth of the City; and none built for thirty years after, all King James his Reign, without his Majesties License; But for want of Houses the increase of the People went into other parts of the world; For within this space of time were those great Plantations of New England, Virginia, Mariland, and Burmudas began; and that this want of Houses was the occasion is plain; For they could not build in the Country, because of the Law against Cottages.

AN APOLOGY FOR THE BUILDER: OR A DISCOURSE SHEWING THE Cause and Effects OF THE INCREASE OF Building.

The author, Nicholas Barbon, is hardly a reliable witness, but the legislation is clear enough.  The extent to which it was obeyed is another matter, currently leading me down lines of thought in economic history, but given the opposition Nicholas Barbon faced when he chose to ignore the law in the redevelopment of Red Lion Square, it must have had some impact.

What was going on here? There will be an explanation in the public promotion of the virtues of rural life, sturdy independent peasantry, and seeing decay and corruption in the cities.  It’s well a established tradition going back to the ancient world.  Let’s not discount that, but maybe agglomeration economies have been there since people started settling in cities, and would soon have been followed by arguments to justify, and legal devices to enforce, the capture of those economies by powerful interests now within those cities.  Why would they not, when there will always be very good reasons for regulating the growth of cities, which nimbyism can piggy back off?

Restricting housing supply

Channel 4’s Dispatches last night (7th November, 2016)

Britain’s Homebuilding Scandal

lays the blame for restricting housing supply firmly on developers – and much of the content is also here in the Telegraph, in a piece written by the Channel 4 presenter, Liam Halligan

It’s time to get building: Sajid Javid pledges to break the housebuilding logjam

Towards the end of the Channel 4 programme Liam Halligan says he is an economist, and a believer in free markets, but nowhere does he explore how artificially restricting supply can be a sustainable strategy for house builders.  When selling properties from a large development, a developer will have some kind of temporary local monopoly, and they will indeed sell them gradually, rather than dump them all on the market at whatever price they can get.  But buyers can still shop around, and look at properties coming on the market in different areas, from different developers.  Developers will have an interest in getting their stock sold.

If there was some kind of collusion between developers, this would be something for government to investigate, and impose suitable sanctions – but there was nothing about this possibility in these reports.  Instead, it was observed that the house building market had become much more concentrated in recent years.  This is true, but it is still far less concentrated than, for example, supermarkets, and yet these are very competitive, at least in what they offer consumers.  There was some film of some small developers itching to get their hands on a large, undeveloped site, but no suggestion that development might be financially risky.  This is hardly surprising, since the assertion is that developers are, in the jargon, systematic and successful rent seekers.  Actually, development can be quite risky

taylorwimpey

and whatever those risks have been should help explain why there has been a concentration in the sector, from which a more satisfactory explanation might emerge of why developers do not build as fast as hoped.  It might work as journalism, but it is not good economics.

Elsewhere, Andrew Whitaker of the House Builders Federation was asked what the impact would be of measures to penalise his members for not building where planning permission had been given.  (I assume this would be outline, but that was not said). His answer was exactly what an economist would have anticipated should the amount of landbanking by developers be part of a normal competitive business model – it would mean a reduction of supply.  Instead, Liam Halligan asked him, menacingly, if this conclusion was actually a threat.  So much for  a belief in free market economics.

The most obvious factor restricting housing supply, it hardly needs saying, is the planning system, but we are were we are with this, and big developers respond by getting hold of, or putting down markers, on site which they may want to build on in due course.  However, another factor, mentioned briefly, is the large amount of land held by public bodies.  What is stopping them getting on with developing this land. teaming up with developers who are ready to break open the current restrictive practices?  Either getting development done is not quite as easy as imagined, or there is some kind of cartel stopping any developer breaking ranks in this way, or the real culprits for holding back development are in the public sector.

Interesting questions, investigation of which would have made a better report.

For more on landbanking, see this report from Savills

In summary, our analysis suggests that land with capacity for around 80,000-100,000 homes could be considered ‘unimplemented’. This is far below those figures suggested by other analysis, but may still be too high for a Government looking to increase housing delivery. As the Office of Fair Trading 2008 report showed, housebuilders’ approach to the land market is a consequence of the current system and they simply build homes at the rate they can sell them.

