Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Month: August, 2015

Thinking about Housing Tenure

One of the first things you learn in housing studies is not to make a fetishism of housing tenure. Tenure is not the same as class, race, gender, wealth or income as a measure or signifier (there are, for instance, poor home owners living in falling down houses and there are high income private tenants but vanishingly few in social housing). Tenure probably has important different subjective meanings within specific households and locations. You can sometimes conflate house type and neighbourhood quality with tenure but in reality housing and neighbourhoods are both joint goods that you consume and invest in simultaneously. Tenure is just one albeit important attribute.

As a policy goal, tenure, it seems to me, has always been an arbitrary simplistic and divisive (even exclusionary) basis for favouring specific legal forms of housing occupation over others, and does so for more or less spurious social engineering reasons. So, analysis of process should not dwell on tenure even if policy making short hand and agenda-setting happily do so. Such are the paradoxes.

But housing tenure remains a valuable summary indicator among a cluster of measures and we use it all the time. It is in this context that I wanted to reflect a little on the latest tenure figures for Scotland presented in the Scottish Household survey comparing figures in 2014 with earlier years showing trends and some fairly dramatic changes.

What do the figures say? The headlines reported in Inside Housing are, first, that social housing declined from 32% of all households in 1999 to 23% in 2007 but remained around that level thereafter and has actually edged upwards to 24% in 2014.

Second, for homeowners, outright owners (no mortgage) increased from 22% in 1999 to 30% in 2007 and remains at the same level in 2014. Home ownership as a whole grew to a peak of 66% in 2005 but has since fallen back to 60% in 2014. My colleague, Duncan Maclennan, would also however point out that home ownership in Scotland grew later than the rest of the UK and reached broadly UK levels of ownership very rapidly (compared to other tenure change episodes elsewhere in Europe) with considerable growth in the 1990s.

Third, housing in the private renting sector doubled from 7% in 2004 to 14% ten years later (compared to 19.5% of households in England in 2013-14, as recorded in the English Housing Survey and reported in Inside Housing). The numbers also suggest that 56% of Scottish households in private renting have been at the same address for more than a year (and 44% less than a year).

Many of these trends are apparent in the rest of the UK and indeed some of them can be found in other developed economies. It is a little too easy to attribute it all to the backwash from the market collapse, credit crunch and long recession after 2008. Earlier in the last decade and on an ongoing basis, home ownership was already under affordability threats limiting access to would-be first time buyers. As is well known mortgage lending has tightened structurally as well as cyclically and the average age of first time purchasers has increased relentlessly. There is no escaping the fact that the 6% fall is a big reverse on policy aims of successive governments and has wider and deeper long term social, cultural and economic implications. Significant parts of entire cohorts or generations remain much longer in rented housing and simply do not expect to own.

Social renting has remained much larger, at around a quarter of all households, than many of us would have predicted ten years ago. This tells us a lot about inertia and allocation systems,, the counter-cyclical nature of the demand for social renting and the resistance to seeking private renting (where it is available) by low income households. This may also represent the fruits of social housing investment programmes to achieve the social housing quality standard, improving management performance, as well as continuing albeit limited new build programmes.

The big winner is of course the diverse and atomistic private rented sector. A lot of that doubling in relative size must be due significantly to the choking off of home ownership but it also reflects easy access housing solutions for those moving to new jobs, because of household dissolution but also for low income and otherwise disadvantaged groups who cannot or will not access social housing. It will also, to an extent, represent the realised preferences of some households who want to rent privately for simple housing reasons. Overall, this is, as elsewhere in the UK, a major change in the housing system with both advantages and risks. One thing we can confidently predict is that private renting will continue to be a regulatory policy focus as governments and councils seek to eliminate rogue landlords, poor performance and safeguard tenant rights. Wider issues will also encroach regarding rent regulation and tenancy length.

In something else I have been working on this week I was struck by the effect that housing costs have on poverty levels. The Scottish Government has reported before housing costs poverty rates stand in Scotland for 2013-14 at 14% but this rises to 18% after housing costs. The gap between before and after housing costs poverty is widening, probably because of rising social and private rents and also because of housing benefit cuts. Digging into the numbers it looks like specific groups, children and working age adults are most adversely affected by housing costs in terms of poverty incidence. The relevance of this is that the PRS had particularly deep reductions in HB and this is obviously important for families with children renting privately.

