Transcript 2010 11 PRLG Land and Housing Markets sh

New housing and land policies,
and next practice for the Big Society
Joining it all up: Co-producing a plausible policy story
Professional Land Reform Group, London November 2010
Stephen Hill, Director, C2O futureplanners
The Big Picture Story…
The Big Society and
Open Source Planning
“Too much has been imposed from above,
when experience shows that success depends
on communities themselves having the power
and taking the responsibility.
It’s no good officials in Whitehall or even the
Town Hall telling people what is needed in their
street.”
…. everyone has a stake based
on equal rights and where they
pay their dues by exercising
responsibility in return, and
where local communities shape
their own futures.
Letter to the Editor
Prescott’s ‘growth areas’ pull plans for thousands of homes
Building Magazine 6/08/10
“Dear Sir,
The ‘big society’ is working
well, then. Up and down the
land, local communities
have overwhelmingly
agreed they don’t want any
new neighbours.
Yours etc”
MP for Tunbridge Wells
(Disgusted of Tunbridge Wells? )
“It’s a very miserable
view of human
nature, that people
who are not told what
to do, default to
something that is
short term,
individually selfish,
and unenlightened.”
Greg Clark, Minister for Planning and
Decentralisation,
Guardian Interview 15/9/10
600 home scheme in Tunbridge Wells
turned down to protect the dormice
Housing Policy
for a Big Society
We need a shared
vision of what
housing is for in the
life and economy of
the country
…but what
housing
policy?
Different
questions
• Osborne etc
“How to
manage the
queue?”
• Beveridge
“Why is there
a queue?”
“What would an
intelligent
housing market
look like?”
• “We need a
market that’s
boring”.
• “Where things are
really quite
predictable.”
More Wise words from
the Housing Minister
• “We’ve all forgotten what our
housing market is actually
for… to provide a home.”
• “Buying a home shouldn’t be
like playing the lottery.”
• “Of course, market conditions
don’t exactly match this
picture at the moment”.
• “The economic legacy has
made things very difficult for
you, and will do for
sometime”.
A Principled
Housing Policy
Sufficient support for…
• 1. Plausibility: The price
of a modern home and
sufficient space will be
within the means of a
family/household with an
average income.
• 2. Neutrality: There
should be similarity of
pricing between equivalent
homes in different forms of
tenure
• 3. Social: The position
of disadvantaged groups
in the housing market
will be strengthened.
• 4. Standards: Housing
consumption for all
should be supported
upto a certain standard.
Consumption beyond
the standard not to be
supported through public
action and funds.
• 5. Parity: Differences of
price between homes of
different ages and
condition will correspond
with differences in their
utility value.
• 6. Speculation: Explicit
action is needed to
counteract the
inflationary transfer of
wealth to property
owners.
Courtesy Prof. Peter Ambrose
Land Development Study 1980-88
From Prof. Peter Ambrose “Urban Process and Power” (Routledge 1994)
M-Way Corridor A v. M-Way Corridor B
• Output No. Homes per 1000 people:
• Affordable Homes:
• Choice of tenure/production:
7.3 v. 6.1
65% v.15%
5 v. 2
38% LA rent- 27%Coop- 43% Owned [50% self-build]
- 2% market rent.
Variations reflect local political preferences
85% Owned [0% self-build] 15% social rent
Tenure determined by central government policy
Affordable dropped to 6% just after study period
• Professional/managerial in ‘social’:
49% v.<2%
E4 Corridor Stockholm-Uppsala
v. M4 Corridor Berkshire
• Building cost increase:
24% v. 47%
Extended period of capitalisation & innovation
in construction efficiency and productivity
• Land price increase:
• Land as % house price:
<5% v. 436%
+/-10% v. 60%
• Market impacts on supply post-’88: +/-0% v.-60%
• Land differential/hectare:
£301k/ha v. £1,222k/ha
E4 = M4
4
Why Land Price is the issue
The costs of complying with
public policy and regulation ie.
the essential basic requirements
of Spatial Planning, to create
sustainable places and
communities:
 Dwelling size and quality
 Affordability of all housing
 Climate Change Adaptation
and Resilience
 Hard, Soft and Green
Infrastructure
should be internalised and
reflected in land price and
valuation…
But aren’t!
“Must do better”
Tim Leunig, Dept. Economic History, LSE
Full marks to:
• Mr. Shapps:
“Britain would be a better place if house prices did
not rise in nominal terms during this parliament.”
Centre Forum at the Liberal Democrat conference
• Neil O’Brien, Policy Exchange:
“Britain needs to build more houses, so that house
prices fall.”
Financial Times
• ‘Rumour reaches me that some of his board choked
on their claret when they read his piece, but he was
right … lower house prices would be good for Britain,
and they would lead to lower housing benefit bills.’
