Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Month: December, 2014

Behaviour, Scarcity and Public Policy

I have written in the past about my enthusiasm for broadening economics and incorporating the insights of psychology and institutional analysis. Pretty late in the day I have just read the 2013 book ‘Scarcity’ by Sendhil Mullainthan and Eldar Shafir (Picador). It is a well-constructed argument that pulls together a lot of the behavioural economics canon around a few overarching themes and then applies them to a range of economics, time management, self-control and social isolation topics. The policy recommendations are nudge-style redesigns aimed at helping people and organisations overcome cognitive capacity problems.

The authors use a lot of stories and metaphors as well as reporting experiments by themselves and others. This includes quite a lot of what is now familiar or classic results from the behavioural economics field e.g. Thaler’s mental accounting. They are particularly interested in development and poverty, so much of their work relates to evidence collected from the global south. It is noteworthy that much of the 2015 World Development Report from the World Bank is a direct application and extension of their work. [1]

Scarcity is a concept widened from its usual economics setting and refers rather to scarcity of mental resources. While it is acknowledged that concentrating on a priority can produce a focus dividend, it also leads to problems associated with tunnelling i.e. neglect of other parts of one’s life, our work, confusing what is urgent for what is important and actually impairing our mental performance (experiments suggest that IQ can be significantly reduced while tunnelling). Their argument is that scarcity captures attention, as we tunnel, we juggle priorities, debts, family time, commitments to dieting or exercise and we have less attention on longer term questions or indeed regular commitments. This is of course considerably worse for people in poverty but it is this group who better understand the opportunity cost of decisions and the economic trade-offs that follow – however, they are nonetheless most trapped in the tunnel in part because they have no room for slack and no buffer against shocks.

Why is this so? Fundamentally, because scarcity imposes a tax on our cognitive capacity, our bandwidth, in terms of both fluid intelligence (logical reasoning in the abstract) and our executive control (planning, attention, initiating decisions, impulse control, etc). The tunnelling effect means that impaired cognitive capacity leads to poorer decisions e.g. we exhibit present bias, myopia or hyperbolic discounting which makes important longer term decisions, investments and insurance, less likely to enjoy the focus of the short urgent priority. This is critical to keeping the poor in poverty. It also helps us understand the vigilance required to diet and exercise and the need to break out of time management enslavement of peaks and troughs of multiple deadlines and work stress.

The argument is not surprisingly stronger as a diagnosis or an explanation of behaviour rather than a basis for actual policies to improve outcomes. Instead we have a set of modest nudge redesigns of policies, most of which are eminently sensible (encouraging savings, insurance, opting-out clauses, etc and personal behaviours that encourage vigilance re self-control) but by the authors’ own recognition will not change the world. Thus, they argue that the bandwidth tax puts pressure on people in poverty to make bad errors of omission e.g. not maintaining vital medicine consumption, something which might have technical solutions such as designing a pill bottle that actively reminds users to take a pill. There is also especially in the UK quite a lot of resistance to nudge policies. While some of this is merited, I think there is plenty of sense in aspects of the work too.

In any case, I think the fundamental public policy value of this book is the idea that cognitive capacity and scarcity ought to feature in the initial assessment or design of all interventions – i.e. that we take a broader set of criteria into the development of policies and a wider frame with which we look for mechanisms and improvements as a result of an intervention. A scarcity test could be part of any policy impact assessment. With this methodological contribution, I think the authors might be on to something. It is also a useful set of tools to add to those we already use to assess and evaluate policy.

My original interest in behavioural economics stemmed from its many applications to housing choices. Alex Marsh and I wrote a paper in 2011 [2] which alluded to the important connection from biases and other non-rational substantive behaviour by decision makers to earlier work by Simon on bounded rationality and Conlisk’s contribution regarding economising on cognitive capacity.

