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Let’s move away from soundbites. This is what a successful national housing strategy should look like

What outcomes should our housing system look to deliver and what should a national housing strategy look like as a result? Matthew Bailes, who thinks housing policymakers are not clear about what they are trying to achieve, sets out an alternative vision

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“There is a big difference between soundbites and strategy; despite bold statements, evidence of strategy is thin on the ground in #UKhousing. We must define more clearly what outcomes our housing system is looking to deliver,” argues @MB4Paradigm

“It’s hard to make successful housing policy if policymakers aren’t clear what they’re trying to achieve. It’s impossible to achieve desirable outcomes if they don't understand how the system of delivery works” – @MB4Paradigm sets out a vision for change

Politicians of all parties seem very happy to tell us that the “housing system is broken”. For those of us who work in housing, intuitively this feels right. We see bad housing outcomes and their impact all too regularly. However there is a big difference between soundbites and strategy; despite bold statements, evidence of the latter is thin on the ground.

If you unpack the statement it basically says two things. First, that there is a housing ‘system’ – that is “a set of things working together as parts of a mechanism or an interconnecting network”. I think that’s true, but I cannot remember any minister making a serious attempt to set out what that system is or how the parts work together.

Second, it says the system is ‘broken’. If that’s right, then it follows the outcomes it is delivering must be falling way below reasonable expectations or acceptable standards.

But, again, it is difficult to get politicians to spell out what an acceptable set of ‘outcomes’ look like. They are much more likely to say that we need to do something about ‘outputs’, such as the number of homes we build, or inputs, such as the level of investment.

Some of you might by now be thinking that this critique is nit-picking. The important thing is that politicians have recognised that there is a problem and are doing something about it.

My view is rather different. I think that it is hard to make successful policy if policymakers are not clear what they are trying to achieve, and that it is equally hard – if not impossible – to achieve desirable outcomes if policymakers fail to understand how the system of delivery works now and how it might react to policy changes.

Moreover, I believe that politicians have consistently failed to deal with both points and that is why the housing system is indeed as “broken” as they imply.


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The current position illustrates both points. Insofar as the government has a strategy, it seems to rest on two conclusions.

In terms of ‘outcomes’, it has concluded that homeownership is inherently desirable and that it wants to extend the chance to own a home to as many households as possible.

Unless it is qualified, this is clearly a foolish conclusion. For example, it is highly undesirable for someone to buy a home that they cannot afford and then lose that home when they fall behind with mortgage payments. We don’t really want a family with three kids to be living in a one-bed flat, even if they do own it, although we might well accept a single person living with parents or in rented accommodation at least into their 30s.

And homeownership doesn’t look like such a good deal for the thousands of leaseholders now facing large bills to remove flammable material from the side of their home.

So behind simple soundbites about homeownership lie some difficult questions about what outcomes we really want. What represents a sustainable level of debt? What are the minimum needs for certain types of household? What is a reasonable level of income net of housing costs in retirement (and to what extent is the state or taxpayer willing and able to underwrite these costs)? What exactly do we mean by a safe building and what represents an adequate level of protection for consumers? And, dare I say it in the light of our desired outcomes, are prices generally too high or too low?

Even if one accepts that homeownership is often desirable (as I do), one look at the structure of the labour market makes it clear that there are a very large number of households who cannot access homeownership now and in some cases may never be able to access homeownership – even if house prices were to reduce substantially relative to wages.

No housing strategy can be complete without considering the right outcomes for these groups. A good proportion of these households seem to me to be to be in deeply unacceptable housing conditions, owing to some mixture of unaffordability (and often therefore dependency on state welfare and the ‘poverty trap’ effects it creates), overcrowding, insecurity and the poor quality of their accommodation or the surrounding area.

But, again, it is hard to tell what the government sees as the minimum acceptable outcomes. For example, on the number of children being brought up in temporary accommodation or overcrowded conditions – let alone identify a strategy to remedy the gap between said minimum outcomes and the position we are starting from today.

“Even if one accepts that homeownership is often desirable, one look at the structure of the labour market makes it clear that there are a very large number of households who cannot access homeownership”

The second key element of the government’s strategy seems to be that the crisis has largely been caused by the failure of the planning system to release enough land – and that, as a result, planning reform is the key to improving outcomes.

It seems to me that there is at least one giant flaw in this plan. It is well evidenced, including most recently by the Letwin Review, that the release of land will not of itself lead to homes being built at a level that would reduce prices and therefore improve affordability.

The reason for this is quite simple: it makes absolutely no business sense for the private sector to build homes at a rate that reduces prices. Landowners expect land prices to reflect current house prices – history tells them that if house prices start to go down, they should hang on to their land assets until things improve. Similarly, developers will release homes at a rate consistent with maintaining existing prices. To do so otherwise would be irrational and erode their margins and increase their risks.