The Housing Business Case
• Homes >30% smaller
than Parker Morris
• Costs of primary health
care, mental health,
policing, education
lower in areas of better
quality housing
• Factor difference
5-7 times
• Even if 50% wrong
= big number
Recognised in RICS, BRE, CABE,
IDEA, and HCA guides and tools
The Macro-Economic Case
• By updating 1980
House Purchase
Debt for
consumer price
inflation to 2005,
debt was £600bn
more than one
would expect.
• ‘Affordability’
became
meaningless with
House Price
Income ratios at
upto 8:1 (by 2007)
House prices, consumer prices & earnings
1980-2005 from Ambrose’s Memorandum to
the PMon Unaffordable Housing 2005
The Social Case
• Inequality is bad for
you…
• …and countries
The economic causes and effects
of social inequality
• Between 1963 to 2003, there is a very close correlation
between increasing debt and increasing inequality in
the US. The longer-term increases in debt can only be
explained by the rise in inequality.
Economist Matteo Iacoviello
• Both short-term household debt as % of household
assets, and government national debt as % of GDP are
higher in more unequal countries.
Organisation for Economic Co-operation and
Development,
• The crashes of both 1929 and 2008 happened at the
two peaks of inequality in the past hundred years, after
long periods of rising inequality which had led to rapid
increases in debt.
The economic causes and effects
of social inequality
• Leading upto the 2008 crash, about $1.5trn per year
was being siphoned from the bottom 90% of the US
population to the top 10%.
• Both for speculators and householders, rising property
prices made investment in property look like a
bandwagon everyone had to get on, entering the
housing market wherever they could and remortgaging
precariously as prices rose.
• As a result, the richest people had more and more
money to invest and to lend, but people outside the
very wealthiest category found it increasingly difficult to
maintain relative incomes or realise life aspirations
• The financial sector handling and speculating on these
debts found its share of all US corporate profits rising
from 15% in 1980 to 40% in 2003.
Blame it on the
bankers?
• “Bankers worse than
the IRA”
Irish Daily Mail 29/10/10
• “…the extensive
and visible larceny
of the commercial
banks.”
JK Galbraith
The Culture of Contentment
1992
Difficult questions
If the structure of
existing land and
housing markets embeds
social and economic
inequality in the
economy:
• Is ring fencing the NHS
budget, a plausible
policy proposition?
• What would the Office
of Budgetary
Responsibility have to
say about it?
Which politician said what?
• "I do believe this country
is too unequal and the gap
between rich and poor
doesn't just harm the poor,
it harms us all . . ."
• The book shows "that
among the richest
countries, it's the more
unequal ones that do
worse according to almost
every quality-of-life
indicator".
2005…Didn’t anyone see it
coming?
On reading Ambrose’s Memorandum on
Unaffordable Housing
• “We are now making real progress to
delivering our goal: that everyone
should have the opportunity of a
decent home at a price they can
afford.”
T. Blair PM
•
“Using this definition (of
Unaffordability) would undermine
everything we are trying to do. The
difference is merely semantic.”
Dr. Phyllis Starkey, Chair ODPM Select
Committee Inquiry into Affordability
•
“It (the expansion of house price
debt) is not a problem, as long as the
market is working.”
Treasury Official
2005 – A good year for clear thinking
• “There is some sense in seeking to understand the causes and
consequences of house price bubbles before, rather than after,
they have unwound.
•
Any major correction is likely to focus attention on:
- the tightening of lending requirements,
- the strengthening of financial surveillance,
- the causes and consequences of household debt,
- the creation of a richer set of mortgage contracts, and
- the extent and desirability of implicit, and even explicit,
guarantees of mortgage debt.
• Many of these require a great deal of coordination across
diverse economies…The problem is that such difficult thinking
does not appeal, especially to politicians, in the good times of
house price bubbles.”
Andrew Farlow, Dept of Economics, Oxford University
‘UK house prices, consumption and GDP, in a global context’ (OUP 2005)
The case for reducing debt
•
•
•
•
•
Financial sector:
£3.4trn
Non-financial companies: £1.7trn
Households:
£1.5trn
General government:
£0.9trn
Total UK debt 2009:
£7.5trn
PwC State of the Economy November 2010
245% GDP
122% GDP
110% GDP
67% GDP
543% GDP
Some heavier weight views
• “Annual house price increases are equivalent to a
government current account deficit of 4.4% of GDP, or £50bn
a year.”
Dr. Martin Weale, Director, National Institute of Economic and Social Research
[Now member of Bank of England Monetary Policy Committee] 2007
• "There is a time bomb effect from the huge amount of debt
built up across all sectors of the economy. Sooner or later,
this will have to be addressed either through debt being run
down sharply, which would risk triggering another recession,
or… through a persistently heavy debt service burden that
could dampen economic growth for decades to come.