In reading this book I was struck by the application of these ideas to welfare reform and its impacts on the poor in the UK, as well as the insidious effects of zero hours contracts on decision making jugglers (I am also reminded of Ehrenreich’s Nickel and Dimed [3]). In rereading reviews of Scarcity I saw that similar ideas also struck the Guardian’s book reviewer. There is also an interesting discussion about scarcity in organisations – how do we reduce firefighting, focus more on the important rather than the urgent, manage risk in a scarce environment and how, above all, do we focus on managing the right scarce resource? Post credit crunch, the authors point to the implementation of chief risk officers in major US banks who report directly to the CEO focusing exclusively on the implications of new business risks and on-going risk. In a changing context confronting new and incompletely understood risks, all of these questions seem relevant to non profit organisations like housing providers too.

Just to be clear: this book has shortcomings, for instance, it is light on policy and one or two of the policy perspectives I have difficulty with (e.g. lifetime benefit limits in the USA), but as a way of understanding or interpreting decision making and the real world pressures people face, it is thought provoking and potentially helpful. And, as a way of broadening our thinking about what makes policy work, scarcity to my mind definitely offers something.

World Bank (2014) World Development Report 2015: Mind, Society and Behaviour. World Bank Group.
Marsh, A and Gibb, K (2011) ‘Uncertainty, Expectations and Behavioural Aspects of Housing Market Choices’, Housing, Theory and Society, Vol. 28, pp. 215-35.
3. Barbara Ehrenreich (2001) Nickel and Dimed. Henry Holt and Co.


What Works Scotland and the Housing Sector

Reposted from the What Works Scotland website

I attended the sector-wide Scottish housing event at Murrayfield Stadium on November 18 2014 [1]. This was a Government-led concerted effort to bring the range of private, public and third sector stakeholders in the production, consumption, management and wider roles within housing together around the enhanced delivery of the Government’s ongoing housing strategy. The event was structured and participative with its agenda developed from a number of earlier theme roundtables (I attended one on place and community).

While housing is my substantive research area, I was there also to run a fringe meeting introducing WWS and suggesting that it had specific resonance for the future evolution of housing policy and practice. I have made a point of raising ‘what works’, the Scottish approach to public policy and the Christie principles in other housing fora but this was a good opportunity not just because of the range of key people present but because of calls made during the conference to consider systematic evidence reviews in future policy development.

Why is housing so relevant to WWS? First, housing delivery tends to be participative and co-produced. This is clearly true for new supply by the market and by the third sector – it has to involve local government and many other actors to make it happen and increasingly we have community interests and residents to consider too. I was in a workshop at the conference on the role of residential investment to improve existing town and city centres and there was much interest in Glasgow’s ‘stalled spaces’ policy [2] underway to get key vacant/derelict sites moving, inevitably requiring partnership approaches.

Second, and by definition, housing is at the core of place-based policies and should be fully in the mix. We are aware of several examples of housing leading or initiating interesting policy innovation – policies that deserve further investigation and research e.g. in Glasgow, the Wheatley Group’s work with fire and police to prevent house fires and with ScotCash to create affordable credit for its tenants. At the same time, community-based housing associations in the city are often local leaders and community anchors stretching their activities well beyond traditional social landlords roles e.g. managing the impact of welfare reform on their tenants and seeking to develop.

Third, housing is fundamentally local in the sense that different local contexts will experience different forms of local housing problems and seek to work with the menu of solutions open to actors to tackle those problems. While finance and capacity are obviously necessary conditions to local responses, they also critically hinge on monitoring, intelligence and some form of needs and demand assessment of local housing requirements to aid efficient prioritisation of scarce public housing resources. These approaches draw on quantitative and qualitative approaches combining economic assessment and tools with normative, subjective needs-based methodologies. Despite the rhetoric of prevention and preventative spending, the underlying philosophy concerned with tackling housing problems remains fundamentally numerical and needs or deficit based (and tis is evident from the housing and regeneration section of the National Performance framework and its relevant indicators). These questions also impinge on how the housing sector works with partners to respond to growing care needs within the ageing Scottish population.