Without wishing to overstretch the point, these tenure changes generally represent constrained outcomes rather than simple preferences or aspirations. Policy needs to understand these outcomes and think about working with the grain of the reality of the housing system and not just what people aspire to. That might also help one day to give pause to policymakers continuing to chuck money at home ownership rather than prioritise better housing for those who need it most whatever tenure it might be in. We can dream.

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Local Tax Reform: God and the Devil in the Details

The media covered Reform Scotland‘s contribution to the local tax debate yesterday. This was a welcome contribution to the aims of tax reform situated much more squarely in thinking about the wider role of local government in modern Scotland. Central to their case is the localisation of financial powers – increasing the autonomy of local government in Scotland by ending the council tax freeze, returning local control of non domestic rates to councils and, most radically, offering local government the right to decide on their own type of local taxes.

In a sense Reform Scotland have correctly identified the fundamental questions of the relative autonomy and the funding balance between Holyrood and town hall as the irreducible decision for the future – and that local tax choices could be essentially a local or a Scottish level decision. They could have gone further in terms of aims to consider the appropriate distribution of powers and functions between local and central government and, indeed, further still to  address the geography of local government  itself and the optimal number of councils.

Reform Scotland want decentralisation and devolution to councils and what they say chimes with Strengthening Local Democracy. However, for the Commission on Local tax Reform   there is a sense that they may feel Reform Scotland is looking at this with the wrong end of the telescope. The remit of the Commission is clear – it is about domestic local taxes only (including the freeze) and implicitly the balance of funding and non domestic rates are ‘on hold’. We may support the overarching aim but it has to be translated into this narrower focus on the local tax question for the time being. It is therefore critical that any subsequent reform proposals, if enacted, do not impede further goals regarding the other parts of this agenda – but these may not come to pass for quite a while after local taxes change (and with good reason, there is a lot to think about, see below).

Let’s talk more about their specific proposals – which admittedly are a little light on detail. Some might argue that what Reform Scotland offer is an aim or set of goals for local government reform but the design implications of what they propose for thinking about tax reform have many consequences, and I do not think that they are all thought through.

The main proposals are:

  • Give tax setting powers back to local government (end the freeze).
  • Return non domestic rates to local government (not part of the Commission remit).
  • Propose giving local authorities powers to establish the local taxes that work for them and of course that this should be accountable to local electorates and tax paying citizens. Reform Scotland say that this might include land value taxes or indeed sales taxes.

Ending the freeze would be welcome and would of course allow councils to set their own rates of council tax allowing them to spend more or indeed to cut taxes. Almost inevitably this would not be a complete freedom and one would imagine some form of incentives and penalties for excessive annual increases. One question is whether or not this is sufficient for visible transparent local democratic functioning or whether it is necessary to give the power to change the basis of the tax too, as Reform Scotland would argue?

I was struck in the recent review of international evidence we did just how many countries have multiple local taxes (usually a combination of property and income taxes) and also that many of our major cities, outside of the UK, have many local taxes (one study of big OECD global cities averaged five local taxes). Except in the UK where we only have the council tax. So, my reflections here are couched in terms of seeing the case for multiple local taxes raising broadly the same revenue as at present with perhaps a supplementary local income tax augmenting a better form of property tax (Burt thought this unworkable but I am not so convinced).

I am not convinced about the localising of the form of local taxation for two principal reasons. The first is that a range of local tax systems operating across Scotland will play merry hell with the grant system which will have to compensate local authorities on a different basis depending on the system in operation.  This may act to make the system much less transparent as well as increasing the transactions costs of setting up and running the system. Taxpayers making decisions across the cost of service between authorities or even mobility decisions will need to understand the differences n respective local tax systems.