If Government is serious about increasing housing supply over the long term then it will need to look beyond the planning system and encourage greater activity from the full spectrum of potential housebuilders including SMEs, housing associations, local authorities, the wider construction industry, and Government.

Stuck In The Planning Pipeline

That seems pretty fair to me.

To more satisfactory discussions about housing

I had one of those unsatisfactory conversations about housing recently.  It wasn’t a big deal, and it was politely conducted, which is always a plus.  I’ll not go into some details, because it was a private conversation, and in any case those I omit are inessential.  The essence was that it would help the UK housing crisis if rental contracts were made more favourable to tenants, in a way apparently normal in Germany. Continue reading To more satisfactory discussions about housing

The Pru 100

RLCX1016-20x30

Unlike Team Sky on the Champs Elysées, we’d not practised this for crossing the finishing line, which is why we both look a bit worried.  A week on, Annie is off travelling, and I’m catching up with my life post retirement, with a blog about the whole experience, and thanking everyone who sponsored me, on my list of things to do.  So here goes.

It was wonderful being able to do something like this with Annie – and met by Maggie at the end, who’d just come tenth in a 5k run in Hyde Park.  So, for all of us it was a great family day.

As a cycle ride, it was a bit disappointing, because a serious accident meant we were held in a bottleneck along with thousands of other cyclists, for over an hour, and the most challenging climb, Leith Hill, was cut from our route. My official time was even slower, because I had an earlier start time than Annie, and I waited for her to catch up, so my official time was 7′ 21”.  But for the sections where we were going normally, although this included parts where there was still severe congestion, our average speed was just over 16 mph.  Not too bad, I think, and as we’d both trained fairly well, neither of us had ’emptied the tank’, in the cyclists’ jargon starting to creep into my  language.

I’d also done most of the course, including Leith Hill, at a similar speed, but without closed roads, a couple of weeks before, which took rather more out of me.  On the day it was fun to be cycling without cars and lorries – hoping here that no motorist friends were too inconvenienced – and the spectators in the last few miles were lovely and encouraging.  Of the various good causes on show on the day, I think Shelter must be one of the best recognised brands.

Personally, the training was probably the most interesting part of it all.  Nearing 60, I decided to approach this more seriously than I ever took preparation for long cycle rides I did in the past.  I also joined a couple of local cycling clubs, (Anerley and Penge) and found myself getting out into the Kent, Sussex and Surrey countryside again. There’s a potential digression starting here from how often these routes took us through London’s hallowed Green Belt – but that can wait.

I hadn’t appreciated how club cycling works socially, blending relaxed sections with more competitive climbs, and places where it’s possible to go fast.  I’d no idea that my relative strength would be as a climber, but given my size, that should not be a surprise.  I also took to cycling part of the way to see my Dad most weeks, which involved riding to Marylebone, and then through various Oxfordshire villages.

The new technology is fascinating too, with GPS and a heart rate monitor allowing read outs of how much progress is being made.  It seems my completely un sporty parents had managed to endow me with some good genes as well, based on my resting heart rate. Previously I’ve always been a bit squeamish about blood and other aspects of human physiology, but I seem to have got over that. Another thing on my list of things to do is to work out how those estimates of power and energy used are made from the data inputs.  I’m also interested in how this fitness related technology percolates from elite athletes to the wider population – can it make a difference to public health?

The fund raising was a bit more difficult than I expected, although I realised it would never be as easy as when I worked on an investment bank trading floor. I’m not sure that I’ll do a sponsored ride again, having now learned there are many such ‘sportifs’, but I’m very pleased that both Annie & I hit our funding targets, and as well as supporting the work Shelter does directly, helped raise awareness of the housing crisis.  There’s an even longer digression possible here, starting from one of my favourite observations about housing, which is that Shelter’s foundation in the mid 1960s, and all the attention that housing got then, was also when the level of UK house building started to fall.  For whatever reasons, public concern about housing does not necessarily translate into the essential requirement of getting more homes built.  I’ve written elsewhere about why I think this didn’t happen, and will do so more, along with all the other things on my lists of things to do.

So also is meeting up with old contacts, especially those who were kind enough to sponsor me, and I’d love to talk more about this with those who are interested in housing, economics & politics.

