Posted by Felipe Carozzi (SERC and LSE) & Paul Cheshire (SERC and LSE)
Given the severity of the housing crisis, the new Housing White Paper is a sad creature. Any policy announcement welcomed by the CPREalmost by definition signals throwing in the towel on the serious reform needed to build more houses. Its aspiration of building “many more houses, of the type people want to live in, in the places they want to live” would be most welcome, if it wasn’t an echo from down the ages. We find an identical aspiration in every government publication since the Barker report of 2004. In 2008 the then National Housing and Planning Advice Unit issued advice on housing supply and argued: “we must increase housing supply, delivering the right number of new homes, of the right type, in the right place and at the right time”. This exact phrase was invented by one of us as a coded way of saying we needed to be willing to build on parts of the Green Belt! If we go back a little further to the Green Paper of 2007 Homes for the future: more affordable, more sustainable, we find a whole section on “How we create places and homes that people want to live in?” Even the number of houses we need to build – 275000 a year – in the current White Paper is drawn for the Barker work. While previous proposals had no mechanism to deliver the ‘right’ homes in the ‘right’ places they did at least have a mechanism – albeit a dirigiste one – to get LAs to allocate more land for housing and set targets for house building. There was also some power to see the targets were more or less met.
The White Paper’s diagnosis of the problem is broadly correct – the affordability problem is caused by insufficient building. And the primary cause of this long term lack of building is restrictions on the supply of developable land. However, the White Paper’s claim that “The housing market in this country is broken, and the cause is very simple: for too long, we haven’t built enough homes” does get it the wrong way round: our lack of building is a symptom not a cause of a broken housing supply process. This supply process includes the planning system, local government finance and the monopolised structure of the development industry that these two broken systems have created.
We have a tax system that effectively fines local communities if they allow houses to be built as the increase in the number of households puts additional strains on local public services. That does not seem a good starting point. House building is then helped along by a planning system that is cumbersome, uncertain in its decision making and subject to political pressures and expediency. As a result, whether there is a local plan or not, developers can have no idea of the likelihood any application will succeed and even less idea as to the cost of the ‘planning obligations’ that will be imposed if it does. Then – above all – LAs are prevented from delivering enough land both by the religious exclusion of economic ideas in the system they use to determine how much land to supply and by direct restrictions in the form of Green Belts and heights on their ability to supply it. The paper’s repeated emphasis on upholding Green Belt boundaries bars the possibility of development in previously unbuilt areas. Likewise, little reference is made to new incentives for local planners to modify existing building height restrictions.
These are the fundamental causes of why we have consistently built too few houses over more than 40 years. And about these fundamental causes the White Paper proposes to do precisely nothing. Our estimates of the accumulated shortfall of house building between 1994 and 2012 were between 1.6 and 2.3 million. Since then we have built some 125 000 a year too few. So since 2012 we can add about 0.5 million to those numbers. And we have consistently built the wrong sort of houses in the wrong sort of places.
Among the White Paper’s ‘solutions’ are more local plans – but these plans are very fallible guides to actual decisions about actual proposals. They are often overridden by immediate political pressures and community lobbying, and hence are at best only weakly enforced. We need a ‘rule-based’ system, such as a Master Planning or Zoning system. Indeed, we already have one element in the house building process that successfully works in that way: Building Regulations. Then, the White Paper claims bringing forward more brownfield sites and better use of public land will solve the land supply problem. Well, we have been saying the same things about brownfield and public land since the late 1990s and have excellent data on both (see example here). As we have consistently argued this cannot solve the problem; nor will it. Too much of the brownfield land is in the wrong places or too expensive to build on sensibly. And anyway there is far too little to catalyse the real competition between sellers needed in land markets.
A standardised system of forecasting local housing ‘need’ might conceivably help to address the coordination problem implicit in local authorities free riding on each other. But the real problem with our system for deciding how much land to supply is that prices are determined by the interaction of supply not with need, but with demand and demand is largely driven by income. The number of households – even if accurately forecast – which is not possible given that the numbers of households in a LA are themselves determined by the relative price of houses – does not much affect demand, so it has surprisingly little influence on price. Indeed a LA can always price households out of its area and so have no unmet ‘need’ at the observed price of housing. Moreover, close reading of the White Paper reveals the proposal to standardise the method LAs use to forecast housing need is not in fact a proposal. It is a proposal to consult about a proposal. Any actual change would require a consultation period, a review period and then bringing forward changes in legislation. And then finally rolling out these changes and implementing them successfully at the local level. There is little hope any actual changes could be in place in even the medium term, even if having a standardised method to forecast need would help: which it would not!