The whole structure of the housebuilding industry reflects this logic, which means the delivery of new homes is highly contingent on market conditions, in a market which history has shown to be highly prone to boom and bust.

This in turn explains why investment in skills and modern methods of construction has been so inadequate and why developers sub-contract a large amount of work to third parties who can be stood down if the market gets choppy. Why invest in the long term if it impossible confidently to predict market conditions?

In summary this means there is a catch-22. The government wants to approve affordability by increasing supply, but supply slows down if affordability starts to improve.

The government’s use of demand-side subsidy, particularly the Help to Buy, implicitly recognises this problem. By ‘pricing in’ first-buy buyers, it may have had some success in improving absorption rates. Although there is also evidence that these subsidies have also led to higher prices – therefore windfall gains to landowners and developers at the expense of first-time buyers.

However, given the cost of these schemes, the idea that they could be used to price in a large proportion of the next generation is not credible. The Treasury seems much more interested in phasing out these subsidies but is clearly finding this challenging given the potential cold-turkey effects on supply.

It is also clear that other elements of the housing system greatly ‘reduce’ absorption rates and therefore strongly militate against a strategy to build our way out of an affordability crisis.

For example, just about all the available evidence suggests that the supply of new homes correlates strongly with the overall number of transactions in the market. The reason for this is obvious: more transactions means more buyers, and more buyers means more new homes can be delivered without driving down prices.

“On the most basic policy outcome of all – ensuring buildings are safe – the government’s record includes allowing highly flammable material to be used on tall buildings and scaling back building control”

Put simply, if the government wants more new homes for sale it should be encouraging transactions. Transactions might also be good for other outcomes, too. For example by freeing up larger homes, encouraging labour mobility and so on.

Yet the tax system, far from encouraging transactions, is geared up to do precisely the opposite. It imposes a sharp penalty on buyers in the form of stamp duty, especially in the highest value areas where, inevitably, new supply is usually most needed. The government has tacitly acknowledged this effect by introducing temporary stamp duty discounts to address the risk that transactions – and new build figures – plummet as a result of difficult economic conditions.

It also fails to encourage people to move from large or expensive homes even when their needs change. The nearest thing we have to a housing consumption tax, council tax, is so deeply regressive that scaling back barely makes any difference (indeed moving from a rich area like Westminster to a similar home in a poorer area could actually increase a household’s council tax bill).

Other elements of the tax system, including the treatment of housing assets for inheritance tax purposes, actively encourage people to stay put.

So the tax system reduces the number of moves, therefore reducing supply, which in turn further undermines the nearest thing the government has to a housing strategy. It also inhibits the functioning of the labour market and means there are fewer larger homes available for families that actually need them, contributing to over-crowding. The left hand is actively undermining the right hand.

This clear policy failure is far from unique. For example, the tax system was, until recently, actively encouraging amateur landlords to buy up properties as investment vehicles, fuelling a speculative boom in house prices and crowding out first-time buyers, despite successive governments claiming to support homeownership.

On the most basic policy outcome of all – ensuring buildings are safe – the government’s record includes allowing highly flammable material to be used on tall buildings and scaling back building control.

This resulted not just in the horrendous Grenfell disaster but also a system-wide failure in which hundreds if not thousands of buildings had been signed off despite being unsafe, failing to meet the government’s requirements or (usually) both. This was done in the name of cutting the cost of regulation without, it seems, much of an understanding that in the housing system the principal effect of cutting build costs is to inflate land prices.

As a result landowners have walked off with slightly bigger windfall profits. Meanwhile some combination of developers, their sub-contractors, leaseholders, not-for-profit housing providers, insurers and the taxpayer are going have to foot an enormous bill to put things right.

So what would an effective strategy look like?

I think it would start with a clear statement about the outcomes the government wants, for example in terms of affordability and minimum standards of accommodation for different household types. The current headline target – to build 300k homes a year – is only a very loose proxy for desirable outcomes and means debate is narrowly focused on new supply and not nearly focused enough on other elements of the system.

The other key ingredients would include:

  • Tax reform designed to encourage transactions, disincentivise speculative investment and, ideally, create incentives to reduce carbon emissions. This would probably involve fundamental changes to council tax and stamp duty phased in over an extended period, and perhaps changes in the way uplifts in land value are taxed (though not necessarily the rather vague proposals in the Planning White Paper)
  • Measures to limit price volatility, perhaps by giving the Bank of England stability targets and some new levers, for example around mortgage market regulation
  • Top-to-tail improvements in building regulations and control (not just confined to tall buildings), recognising that it is hard for consumers to spot bad buildings and that bad neighbourhoods, bad design and bad construction create long-term negative externalities for society as a whole
  • The release of more land and more proactive recycling of brownfield sites (including in town centres), driven by a planning system that is faster, more professional and properly funded – but not barely regulated permitted development
  • A major expansion in the provision of affordable homes, including homes for rent for households on very low and modest incomes
  • Reform of the benefit system, so that households on low-incomes could afford homes that meet their basic needs
  • Increased regulation of the private rented sector, so that standards improve and over time small amateur landlords were squeezed out in favour of professional long-term institutional investors
  • Leasehold reform, to address the range of anomalies and iniquities in the current system

Given our current starting point, the government would also need to provide a clear route map to deal with the fire remediation crisis. This will probably involve exchanging upfront funding for the right vigorously to pursue those who have not delivered appropriate standards.