Second, we would need to have a range of supports for low income households that vary by local tax system e.g. you might need a rebate system for a property tax or reformed council tax  but not for a local income tax. The experience in England of localising council tax benefit has been to create a patchwork of local means-testing systems. Do we really want that in Scotland?  Isn’t tax rate variation powers at the local level with a good defensible local tax solution for all of Scotland sufficient? I also doubt that many councils have the resources, staff and confidence to go their own way – tax systems are important pooled resources across a country for a reason. Economies of scale and scope are important.

I am an in-principle supporter of land value taxation but recognise it would have some challenges to be introduced and transitional phasing in and compensation will probably be necessary until it is established. I also think there is a case for thinking of it as a national tax for all Scotland – but that is another story. I do think, however, that Reform Scotland’s other potential proposal – a sales tax – does need to be seriously questioned. We have extensive VAT in the UK set at a high standard rate. Indirect taxes on consumption are notoriously regressive and impact hardest on low income groups. Local sales taxes cause all manner of border hopping and cross border shopping investments which are inefficient and cause wasteful displacement of economic activity.  The EU would almost certainly preclude new sales taxes – so it is probably not a starter even if it did not have these detrimental effects.

What about returning non domestic rates (NDR) to local councils? There are several issues here (which is probably part of the reason why it did not feature in the Commission’s remit). First, the current system imposes a national tax rate which generates NDR income that goes to Holyrood. This is then distributed back to councils on a per capita basis. The original reasoning during the development of the poll tax system was both to placate the business lobby but also to enhance the population driven nature of the grant system envisaged (although there is also a significant needs-based redistributive element). It is important to stress that we still operate this poll tax simplified grant system. Actually returning the NDR to local level implies two decisions: first, giving the income raised locally back to local government (the urban argument made by for example Glasgow and Edinburgh who are big losers under the current system), which is distinct from, second, allowing councils to set the NDR tax rate.

In principle, I also favour returning income and tax raising powers over NDR to local government (again with reasonable controls over excessive tax rates) but we need to recognise that if it was just about giving the income raised back to local governments there would be big losers as well as winners. We need to know what that pattern would be and whether we intend to compensate for it, perhaps by reintroducing resources element to grants so that those councils with smaller tax bases receive extra central funding. But to be clear that would drive a coach and horses through the current funding system and would require a fundamental remaking of the system and a redistribution of grant overall. This is equally true of reinstating local tax rate powers over NDR. It may be a worthwhile goal (I think it is) but it will not be an easy fix.

The aims set out by Reform Scotland are worthwhile and supportable but the devil is in the details and cannot be lightly dismissed as such. There is sense in doing local government finance reform one step at a time, if only because doing it all together can be disastrous  (as we saw in 1989-90) and there may be too many spinning plates to manage if we wish to compensate losers and transition to a new more rational and fair system.

Housing and the Productivity Puzzle

Last week IPPR published a new report on the productivity gap or puzzle (Tony Dolphin and Izzy Hatfield are the authors of ‘The Missing Pieces: Solving Britain’s Productivity Puzzle’). This is a thought provoking report on one of the critical economic policy questions of our time. It also inevitably spills over into wider questions of interests such as the nature of work, wages, in-work benefits and indeed the long term effects of housing and housing tax policies.

What is their diagnosis and what do they propose to improve the situation? First of all, UK productivity performance is significantly poorer than European competitors such as Germany, the Netherlands, Belgium and France. At the same time over time the UK’s current productivity performance has notably worsened compared to its long term average up to the watershed year of 2007. Dolphin and Hatfield use a number of techniques to try to understand what is going on to create these worrying stylized facts.

Their analysis suggests that:

  • Poor performance against European competitors can be explained by lower productivity within UK industries not due to the overall composition of industry output being biased toward low productivity sectors.
  • Lost output growth per worker since 2008 within the UK has been due to broad performance weakening: the decline of oil & gas and financial sectors are a small part to this trend but actually the poor performance occurred across all sectors.
  • Poor productivity during the UK recession is related to labour hoarding and the fall in wages shifting the capital-labour ratio. But the recovery phase is characterized by a jobs growth that was disproportionately in low productivity low pay sectors.