This White Paper emphatically represents yet another missed opportunity. Not a single proposal will have any measurable impact on the supply of houses by 2020 and most will never have an impact. There are a few useful suggestions. The Housing Infrastructure Fund is welcome and could make a difference. But that was announced some time ago and the more sceptical of us would want to examine the books very closely to satisfy ourselves it really was new money. A provision for New Town Corporations might help. But again this is for thought not action. Taking steps to improve the transparency of ownership of land and of options to develop it is a good idea: but again it is not action, only possible action. And, of course, the need for it is only because the shortage of building land is so acute that land prices are now so high they financially justify the complicated legal and financial shenanigans such options on options on land represent. One thing is totally clear, however; they represent a deadweight loss to us all.
The fundamental problems with housing remain the same as in the last fifteen years and of those the most fundamental is the lack of land for development. Only fundamental reforms of our housing supply process will help and this proposes none. Indeed it in some ways goes backwards. It goes from a set of (not very good) mechanisms delivered in 2007 with the Regional Spatial Strategies to a set of aspirational gestures. Frankly the Secretary of State could build more houses with a magic wand.
A guest post by Stephen Clarke of the Resolution Foundation
2017 will see the UK begin its departure from the European Union. However, as the UK seeks to shed some politicians in Brussels, we will be getting some new ones at home. Greater Manchester, Liverpool, Tees, West Midlands, Bristol and Bath, and Cambridgeshire and Peterborough will all go to the polls to elect mayors and will gain new powers over transport, housing, business support and skills.
Unfortunately last week it was reported that the Sheffield City Region would miss out. That’s a concern as new research by the Resolution Foundation shows that the area has some pretty fundamental living standards challenges that need to be addressed. Our analysis find that the city region is the low pay capital of Britain – with typical workers earn £43 less a week than the UK average. The region desperately needs to get devolution back on track.
Sheffield may be the low pay capital, but the problem of low pay affects the vast majority of cities in the Midlands and the North of Britain. It is well known that country’s economy is skewed towards London and the South East but the chart below emphasises this. Gross hourly pay was 36 per cent higher in inner London compared to the UK average between 2012 and 2016, whereas it was 13 per cent below the average in the Sheffield City Region.
Note: Difference in gross hourly pay is calculated as an average of the years 2012-2016 using data from the Labour Force Survey. Multiple years were rolled together to provide enough observations to estimate the differential in a regression model. East Anglia and South West contain the devolved areas of Bristol and Bath and Cambridge and Peterborough.
What accounts for the pay penalty experienced by Sheffield and other areas outside of the South East? Partly it reflects the fact that these areas tend to have a greater proportion of employees who are paid less (part-time workers, those on Zero Hours Contracts, etc) and a greater share of firms that pay less (those in the retail and hospitality sectors for instance). However it is also true that like-for-like workers earn less in these areas than in the rest of the country. In essence there is both a compositional and a productivity problem.
To estimate how important each of these factors are we ran a series of regression models in which we estimate the difference in gross hourly pay between workers in these areas and those in the rest of the UK controlling for a range of job, workplace and personal characteristics. We find that in all the areas above pay gaps remain even when we compare like-for-like workers. This ‘residual’ reflects differences in productivity and other factors that we cannot directly measure. The relative importance of the two factors is given for each region in the chart below.
Note: Analysis carried out using the Labour Force Survey, full details of models can be found in Annex 3 of our paper, available here.
In all areas compositional and residual factors play a part, however there are differences in the relative importance of the two. Outer London does have more high paying firms and higher paid employees, but higher productivity seems to play a bigger role in this area. In Sheffield, compositional differences and lower productivity each play an equal part.
Productivity is particularly low in the Sheffield City Region. In fact it is the lowest of any major city. The chart below shows how much each sector in the Sheffield City Region contributes to this productivity deficit:
The retail, manufacturing and office admin sectors are all large employers in the region and correspondingly all significantly contribute to the region’s productivity deficit. Education is the only sector that meaningfully raises the productivity of the region compared to the rest of England.
The scale of the challenge facing the South Yorkshire region is clear. This challenge is just as much a task for national politicians as it is one for local leaders. Nevertheless devolution would have bolstered the chances of local leaders starting to get to grips with it. Despite the limited powers on offer, devolution does provide greater control over how the scarce resources available for economic support are spent. An effective mayor also provides a figurehead who can convene large employers and key businesses. Changes to transport and housing can make an area more attractive to firms and high skilled workers.
It remains to be seen if the six regions that are going to the polls this May will use these new powers effectively. What is certain is that South Yorkshire will not – yet – get the chance to.
Copyright © CEP & LSE 2003 - 2017 | LSE, Houghton Street, London WC2A 2AE | Tel: +44(0)20 7955 7673 | Email: firstname.lastname@example.org | Site updated 28 February 2017