All posts from: January 2012
Do you fancy a one-bed apartment in Berlin for £35,000 or a four- bed detached house in the Rhineland for £51,000?
In many parts of Germany house prices are a fraction of their UK equivalents – in fact, German house prices have decreased in real terms by 10 percent over the past thirty years, whereas UK house prices have increased by a staggering 233 percent in real terms over the same period. Yet German salaries are equal to or higher than ours. As a consequence Germans have more cash to spend on consumer goods and a higher standard of living, and they save twice as much as us, which means more capital for industry and commerce. Is it any surprise that the German economy is consistently out-performing ours?
There are a number of reasons for the disparity between the German and UK housing markets. Firstly, German home ownership is just over 40 percent compared to our 65 percent (there are stark regional variations – in Berlin 90 percent of all homes are privately rented) and the Germans do not worship ownership in the way we do. Not only is it more difficult to get mortgage finance (20 percent deposits are a typical requirement) but the private rented sector offers high quality, secure, affordable and plentiful accommodation so there are fewer incentives to buy. You can rent an 85 square metre property for less than £500 per month in Berlin or for around £360 per month in Leipzig. There is also tight rent control and unlimited contracts are common, so that tenants, if they give notice, can stay put for the long-term. Deposits must be repaid with interest on moving out.
In addition, Germany’s tax regime is not very favourable for property owners. There is a property transfer tax and an annual land tax. But the German housebuilding industry is also more diverse than ours with more prefabraction and more self-builders. The German constitution includes an explicit “right-to-build’’ clause, so that owners can build on their property or land without permission so long as it conforms with local codes.
But the biggest advantage of the German system is that they actively encourage new housing supply and release about twice as much land for housing as we do. German local authorities receive grants based on an accurate assessment of residents, so there is an incentive to develop new homes. The Cologne Institute for Economic Research calculated that in 2010 there were 50 hectares of new housing development land per 100,000 population in Germany but only 15 hectares in the UK. That means the Germans are building three times as many new homes as us pro-rata even though our population growth is greater than theirs. This means that German housing supply is elastic and can respond quickly to rising demand - hence their stable house prices, whereas in the UK our restrictive planning laws and tight green belts do not allow developers to respond to increased demand, so our supply is inelastic. More demand combined with a fixed supply of homes means steep price rises, volatility, and boom and bust.
For me, in the ongoing debate over our deepening housing crisis and the National Planning Policy Framework there are two stand-out lessons from the German experience. One, we are failing to release enough land for housing and this is causing volatility and unsustainable bubbles within our housing market that cause damage to our people and our economy. Two, a high quality, affordable, private rented sector benefits from regulation and rent control.
(Thanks to Andreas SchulzeBäing and ImmobilienScout for assistance with this article)
Countryside campaigners were delighted when the House of Commons’ Local Government Select Committee released its report on the National Planning Policy Framework late last year. After months of impressive campaigning by the National Trust and other groups, the Committee’s call for a re-write of the draft document was seen as a partial victory for the anti-development lobby.
But one aspect of the committee’s findings made me almost fall off my chair and raises questions about the competence of the Committee to reach an objective view on planning reform.
Paragraph 12 of the report reads: “We received much anecdotal evidence as to whether the planning system is currently an obstacle to growth or whether other factors are more important in slowing the economy and curtailing the level of house building… We found no conclusive research, however, that planning policy or guidance is a particular constraint on economic development.”
Now, either the witnesses who attended on behalf of the housing industry were stunningly poor at getting the economic arguments across, or the Committee is guilty of an egregious level of ignorance about planning, housing and the wider economy. Or both.
Let’s start with Kate Barker’s original report on housing supply from 2004 which contains stacks of evidence to explain that our dysfunctional housing market causes economic instability. Here are just three quotes: 1) “A weak supply of housing contributes to macroeconomic instability and hinders labour market flexibility, constraining economic growth.” 2) “Weak responsiveness of housing supply and the volatile behaviour of our housing market poses risks to economic stability and overall economic welfare.” 3) “Better housing supply could also play a part in reducing economic volatility. Most major cycles in the UK economy over the past 30 years have been associated with instability in the housing market.”
Kate Barker’s follow-up report on the planning system (2006) is even more explicit: “…further action needs to be taken to deliver an efficient planning system, by reducing delays, addressing unnecessary complexity and increasing certainty. Unnecessary delays have a number of hidden economic costs in addition to direct financial costs… In economic terms, 69 per cent of firms are dissatisfied with progress made by local planning authorities in improving their planning system…”
Given that both reports were commissioned by Gordon Brown I find it impossible to believe that the Select Committee was not made aware of their contents.