A comprehensive reform of the system along the lines of the above could make serious inroads into the housing crisis within the space of decade. The current policy approach will not.

All this begs a question about why successive governments have failed so miserably on housing policy.

There is a plausible argument that said that Whitehall silos are the problem. In theory housing policy sits in what we now call the Ministry of Housing, Communities and Local Government (MHCLG). But many of the big levers do not. Tax policy is largely the Treasury’s domain, and welfare policy as well as anything to do with revenue support for housing costs sit with the Department of Work and Pensions (DWP).

I can say with some personal experience that co-ordination between these departments leaves a lot to be desired, and that the mechanisms for resolving tensions between competing departmental objectives are at best limited. For example, in my time, MHCLG’s predecessor department decided to hike sub-market rents to up to 80% of market values at a point when DWP (with strong encouragement from Treasury) was cutting various housing-related benefits and imposing benefit caps.

Unsurprisingly this meant that ‘affordable rent’ was simply not affordable for some families, particularly in high-value areas. This in turn contributed to increased use of temporary accommodation, generating a large bill in another part of the system.

“More fundamental problems lie neither in the structure of Whitehall nor the quality of policy advisors, but in politics”

One could also argue that generations of politicians and officials have, to put it slightly unkindly, lacked the intellectual bandwidth and space to understand a complex system and put it right. And perhaps that the quality of academic analysis, including the difficulties in modelling impacts on the system as a whole, hasn’t helped.

Again, there might be something in this, although I know first-hand that some officials, academics and even the odd politician have a decent enough grounding in how the system works to have come up with a much better suite of policies than we have collectively managed to date.

I think the more fundamental problems lie neither in the structure of Whitehall nor the quality of policy advisors, but in politics.

The unfortunate reality is that there is no short-term fix to the housing system but plenty of short-term political pain in trying to put things right. The example of council tax illustrates the point. Revaluation was first put off by Tony Blair’s government, no doubt with an eye to marginal seats in London and the South East where house prices had grown substantially. It was probably a good political decision, but a terrible policy mistake. Very few politicians have even had the stomach to raise the issue since.

The same is true of releasing land for development. There are plenty of people with a vested interest who will object, but the people who benefit don’t tend to be very grateful. Votes are easy to lose but difficult to gain. Conservative backbenchers clearly understand this point and have been quick to oppose the government’s latest attempt to impose more development on high-value areas.

This problem is not confined to housing.

As a society we are fudging just about every issue that requires short-term pain to address long-term problems. For example, we have failed to deal with perfectly obvious problems with the social care system for a period of decades. Our response to environment challenges has been tepid. So has the response to growing obesity and diabetes crises.

So how can the politics be shifted? It’s not going to be easy, but I can see four possible routes (which are not necessarily mutually exclusive).

The first is that the crisis becomes so acute and affects so many people that the government’s political incentives change. Hopefully we have now reached that stage on social care. Eventually we might get there with housing, as the number of people who lose out from the system grows.

Second, there is some event or campaign that changes the public mood. Arguably this is what Cathy Come Home managed to do in the 60s and what Marcus Rashford managed to do with free meals for kids.

Third, there is scope for some sort of independent review. Sometimes these are the best way to examine problems in detail and come up with sensible solutions, but they can also serve as a form of much-needed political cover. A royal commission on housing could do little harm and might do some good.

Finally, politicians can use the cover of a crisis to do the things they should have been doing anyway. David Cameron had such a crisis in 2010 and might well have got away with sensible tax reforms given perceptions about the scale of the fiscal crisis. He wasted that chance, but another one has come along relatively quickly. And arguably as crises go, coronavirus and the resulting economic and fiscal problems dwarfs the global financial crisis and therefore provides even more political camouflage.

This time it is up to Boris Johnson to make the right long-term decisions. The signs are not exactly encouraging, but we shouldn’t give up. It seems to me that as a group of not-for-profit organisations with objectives to tackle housing need we should be shouting about the inadequacies of our housing system at every opportunity.

We can but hope that eventually the government will take a strategic approach to policy and make a serious attempt to sort out a housing system it is so quick to disparage. But I, for one, will not be holding my breath.

Matthew Bailes, chief executive, Paradigm Housing Group

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