Wednesday 28 November 2018



14. REVOLTING BABYBOOMERS!
28th November 2018

It’s all our fault…I and my fellow babyboomers haven’t been building the homes we need…for decades.

So said our latest Housing Minister, Kit Malthouse, at a recent housing industry annual lunch….and he was roundly applauded for this perceptive and courageous critique of our housing record.

I really am not to blame, Minister, and that kind of throwaway but calculated remark at the end of a speech really makes me angry: no doubt it was in your briefing notes.  

I know you’ve only been in office for a few months, and you were gracious enough to acknowledge that you might not be there for very much longer...always good for a laugh the number of Housing Ministers we have had, except it isn't a joke…but I suggest you send your SPAD on a history course to learn what has really been happening about housing…well, at least for the last forty years…four decades should be enough to make sure you understand the real causes of why we haven’t been building enough homes…and then you might be able to devise some policies that really tackle the problem.

The Financial Crisis…and getting back to normal
After the 2007/8 housing market and global financial crash, it was too tempting for government and industry to think that ‘getting back to normal’ was the immediate task ahead. It was a time for reassurance and reversion to the familiar: though how the housing market behaviour of the preceding decade could ever have been thought of as a reassuring experience is mystifying. Plentiful evidence of how the crisis was emerging was steadfastly ignored.
[i] All governments seemed determined to not address the fundamental flaws of a market that had not just broken in 2007/8, but had been dysfunctional since a much earlier financial crisis.

In September 1976, in response to the International Monetary Fund’s intervention, the Treasury dispatched civil servants to explain to councils the implications of DoE Circular 123/76.[ii] The ‘bright young man’, who came to my council in North London to explain this clever new policy to save money, told us authoritatively that ‘the party is over: it is not the function of government to spend on council housing or infrastructure’. He was genuinely surprised to be told that development usually went quicker and more cheaply if preceded by its infrastructure, and that housing prices and the performance of local housing markets were usually more stable and less volatile when there was a sufficient supply of new affordable housing. Although those responses could be found in any standard housing economic textbook of the time, the Treasury seemed to be unaware of them.

Even if a government wanted to prioritise home ownership in its housing policies...these might be some sensible things to do, according to an outline of an essay I did in my first term studying Land Economics at university in 1967...almost certainly copied straight from a standard textbook.
Litany of political failure and lack of leadership

The so-called ‘cap on council house building’ dates, therefore, from 1976 under the Labour government of Jim Callaghan, though it was reinforced and kept in place by both Conservative and Labour Governments, entirely on ideological grounds about tenure preferences and the power of local government relative to national government, and without any regard to the contribution that social housing supply makes to local housing markets and the national economy.
Since 1976, we have experienced a series of missed policy opportunities and policy failures that have reinforced the damaging long term impacts of that policy…here are just a few:
·         The failure by Gordon Brown to ask Kate Barker the right question…twice: how spatial planning and investment in infrastructure could be effectively integrated at national, regional and sub-regional levels to enable the cost efficient and speedy construction of new homes.  

·         The failure by all governments to recognise that s.52, and later s.106 planning agreements and Community Infrastructure Levy were and are not a fit-for-purpose substitute for public investment in essential infrastructure, including affordable housing.

·         The failure by Labour to restore local government financial autonomy through the Lyons Inquiry into Local Government 2007, and to reform and/or update council tax valuations since 1991.

·         The failure by Labour to deliver the ‘double devolution’ of powers and responsibilities to councils and communities as part of the modernising local government reforms of the early 2000s.

·         The failure by all governments to modernise, reform and diversify the housing supply side, as identified by the DCLG Housing Construction Task Force (2008-10),[iii] whilst continuing to inflate housing costs through demand side subsidies like the Help to Buy policy.

·         The failure by all governments that continues to this very day current to maintain an adequate supply of affordable housing in specific market areas to mitigate against volatility in both ownership and rental markets; with 1m fewer affordable homes in 2018 than there were in 1980 (whilst the population has grown by over 7m people).

