Housing, the Economy and the Election
by Ken Gibb
I was a late stand-in at the Scottish Chartered Institute of Housing conference in Glasgow this afternoon. The session was about the economy’s uneasy relationship with the housing system. Also speaking were a business economist (Lloyds chief economist Donald MacRae) and a leading business and economy media representative (Douglas Fraser from the BBC). I was the filling in the middle.
We all agreed on the need for more homes and that housing supply should be much more responsive permanently (and I echoed the RICS Commission’s suite of land supply, planning and national land agency proposals, as well as many of those ideas that came out of the Lyons Review in England). We also agreed that there was an opportunity in Scotland to reshape property taxes more positively but that it would be far from easy. There was surprising (to me) common ground about replacing the council tax with another form of property taxation such as a land value tax (although I am still unsure about whether it should be a national rather than a local tax). There was also some common ground about the inefficiency of any kind of transaction tax but at the same time the recognition that we cannot realistically cut the overall tax take in the present fiscal context of austerity. There was also a shared assumption that short run volatile but long term rising real house prices made no sense for the economy or for the people living there.
And there is the rub, We kind of know what the problem is and can see a set of different combination of progressive policies that might help us get where we want to go to but the politics, institutions and incentives operating make it awfully hard to get started.
This was the essence of my presentation. In a recent Knight Frank post there was a helpful matrix summary of the UK parties’ housing policies prior to the launch of manifestos. While they individually made noises towards more supply and a range of ancillary and sometimes plain ideological proposals, the parties’ proposals generally lacked two key things. One, it was not always clear how stated claims were actually to be achieved. Second, there was simply no recognition of the long term nature of the housing problem, and that it is not doing it justice simply to call it a crisis. Rather, it is an endemic, chronic set of underlying problems that periodically flare up into specific panics.
Economists talk about time inconsistency problems and I think that is what we have here. As I have said many times before: housing policy, tax and social security reform require carefully developed and transitioned policies that protect and compensate losers. This will take more than one Parliament to achieve so there has to be credible buy-in to a broad consensus about policy aims, means, resources, timescale and what success looks like.
There are only two ways to get this sort of positive situation. One is something like a New Labour one party state for three Parliaments, a situation which led to comprehensive social rent restructuring introduced over more than a decade (even it was undermined by the knock on effects of the Coalition’s remaking of affordable homes programmes). The alternative is to build an all party, civic society coalition, as was the case with homelessness in Scotland which is then phased in over a decade.
So, it can be done but why should it? One good reason that is not articulated enough is to stress the upstream preventative benefits of more supply-side interventions (shifting the balance back from the demand side over a period of years). Better quality low cost housing stock can improve health, reduce carbon emissions and energy costs, encourage people into work because they have security in their home, and it can be used to provide more tailored solutions that can keep older tenants safe in their homes and communities for longer. Of course, we need better evidence about these effects (and a plausible theory of change to bring it about) but one does not get the sense that the housing sector is clearly making this case in a unified way but rather is doing it strand by strand in separate sets of intervention narratives. The Scottish Government wants a decisive shift to prevention. Might this be part of the way that the housing sector makes the case for the long term refocusing of its policy framework?
A final thought. I reprised the argument this afternoon that it is simplistic to describe Scottish housing as wholly devolved because of the UK mortgage market, the rules governing public finance, most of social security (and also post-Smith) being run by DWP and the fact that plenty of the taxation (and non-taxation) of housing remains at the UK decision-making level. I believe this is this both true and significant. It means that the Scottish Government has surprisingly little influence over the home ownership sector as a whole, for instance. Social housing, and to a lesser extent private renting, is diverging from rUK but it is constrained by this underlying hybridity. I worry that UK and Scottish governments’ housing policies can all too easily come into conflict or simply not work together well. Incomplete devolution of housing is perhaps inevitable in our present constitutional settlement (and perhaps would also have been under the Yes campaign’s economic independence lite) but it could be a real constraint to progress. Unless we believe that a future UK Government does the right thing. Holding one’s breath is not an option.