The IPPR study therefore suggests that new job growth needs to be increasingly shifting into higher productivity sectors like manufacturing and finance. Firms should also be encouraged to increase training in their workforces (including increasing productivity in lower value-added sectors where so many work). They also argue that the Government’s catapult centre initiatives are focused on the high end of productivity enhancing sectors but this misses the importance to the economy of the domestic services: wholesale, distribution, caring services, food and retail. How are we to increase productivity here? The authors argue that the living wage proposal may be a positive step, if unemployment remains low, but cuts to capital spending, infrastructure, further education and science budgets are not conducive to this key engine of improving the economy (and reducing the budget deficit).

Housing matters to increased productivity and should be part of this debate. First, housing costs are an important part of the financial triangle facing people at the margins of work: what wages and working hours can they command; what in-work benefits and tax credits do they have access to that can augment their disposable income and, what are their housing costs and what housing options are there if a move rather than commuting is required for work? We know that the welcome higher levels of statutory minimum wage will often be offset by cuts to things like tax credits. Moreover, unpublished qualitative research I have been recently nvolved with suggests that labour market choices are significantly influenced by the cost and insecurity of private renting versus the perceived security of social renting (even if it is therefore traded off against work further afield).

Second, sufficient supplies of accessible and affordable housing and alongside it opportunities for subsequent trading up are essential to well functioning labour markets supporting careers but also longer distance mobility. This is about housing planning and the economics of the supply side but it is also about wider planning questions and the interdependence of the different parts of the housing system as a whole, for instance, concerning how housing investment across different segments and tenures complements business investment in the allocation of new land development opportunities. More than a decade ago I was in a project team led by Geoff Meen that suggested, at a regional level, that housing investment in new homes led business investment (jobs followed people). These are big complicated questions but they need to be part of the debate.

Third, writers like Duncan Maclennan have a longstanding interest in the notion that the housing sector impedes wider economic productivity because of the inflexibility of the housing system more broadly conceived – this is as much about insufficient investment as it is about misallocation of resources because affordable housing and land are often in the wrong place and not where housing and labour demand is high. Housing is also key infrastructure for the future and while not as obvious as the case made for high speed broadband or fancy transport or water industry investment – it is a necessary condition of sustainable growth. While it is not always clearly evidenced there are a range of arguments indicating that better housing and communities lends itself to improved education, employment and health outcomes (though it is often hard to decisively sort out causality).

Finally, and to return to a hobby horse, a tax system that encourages undiversified saving in less productive assets like second hand housing, promotes excessive borrowing and acts to encourage market speculation cannot be a positive productivity driver.

 

Bletchley

We took a day of leave this week to travel to Bletchley Park near Milton Keynes. It was an early flight to fly down and then get a train to Bletchley (and a late night to get back home). But it was fascinating. We had planned to go down a few years back but were unable to do so – just as well in the sense that we benefited from the recent investment to renew and recreate the centre of wartime codebreaking.

The place is a proper museum now though it still has a lot of further work planned. Many of the huts where crypto-analysis and computation took place have been restored along with the mansion house and the grounds. It feels more like a campus than anything else. There are various multi media strands, as well as a reconstituted ‘bombe’ computer and archaeology such as coding sheets found doing the restorations. There are of course lots of Enigma machines and various decoding brain teaser exercises (are they still recruiting?).

Alan Turing is, rightly, everywhere, not least because of the recent Benedict Cumberpatch film which is also unavoidable. But there is a real sense of history and importance about the place and it is incredible how close we came to losing the site altogether (there were plans to extend a housing development which did in part extend into the historical site). The museum designers or recreaters have made a great job of it though there are still blocks outside that are waiting the same treatment once sufficient funds are raised.

It was a bit emotional for me walking round the site and taking it in because I knew that my mother, then a teenager, had been a WRN working in a Bletchley outstation in London towards the end of the war. She did not talk about it until comparatively recently (they took their secrecy seriously). This was a principal reason for wanting to visit and also why in a sense it is a shame that the museum has only recently become the fantastic resource it now is. If you ask her now about it, the things she most recalls about the work include the close work of setting up the machines for computation, and working to strict navy watches of 8 hour shifts. She also remembers the  Heath Robinson cocktail parties – but that is another story.