·         The failure by all governments to prevent over £400bn of the Bank of England’s Quantitative Easing programme being used to inflate asset values (primarily urban land prices), creating long lasting market distortions, rather than investing in infrastructure and new housing.

The Problem with Land…no one wants to deal with it
In 1900, Cass Gilbert, later the architect of the Woolworth Building in New York, was right in saying, “The building is merely the machine that makes the land pay”. It is hard to accept that a century later, that principle is now fully embedded in the omissions and commissions of UK government policy that will take a great deal of undoing.
To this day, the penny has yet to drop at the Treasury. At a recent event in Parliament, the former Permanent Secretary to the Treasury, Lord Macpherson, claimed he spent years trying to convince his Treasury colleagues that we needed to tax land, “It worries me...that we don’t have a land tax…In a sane world, we would have a proper land tax.” But he was the one who was branded ‘mad’, and so our Treasury remains totally economically illiterate about land price, its impact on resources available for social housing and infrastructure, and its other macro-economic effects. We are still living with the consequences of those hopeless decisions in 1976.


The words of Grant Shapps, many Housing Ministers ago,We need a housing market that’s BORING…where things are really quite predictable,” illustrate his frustration at a situation that was nevertheless beyond the appetite of government to address with policies that would have actually made a difference: building more social housing.  In the face of comments reliably attributed to the then Chancellor of Exchequer, “I don’t understand why you (Nick Clegg) keep going on about the need for more social housing – it just creates Labour voters” and to the Cabinet just before the 2015 General Election “Hopefully we will have a little housing boom, and everyone will be happy as property values go up” that policy option was never likely.
These two diagrams, left, tell an interesting story about the slide from coherence of housing market behaviour pre-1985 and Big Bang to an extended era of divergence and volatility that continues to this day, and the relationship of land and housing prices to national economic performance.

 



















The Ultimate Question




There is now a surprising, but also long overdue, consensus across the political spectrum that more social housing is urgently needed; not just because the needs of unhoused households are so great. It is at last recognised that the absence of a sufficient supply of affordable housing increases the volatility of housing costs for everyone, and imposes a significant deadweight of additional costs on the public purse in health, social care, public safety and criminal justice policy areas, to name a few. Minister, this has been known and evidenced for decades.[iv]


The lifting of the cap of council house building, announced by the Prime Minister at this year’s Conservative Party Conference was very welcome. But it was not, as often implied in commentary, the relaxation of a recent short term restriction. It’s been 42 years since it was originally applied…thus proving Douglas Adams right…the answer to the Ultimate Question of Life, the Universe and Everything really is 42


But as the computer Deep Thought observed when he had finally calculated the answer (apologies if you are not a Hitchiker's Guide to the Galaxy fan)…‘You’re really not going to like it, you know’…and they are not, the politicians and the Housing Ministers, every one of them that have held office since 1976 are not going to like 'the answer'.. 

The only people responsible for there not being enough affordable and safe homes for all are YOU.
 








[i] Inter alia Ambrose P et al (2005) Memorandum to the Prime Minister on Unaffordable Housing Zacchaeus 2000 Trust, http://taxpayersagainstpoverty.org.uk/files/Z2K_Memorandum_to_the_PM_on_unaffordable_housing.pdf  and Harrison. F (2005) Boom Bust: House Prices, Banking and the Depression of 2010 Shepheard-Walwyn http://thepropertyhub.net/tpp069-18-year-property-cycle/
[iv] “The Real Cost of Poor Homes” Ambrose P (1996) & “The Real Cost of Poor Homes: Footing the Bill” Barrow. M and Bachan. R (1997) RICS, and “Debt, Death & Deadweight – The Acts of Parliament” Harrison. F (2018), https://landresearchtrust.org  which explores the revenue-raising alternative to taxes that destroy people's wealth, health and welfare.