Housing policy as if we really believed in it

The immediate trigger for this post are a series of comments I made today on a blog by the Green Party spokesperson on housing, Tom Chance, which can be found here

Building homes, not false hope, in London

In my comments I refer to “housing policy as if we really believed in it” in the context of hoping one day to make housing affordable again, in areas of high demand among people in their 20s and 30s, such as London.  I can accept other aims for housing policy, in particular the need for an environmentally sustainable housing stock, but affordability concerns me here, and is I think of greatest wider concern as well.

Because policy doesn’t look at prices

I don’t think most housing policy is made as if this aim is really believed in, because, if it was, policy would be framed in terms of making housing affordable, i.e. in terms of price, rather than in terms of how many houses need to be built.  There are occasional exceptions, such as this recent comment from Priced Out calling for zero house price inflation, but given the current level of unaffordability, this is not exactly ambitious.  Instead, the debate is cast in quantitative targets, whether:

It would make far more sense to have core policy expressed as requiring the building of enough new homes, and the infrastructure which goes with them, to cap the proportion of income for median earners at the point of household formation ending up going on housing, either as renters or buyers.  This proportion is currently around 50% in the areas of highest demand, about twice what it was 30 years ago.  Such a policy would be interpreted at the city level, assuming this, as in the case of London, to constitute an effective housing market, and might still mean quantitative directives from City Hall to lower level planning authorities, i.e. boroughs, to say that they are not managing to get enough development done, but it would have the twin advantages of the numbers being set at the city level, so more locally than by Whitehall, and requiring increased supply when prices get out of kilter.

It would be a rejection of current ‘predict and provide’ targets, based on models of rates of household formation and other factors which estimate how much housing people  will want.  It seems clear that this approach has failed over the years, but it is more of a wonder why it would ever have been thought likely to succeed; in the long run, what people want will be reflected in pricing, and a refusal to respond to such price signals amounts to telling people they should live somehow other than they wish to, for no good reason when sufficient good, sustainable homes can be built.  An insidious effect of the current system is that high demand means people squeeze into what housing there is available, and unless policy makers do look at the price signals, they can think, institutionally, that somehow or other people are finding somewhere to live, so it’s not such a problem.

and because looking at prices is too scary

The other reason for thinking housing policy makers don’t really think they will make housing more affordable is that if they did, they would be developing policy for how any housing gets built during a period in which peak unaffordability is unwound.  This will not be a good time, financially, to be a first time buyer, speculative developer or buy-to-let landlord, so if the additional housing we need is going to get built, it will have to be supported by the tax payer.

Given the decades over which the housing crisis has developed, it is hard to call this a bubble, except that bubbles can develop in very viscous liquids, and I think this is one – but we don’t know how viscous it is, or if, like glass, which is in fact a very viscous liquid, it might also be capable of fracture.

All we can say is that if housing affordability is to return, it will happen along a path somewhere on a spectrum between these two scenarios

  • Quickly – with enormous political pain from home owners in negative equity, and destabilisation of the financial systems; or
  • Slowly – with a long period in which private sector housing construction stagnates in anticipation of falling prices, and requiring the increasing supply which will drive down prices to come from the public sector.

All we have at the moment from policy makers are the macroprudential concerns of the Bank of England aimed are avoiding the risks of an adjustment happing quickly.

I will leave it there, because predicting what might happen is so speculative, but it is clear there is a problem, and a £2.3 billion fund to subsidise first time buyers, as announced in the recent spending review, is an aggravation of the problem, not part of the solution.

If it wasn’t for the Nimbies inbetween

More evidence that capitalism wouldn’t be so bad if it wasn’t for the Nimbies inbetween.

This graph from Matthew Rognlie’s paper disaggregating Piketty’s overall story of increasing returns to capital is well known (although not as well known as it should be …)

Deciphering the fall and rise in the net capital share

But today I saw this analysis of the impact of ‘closed access cities and states’ in the US

Housing, A Series: Part 77 – Housing is defining politics and the repercussions are dreadful

Kevin Erdman writes

It is frequently noted that American politics have become more angry and more bifurcated.  The housing supply problem has its fingers in many of our problems, and I believe it includes this.  Bear with me here.  This might become a long post, but I think the implications may be surprising.

so I’ll leave it there, but please do follow the link.

As for the title – it’s an obscure reference to the old Music Hall song which somehow seems relevant, but I’m not exactly sure how …