The conclusion of the conference stressed that housing does have to evolve and embrace the prevention agenda. The co-chair, Alan Ferguson, called for an evidence review on preventative spending across public policy areas but with its consequences for the housing sector spelled out. This is something that we can and should extrapolate from the prevention work stream underway in WWS. The Scottish Government have also expressed interest in further work to assess the wider returns community anchors and third sector housing providers contribute to their communities  A third possible area of work is to consider the role housing representatives play in community planning partnerships and to understand the barriers and opportunities to more integrative partnership with this key place-based function. Finally, examples of explicit partnership innovation such as that discussed with reference to the Wheatley Group, will also play a role in our prevention work programme going forward.

[1] Further information on the November 18 2014 conference can be found at:

[2] An example of a Stalled Spaces initiative from Dennistoun:


The Smith Commission and Housing: A Missed Opportunity?

NOTE: THIS POST WAS ALSO PUBLISHED today on the ‘Future UK and Scotland/Centre on Constitutional Change’ website 


The devolved nature of housing policy might be considered less relevant to the debates around the devolution of further powers. However, as with so much in this space, it is not quite so simple. In the first place, housing is not completely devolved. Second, there are important facets of Smith’s proposals, which do speak directly to the housing sector, its tenants and communities.

It is the case that much of social housing policy, including key affordable housing initiatives, regulation and homelessness are devolved to the Parliament, as is policy directed towards private renting. But housing policy does not stop at this point. First, key housing taxes are not devolved, in particular, the asset taxation treatment of home-owners and private landlords; neither is VAT. So while noting the position of local taxes and the new Land Building Transactions Tax (LBTT) that comes in next April, considerable tax powers remain in London. Second, Smith aside, the dominant subsidy Housing Benefit, shortly to be rolled into Universal Credit, has been ostensibly reserved. Third, the mortgage market (including lending for social housing) is essentially UK-wide with powers for regulatory and interest rate setting in Westminster and the Bank. Fourth, the fiscal framework, the rules determining what is legitimate public spending and what is not and the ability for the Scottish Government to borrow for infrastructure investment like housing – are set by HM Treasury.

So, as a result of this hybrid status, two aspects of the Smith proposals are relevant for the housing sector: the changes to borrowing and to welfare benefits. Two other non-Smith initiatives also warrant comment: the introduction of LBTT; and, the Government’s recent announcement that it will review Council Tax.

The Scottish Government has been hamstrung by its inability to borrow directly on capital markets for infrastructure. Both the 2012 legislation and the Smith proposals will give limited new powers for borrowing in addition to the smoothing out of in-year spending deficits (something more significant with the proposed devolution of income tax and assignment of half of VAT). However, the investment borrowing powers are circumscribed and must remain within the UK fiscal framework – it is unclear how this will work in practice.

Despite the expectation of the wider devolution of social security benefits and that this would include Housing Benefit, what happened was actually more subtle. Again, it is not, however, entirely clear how it will work. Under Smith, Scotland will have Universal Credit (UC) albeit with more discretion around its administration, but the Scottish Government will have the power to vary the housing cost element (including removing the bedroom tax), discretionary housing payments are to be devolved and, critically, the administration of UC will continue to allow the housing cost element to be paid directly to landlords – a key demand from the sector. The Scottish Government will also have powers to augment housing benefit (assuming that is what vary means) but the responsibility would be paid for at the margin out of the Block Programme.

While these benefit changes meet many of the key short run complaints with welfare reform in Scotland – they do not address wider issues with that programme (e.g. conditionality and sanctions) and they do not confront the broader problems arising from the design of Housing Benefit[i].

In the recent Autumn Statement, the Chancellor’s announced the immediate reform of Stamp Duty on similar grounds to the Scottish LBTT, adopting a more progressive non-slab structure similar to income tax. This means, among other things, that the Scottish housing market faces three different sets of transactions tax systems in less than five months. It also raises the thorny problem of the fiscal settlement between Westminster and Holyrood about how much it will cost or be worth to devolve stamp duty. This will set a precedent for the many further deals to be done across the piece (e.g. the devolution of disability benefits)  as a result of the Smith Proposals. We should watch what happens closely.

