Housing the Lords

by Ken Gibb

The House of Lords Select Committee on Economic Affairs yesterday announced that it is undertaking an inquiry into the economics of the UK housing market. The Chair, Lord Hollick, is quoted as saying that the reason for the inquiry stems for the fact that ‘there are serious issues with the UK housing market…young people in particular are struggling with the cost of housing, whether they are looking to buy or rent. There is an affordability crisis in housing.’

The Committee appears to have a refreshing approach to housing policy. The inquiry is concerned both with the supply and affordability of UK housing across all tenures and seeks to assess the effectiveness of government policies on the demand and supply of reasonably priced housing across the UK. 

Lord Hollick also says: ‘the time is right for a thorough evidence-based assessment of the economics of the housing market…is there too much emphasis on owning your own home, should we be focusing efforts on ensuring adequate affordable housing is available for rent?

The more detailed prospectus of questions in the call for evidence is divided by housing tenure and asks:

1. Home ownership – how effective have schemes like Help to Buy been and have they exacerbated the lack of low cost supply? Are there tax measures that would boost supply and affordability (they mention inheritance tax and stamp duty)? What impact will the mortgage market review have and should there be further changes? Are further changes to the planning system necessary?

2. PRS – what will the reduction in tax relief to landlords mean for the supply and cost of rental market housing? Will the current trend of the increasing PRS continue? What are the advantages and disadvantages of restricting rent increases in the PRS?

3. Social housing – what will be the impact of the RTB for housing association tenants? What will be the impact of the proposed rent reductions – are there additional or different changes to rents that should be contemplated?

After giving evidence to the Scottish RICS Housing Commission and playing an advisory role in the Shelter Scotland Housing and Wellbeing Commission, it is good to see the continuing of the process of evidencing and building consensus within a broad set of housing market and policy questions. 

A few further thoughts strike me in response to the call for evidence.

I welcome the sense of a systemic interdependent approach. Land and different tenures are not independent in a vacuum but are in fact a system linked to local economic and demographic drivers, cross-tenure spillovers, macroeconomic variables, institutions and a supply side dominated by the existing stock. The pursuit of rising house prices, pushes up land prices, puts pressure on rents and leaves us with a higher housing benefit bill. 

A focus on affordability always raises questions of definition. The phrase widely used in the call is low cost, which makes sense. I did however enjoy the reference to reasonably priced homes – shades of Jeremy Clarkson and Top Gear’s reasonably priced car. Definitional issues there, too.

I was also happy to see the explicit reference to the evidence base – something that too often does not convincingly underwrite housing policy of late. How much thought, for instance, was given to likely supply behavioural responses to cutting tax relief for landlords? Would less and more expensive rented housing be worth the tax reform (a change which is arguably a break with normal tax principles)?

It is refreshing to see the explicit questioning of the (normally uncritical) emphasis on home ownership. However, the call has for me too narrow a focus on tax policies in that it mentions neither council tax nor the continued absence of taxes on investment returns from home ownership. 

It looks like the Inquiry is seeking both micro analysis (on the impacts of Help To Buy and the effects of rent restrictions – currently s live issue in Scotland) and also more macro themes too (the discussion of the mortgage market has economy-wide importance).

The Call’s social housing focus is very much of the moment – RTB and rents – and given the interesting times we live in concerning social housing especially in England, this is not surprising. However the inquiry could also consider the economic implications of the sector’s recent reclassification and the proposals announced last week to end lifetime tenancies. There is also surely a case for thinking long term about how to fund social housing and in so doing seek a sustainable equilibrium funding model (something essentially missing since 2008).

It is UK in focus but of course there are now significant policy divergences across the four nations of the UK, not least with respect to attitudes to welfare reform – a key area of housing subsidy with important impacts on behaviour that are not addressed in the call. Are there lessons to draw and share from around the UK (let alone internationally)?

But I do not want to nit-pick (evidence submissions can of course cover other areas too such as the ones I have mentioned). This looks like an important opportunity to have a wider and more sustained analysis of what ails UK housing, and to reflect on both short run and long term policy proposals that can help steer the UK on a path that would help meet the aims of the Inquiry. It is to be welcomed.