• Either way, deleveraging…goes well beyond the immediate
challenge of getting the public finances under control.“
John Hawksworth, PwC Chief Economist 2010
The need for Creative Destruction?
• Property debt and land price are central to regular 18 year
cycles of ‘boom and bust’, since 1800.
• How can we avoid this happening again?
• Wrong question: Sorry, Gordon and George… We can’t.
• Public debt is a second order
problem.
• Restructuring property debt and
land markets as long term equity
investment is the main task
• How can we adapt to the new era?
• Right question: Eric, Greg, Grant
& Co… We must.
Changing land and housing markets
RICS Land Journal Jan 2009
• “It is probably no longer safe to
presume that planning permissions
create an automatic and significant
bankable uplift in land value for the
owner.
• S106 and tariffs not fit for purpose in
global capital markets”
Savills Research Sept 2010
• Future market uncertainty heavily
factored into valuations.
• Two-speed land market…
oven ready sites and strategic land
• Servicing the pension provision of an
ageing population will require a shift
to cash-flow investment… in purposebuilt residential property.
• … and infrastructure and
commissioned housing
“For the first time in my career,
people are offering me
land for nothing.”
The next long cycle era
All-property real capital values
5
Log real index (1957=100)
4.7
4.4
•Shift to domestic realm
•Low carbon economy
•Reregulation
•Return to equity
4.1
3.8
•City centre
reconstruction
•Consumer goods
3.5 industries
•Demand management
•Mortgage finance
•Out-of-town
development
•Service economy
•Deregulation
•Equity investment
•City centre revival
•Internet services
•Globalization
•Leveraging &
derivatives
Limits to growth?
3.2
1957
1962
1967
1972
Sources: Scott (1996); IPD; ONS; PMA
1977
1982
1987
1992
1997
2002
2007
2012
2017
2022
Property Market Analysis
Grant is right…
• It’s boring…
• It’s predictable…
• and it’s taxable!
The Minister’s Story…
“We will become a nation of homebuilders”
•
A rural housing revolution…
Local Housing Trusts will give
people the power to expand their
villages up to 10% over 10 years.
- Accommodation for the old
- Affordable homes for the young
- Shops, schools, GP surgeries
•
People at last really shaping their
own communities
•
Power to bypass planning
committees
•
But I don’t want the principles of
Local Housing Trusts just to be a
countryside thing. Our towns and
inner-cities must benefit too.
“We’ve been through the highs and lows
together” Charlie Hibbert, CLT Member
“I am really impressed by the foresight
and tenacity of local people in driving this
scheme forward. Seeing these houses
here, built to high standards by the
owners, with the support of professionals
is most impressive.”
Grant Shapps, Shadow Minister 2008
The model for
Community Right to Build
Cornwall CLT Programme 2007
17 villages – 120+ homes
Unique partnerships…
enabling district councils, their
communities, Carnegie UK Trust,
and an RSL
Blisland CLT
on Bodmin Moor
St. Minver CLT
Average house price
Market value
Cost including land
£650,000
£350,000
£120,000
12 houses 12 months
On time – On budget
A social movement ?
Or just PPS 3 compliance for
affordability ‘in perpetuity’ ?
A coherent political story?
• “The goal of improving social mobility
overlaps with other objectives for social
policy, such as reducing poverty or
narrowing income inequality.”
Clegg: August 2010 Centre Forum
• “I want to deliver equality of opportunity
(rather than equality of outcome) and
that the Coalition’s reforms in education,
welfare and health – as well as the
reduction of the deficit – are part of my
hope that a child born today would enjoy
a better chance to succeed in life than a
child born during the Brown-Blair era.”
Osborne: Today Programme interview
August 2010
The wise words of Clegg?
• "Old progressives are
obsessed with marginal tax
rates… rather than [look] at
the overall system…and
allow symbolism to trump
real reform.
• New progressives want to
reform the tax base
fundamentally, towards
taxation of unearned
wealth and pollution, rather
than people.“
Hugo Young Lecture 23/11/10
The answer for our times?
• The strength of the economy and the
welfare of all citizens depends on stable
and fair land markets.
• Inequitable wealth creation though
inflation of land values and speculation
in land prices undermines basic
freedoms.
• “The best way to make private property
secure and respected is to bring the
processes by which it is gained into
harmony with the general interests of the
public.”
Churchill in The People’s Land’ 1909
RICS Royal Charter 1881
Objects
To maintain and promote the
usefulness of the profession for the
public advantage in the United Kingdom
and in any other part of the world
…securing the optimal use of land and
its associated resources to meet social
and economic needs
LAND…
But
what’s
the
Question?
Well, I think
the answer
lies in the
soil…
The 21st Century Challenge
• Capturing value
uplift is a 20th
Century answer
to a far sighted
19th Century
question
• The 21st Century
currency of land
value has to be…
But
we
can’t…
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