Finally, there is the council tax. The SNP have made clear their general support for an income-based tax and have promised a genuinely independent review from which proposals could go to the electorate in 2016. The remit will also include the status of the council tax freeze. This is a classic wicked problem – tax reform is overdue but so is review of the fundamental relations between central and local government, the geography of our councils and their wider financing. There is a real danger that simply resetting the basis of domestic taxation will leave these other interlocking dimensions unchanged.

[i] See: Gibb, K and Stephens, M, 2012, Devolving Housing Benefit to Scotland, Chartered Institute of Housing, Scottish Federation of Housing Associations.

The Stamp Duty Wars and the Skinny Rabbit

OK, it is not quite Alien versus Predator or Ali versus Frasier but there is a bit of a competition going on just now between rival versions of our property sales transactions taxes. We are in a faintly bizarre situation that started with the decision to devolve Stamp Duty Land Tax (SDLT) as part of the 2012 (Calman-inspired) Scotland Act and create something different with a new structure called the Land Building Transactions Tax (LBTT). This is to be introduced in Scotland for the financial year 2015-16 (in other words, next April). Now, this week the Chancellor of the Exchequer has announced similar looking structural reforms (but with different rates and schedules to LBTT) but introduced it virtually immediately i.e. from midnight after the day of the Autumn Statement. So, as a result, Scotland will have three sets of property transactions taxes in less than 5 months: the old slab system, the new George Osborne SDLT and then, in April, the new Scottish LBTT.


The old slab base was universally criticized because it meant that those liable paid the marginal rate for the total price of the property but it paid it for the entire value of the house. Both the new version of SDLT and the proposed LBTT work differently so that, like with income tax, the purchaser pays a progressive amount rising form 0 to higher amounts with each tax rate threshold.

The new rates mean you pay nothing on properties up to £125,000, 2% from £125-250,000, 5% from £250,000 to £925,000, 10% between £925,000 and £1.5 million and 12% on levels above £1.5million. On the basis of the current distribution of sales values, the Treasury estimates that this will be a saving for 98% for people who pay SDLT and only those who pay property values above £937,500 will pay more.

In Scotland, the LBTT has fewer rates at a similar marginal structure in terms of how payments will rise. In Scotland, the LBTT will be zero rated up to £135,000, 2% for properties priced between £135,000 and £250,000, 10% for properties selling between £250,000 and £1 million  and 12% for higher prices.

What are we to make of this? Clearly, three sets of stamp duty tax in four months in Scotland is unfortunate, to say the least. It is really not good policy making and will clearly have market consequences, speeding up and changing market levels of activity as buyers try to benefit from the changes (more on this below). The Scottish property professions, rightly, should be just a little irritated by all of this taxation restructuring business.

Second, there are those from the tax reform world who would have no such taxes at all. The Mirrlees Review and the IFS are clear that with comprehensive tax reform there should be no sales taxes because the raise transactions costs, reduce mobility and deter economic activity. Of course, property should be taxed but by recurring taxes on value like a tax on estimated excess returns, on housing consumption and/or a land value tax. However, we live in a second best world and governments like the certainty of property transactions taxes and use them widely and extensively.

Third, the Stamp Duty Land Tax reforms announced by Osborne, the skinny rabbit pulled out of the Autumn Statement hat, was also viewed as a way of shooting the Mansion Tax fox by targeting very high value properties (that is, in London). The Guardian ran a nice story this morning about the crazy market response as high value purchasers tried to bring sales forward to avoid the new tax rates for multi-million properties in London, ones agency did a £100 million of sales in a day. Shades of Nigel Lawson postponing the end of double MIRAS in 1988.

SDLT has been a political football for many years and in particular Brown and Darling both varied it extensively for short run reasons to nudge different interventions such as resisting the housing market downturn after 2008 and earlier using zero SDLT in certain deprived areas to support economic regeneration. And now the present incumbent of 11 Downing Street has decided to use the tax to support the housing market further six months before the general election. More short termism or a modest improvement to transactions tax?