Then there is the work carried out by the LSE’s Spatial and Economnc Research Centre. Two quotes: 1)“SERC research also shows that planning restrictions increase housing market volatility.” 2) “There is evidence that planning negatively affects productivity”
Or the Centre for Cities: “The UK’s housing problem has become an economic problem (and) prevents our most successful cities from expanding, shuts people out from job opportunities and stifles national economic growth.”
More recently Savills revealed a widening gap between the housing haves and have-nots, with the under 35s owning just 5% of the nation’s housing equity and a growing gulf between the regions. If that is not a recipe for social unrest and economic malaise I don’t know what is.
I could go on. The point is there have been dozens of reports over the past twenty years setting out how our dysfunctional housing market, which is the spawn of a dysfunctional planning system, harms economic and social wellbeing.
If the esteemed members of the Local Government Select committee have been unable to discover or recognise these simple truths, and to join up the dots between the housing market, economic malaise and the planning system then heaven help our parliamentary system.
‘We shape our buildings, and afterwards our buildings shape us,’ wrote Winston Churchill in 1943. I don’t think anyone would disagree that our built environment can influence behaviour and the quality of life, as theorists from Oscar Newman to the great Jane Jacobs have shown. But a recent report from RIBA, that received less attention than it deserved, should worry everyone involved in housing provision.
The Case for Space - The size of England’s new homes revealed that England is now building the smallest new homes in western Europe, and apart from being too small to swing a cat they are literally cramping our style, having a detrimental impact upon family life and harming the educational prospects of children who grow up in them.
The average floor space of homes in the UK is 85 square metres but for new homes this falls to 76 square metres. This compares to 88 square metres for new homes in Ireland (15 per cent bigger), 116 square metres in Holland (53 per cent bigger) and a staggering 137 square metres in Denmark (80 per cent bigger). According to RIBA’s survey, the top three things people look for when moving home are outside space (49 per cent), the size of the rooms (42 per cent), and closeness of local services (42 per cent). Almost a third of those questioned would not consider buying a home built in the last ten years, or would only consider it as a last resort. Of these, 60 per cent said it was because the rooms are too small. This is quite an indictment of planners and our house building industry.
Holland is twice as developed as England (20 per cent of its land area is built upon) yet their new homes are much larger. Why is this? The RIBA report sadly fails to analyse the culprits responsible for England’s tiny new homes, but in my view it is a clear consequence of our dysfunctional planning system and our failure to release enough land for housing.
Because of England’s restrictive planning regime we are already the most hemmed-in nation in Europe, with 90 per cent of us living in just 10 per cent of England’s area. European countries release far more land for development than we do. The Centre for Cities reports that Germany releases twice as much land for development pro-rata as the UK. As a consequence German house prices are 10 per cent lower in real terms than 30 years ago. By contrast, UK house prices have inflated in real terms (i.e. after inflation) by 273 per cent since 1959. If eggs had inflated at the same rate we would now be paying £18 for a dozen. This should be a cause for national debate and soul searching.
Land really is the solution to almost all the housing problems you can think of. By taking only a tiny proportion of additional greenfield land, just over 1 per cent of unprotected countryside, it would allow land values to fall and for the correct quantity and quality of new homes to be built, whether for sale or rent. This would help to eliminate our ludicrous £22 billion housing benefit bill and reduce significantly the demand for and the need for social housing.
This is why the argument about the National Planning Policy Framework is so critical and why it is so important that reactionary countryside campaigners do not dominate the debate. The transitional arrangements for the NPPF are due to be published this week and the revised document is promised shortly. I am keeping my fingers crossed that the government does not water down the original document.
The HCA has announced a £47 million funding package for 600 new Gypsy and Traveller pitches in England, to be delivered by thirty three housing associations and local authorities. The 71 “projects”, will include new and refurbished sites - that’s £78,333 for each pitch, more than double the grant being made available to conventional housing.
In the past, local authorities and housing associations have been very reluctant to meet their legal and moral obligations to provide pitches, despite strong encouragement from people like Naisha Polaine at the HCA. You can see why: public opposition to new sites can be both fierce and racist, and many housing associations are reluctant to risk their reputations by getting involved, although some associations have built and run very successful sites – Luminus and Broadland in the Eastern region are two examples.
