At the Shelter Scotland Annual Lecture

by Ken Gibb

This evening, Danny Alexander gave the annual Shelter Scotland lecture. It was entitled Housing and the UK Economy. Well-attended by the Scottish housing fraternity, it was chaired by Richard Holloway. He made the point that the 1951 Tory Government delivered 300,000 units a year and they justified this massive output achievement (and its contrast with recent lowly efforts) on the basis of the then Government’s desire to boost economic productivity as well as tackle the acknowledged crisis in housing. It should however be noted that Holloway later berated the poor aesthetic quality of postwar UK and Scottish urban housing stock – these two facts may be related?

Danny Alexander defended his own Government’s record both on the deficit reduction and on welfare reform, the latter primarily as work incentivisation. He then went on to argue that housing was a source of macro financial instability and that this was best tackled by radically increasing housing supply (indeed to the 300,000 figure). He also argued that policies to do with localism, help to buy, planning reform and other supports (a ‘blizzard’ of policies) had contributed to significant growth in units developed – but still well below 200,000 even in recovery phase.

It was an understandable though not an entirely convincing defence of the Coalition core policies. It remains the case that deficit reduction could have been managed in a much less dramatic and austere way that did not risk the slow and postponed economic recovery that followed. And deficit reduction was less successful in its own terms than was promised. The welfare reform proposals have struggled under most reasonable analyses: the failure to roll out universal credit in anything but the simplest of cases, the racheting-up of sanctions, the treatment of the ill and disabled, the faulty behavioural assumptions about private landlords cutting rents or under-occupiers moving to smaller units. All not borne out, let alone the growing empirical picture of hardship and loss brought by these measures and the huge growth of in work poverty and reliance on benefits in work. None of this was mentioned tonight.

Turning to housing, Alexander’s big idea was to contemplate the state as a housing commissioner. What this would mean, he seemed to say, was looking at the proposition that if the housing system can generate say 180,000 units, the state would commit to building 120,000 (to get to that magic annual total of 300,000) and would then sell them off, presumably to a range of providers across the market and non-market sectors. In this sense, it would financially be like a short term equity loan – fronted by government but repaid on resale.

I would suggest that the Treasury thinks hard before pursuing this sort of line. First of all, it suggests a degree of market-second guessing, knowledge and planning on the part of the state that would have Frederick Hayek spinning in his grave. Second, via lags and other cycles it may serve to exacerbate the development cycle and actually restrict the role of the market developing via over-building. There is considerable and extensive scope for unintended consequences here and I would suggest going very warily. Third, there is a real numbers fixation here with building targets but little sense of the economics going on around it particularly how the demand side responds. I had the sense this evening that Mr Alexander could evidently recognise the macro argument that the housing sector can be financially destabilising but he could only seem to see supply as the answer not, for instance, to also seek to minimise the culture of speculation and be more creative with taxation and consider more work on mortgage regulation.

Later on Duncan Maclennan asked in the Q&A session what advice Mr Alexander would give to help the housing lobby make a productivity case for more housing investment. His response was telling in that unlike transport infrastructure or telecom broadband, he could not see housing having the same impact on the economy. Duncan used the arguments popularised by US economists like Don Haurin to argue that there is evidence that good housing improves parenting and educational attainment (let alone supporting labour market functioning and large construction multipliers). It does seem that there is definite scope in this area to make a stronger economic argument.

I also managed to ask a question in this case about the bedroom tax. In his lecture Danny Alexander said he supported the affordable housing bill and hoped it would get into law and thereby significantly weaken the spare room subsidy. I asked him if this happened or indeed other future governments chose to abandon the bedroom tax – would there still be point in devolving Housing Benefit? His reply indicated that he (and the Lib Dems?) have bought the IPPR argument (as Labour has) that housing policy is devolved and HB should therefore be too. Regular readers will know I do not really accept this: housing is not completely devolved and reserved elements such as private housing impact on the rest of the system so there is not such a degree of devolution in reality. Moreover, the second IPPR benefit devolution requirement was stability in benefit spending – yet the larger part, local housing allowances for the rental market are important, growing and volatile. I don’t think this even therefore makes the IPPR’s own case for justifying the devolution of HB. Will the Smith commission look closely at the details and not just the big picture – devolving social security, as experts like Paul Spicker has stressed, is not at all straightforward.

An interesting and thought-provoking evening. Richard Holloway described it and courteous and candid. Apart from the politics as normal defence of government (always odd within the Coalition’s particular strains), Danny Alexander was considered and thoughtful and he clearly has a substantial interest in housing and making innovative housing policy. While I didn’t agree with aspects of what he had to say, it is positive that the Government, the Lyons Review and people like Kate Barker are promoting housing prominently, rightly, in the run up to next year’s election. It is a momentum that needs to be sustained – initiatives like the Shelter Scotland Housing and Well-Being Commission will be essential (1).

(1) I should declare an interest in the Commission as I act as an advisor to it.