It might be argued that the new tax rates might raise more revenue for HM Treasury – but perhaps not. I have already written in earlier blogs about the difficulties of estimating LBTT revenue – it depends not just on the tax rates but on the volume of transactions and the distribution of property transacted. The fact is, revenue from these taxes varies hugely and it is not straightforward to set rates in such a way as to actually maximise revenue. The jury is just on the way out on the revenue the new rates will generate. This all equally applies in Scotland with its lower house price levels and simpler and lower maximum rated LBTT structure.

In the end, let’s give the new SDLT one cheer for getting rid of the slab structure, but more negative noises should follow concerning its timing and short termism. There is, arguably, virtually zero long term consideration of how to make the wider housing system work better in a more stable and sustainable fashion. We may live in a second best world but we should aim to do better. As the Scottish Government establishes its independent review of council tax, one can only hope they think about these wider housing and property market considerations and take a longer term perspective.


The House Price Hockey Stick

A couple of housing-related things gave been going round my head in recent days and I thought it might make sense to link them, however, realistic or useful that might be.

First of all, a couple of weeks back I was at the Scottish Housing Event in Edinburgh, a government-led housing policy and practice conference about delivering the Scottish Government’s housing strategy, building out of a series of workshops and roundtables. It was all very inclusive and participative, if not, as yet decisively conclusive. However, apart from the interesting nuggets and networking that went on there was, for me, a striking contextual presentation by David Signorini from Communities Analytical Services (a written up version of the presentation is on the Government website dedicated to the conference:,) The slides covered a range of important background trends and themes but the one that struck me the most concerned house prices and affordability.

The Communities ASD diagram (based on ONS data for Scotland) shows that while real house prices have come down since 2010, the impact on the house price to earnings ratio has been moderated by first falling and then flat earnings. Moreover, the absolute level of the ratio, falling from just over 9.0 to a little less than 8.5, remains very high, historically (i.e. 2010 was I think the modern record high).

Despite the recent moderating trend, it is quite hard to overstate how bad these numbers really are but some voices will no doubt say: don’t worry; there will be a correction once interest rates rise and some process of mean reversion will kick in. I, for one, am pretty sceptical that we will get back to stable price to income ratio values of 4 or even 5 and that is where the second issue comes in.

Via a retweet at the weekend of Tim Hartford’s blog I read the excellent paper by Katharina Knoll and colleagues, summarised in the VOX CEPR portal at
In their paper, Knoll, Schularick and Steger present a new house price index for 14 developed economies using a consistent data series from 1870 to 2012. This provides a fascinating long term house price series. Now, I would be the first to recognise the difficulties of pooling international house price data but it is intriguing reading and raises some big questions.

First of all, they find in general what they call a hockey stick pattern – real house prices were relatively stable till the middle of the 20th century when they started an (ongoing) strong and accelerating increase in value – tripling since 1900. This is despite the relative stability of income growth – i.e. the price to income ratio especially in recent decades has been increasing sharply.

Much of this real house price growth is associated with booming land prices (some four-fifths of house price growth is explained since 1950 by rising land prices). They argue that this has become more pronounced because of the long term effects of reduced transport costs making more land economically usable (increasing supply) until the post-war period when land became more like Ricardo’s fixed factor of production. They also point to the importance of restrictions on land use at the same time that economic (income elastic) demands for housing space increased.

Second, Hartford like Knoll et al also link this to the Picketty thesis that capital has become much more important in recent decades because in part of the growing role of private housing wealth and rising real estate asset values. Rising price to income ratios stretches unaffordability and reinforce inequality by locking more and more people out of home ownership who might previously have been able to get on the ladder – but tighter lending rules and unreachable price to income ratios serve to segregate further insiders and outsiders. And as others like Beverley Searle have previously noted, this is likely to have all manner of ramifications as cohorts of people have no assets to turn to meet risks and care costs, etc. in later life – the long term neglect of house prices will end up in part increasing public spending and higher taxes or at least putting further pressure on budgets to support care and other age-related services.

The historical record suggests that rising real house prices (and relative to incomes) are a long term feature of capitalist economies – so, to the extent that the future remains similar to our recent past couple of generations, do not expect a sustained mean reversion to earlier more affordable days any time soon.