But if housing associations exist to meet housing needs can there be a group of people with greater needs than Gypsies and Travellers? All the research shows that the health and life outcomes of this community are shocking. They have the lowest life expectancy of any ethnic group - 50 per cent die before their 39th birthday and 70 per cent fail to reach the age of 70 - and educational achievement is poor. They struggle to get access to decent healthcare and are prone to diseases such as anxiety, asthma, bronchitis, depression, and long-term illness. A recent Radio 4 programme highlighted how amateur boxing at junior level is dominated by Gypsy and Traveller kids, but very few manage to make the grade as adults, mainly because their diet is often bad, reliant upon takeaways that are high in at and salt and low in roughage.
The HCA’s £47 million programme sounds generous, but when you set it against the £18 million it cost to deal with the disastrous Dale Farm evictions, and the fact that there are around 18,000 Gypsy/Traveller caravans, of which 4,000 are on unauthorized encampments it is a relatively modest, albeit worthwhile, investment. But I can see trouble ahead. The HCA has not published details of the location of sites but the provisions within the draft National Planning Policy Framwork for local and neighbourhood planning may make it easier for nimby-motivated campaigns to prevent Traveller sites being set up. As always, it could be the pleasant, middle class areas that are more successful in preventing new development, so the danger is that new sites end up where they have traditionally been sited - next to motorways and sewage farms, not very healthy spots by any measure. I would urge any housing association or local authority involved in site selection to make sure that they do not provide sites in unhealthy and remote locations. They also need to stand firm in the face of local opposition and work hard to get the message across that the Gypsy and Traveller community needs support and encouragement, not suspicion and isolation.
The CIH says that 720,000 private rented properties in England will become unaffordable to people on benefits from this week, as the local housing allowance caps kick in. The prediction is that some people affected by the changes will be forced to migrate to low rental areas, like Margate and Hastings in the South East, creating benefit ghettoes in some of our decaying seaside resorts. I know Margate well (I grew up on the Isle of Thanet) and it already has a reputation for poverty and decay, with some of the most deprived wards in England. In comparison to the rest of the South East it is an incredibly cheap place to live. You can rent a two-bed flat for as little as £66 per week. The closure of Dreamland and the disastrous decision by the District Council to build a huge new out of town shopping centre at Westwood Cross has devastated the town centre. Margate is making huge efforts to regenerate itself and the recently opened Turner Centre is starting to have an impact, but a further influx of the poorest and most desperate will hardly raise the town’s fortunes.
I spoke about the CIH report to PRS expert David Lawrenson, the author of the top-selling UK book on property who told me:
“Obviously, the whole problem is one of housing market failure – a much wider issue. But looking at the PRS on its own, one really key issue is that private landlords don’t want to let to people on Local Housing Allowance for a number of reasons.
“A non-LHA let has a number of advantages over most LHA lets: a landlord gets rent paid in advance (not arrears), they get a deposit they can bank and earn interest on and a lot less paperwork. Also, payments are less likely to stop without warning simply because the tenant’s working circumstances have changed. They also know that under buy to let mortgage conditions, some mortgage lenders (scandalously in our view) still preclude a landlord from letting to “non working” people.
“If the government could level the playing field, they would find lots more landlords coming forward and the problem substantially resolved.”
You may recall that Iain Duncan Smith predicted a fall in private sector rents as a result of the benefit changes. That hasn’t happened so far, due primarily to the increasing demand for PRS lets from frustrated first time buyers. But 720,000 dwellings represents 20 percent of the private rented sector in England, so if all of these properties are vacated by claimants it could have a significant impact upon the housing market as a whole. The reality is likely to be more complex and will depend upon the reaction of landlords and tenants. My guess is that three things will happen. A few tenants will negotiate lower rents that meet the caps and will be able to stay put. Secondly, many tenants will be forced to move to cheaper areas (this is already happening). But remember that the PRS has increased by around 1.4 million properties over the past eight years, an increase from 12 percent to 17 percent of all homes in England, and yet rents have continued to rise. That looks like a bubble to me and all bubbles eventually burst, so my third guess is that the more astute landlords will start to offload their stock for sale, since they know that demand for their properties is going to fall in the longer term. This could have the paradoxical effect of keeping PRS rents high and lowering house prices in the short term as more properties flood the market. Of course, the bigger issue is overall supply and the availability of mortgages, but that is a subject for another time!