Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Month: December, 2015

Towards a New Social Security System in Scotland

A lot of my research these days is about public policy failure, what doesn’t work and why, as much as what does work. It is in this sobering context that I read and found much sense in the Welfare Reform Committee of the Scottish Parliament’s new report, ‘The Future Delivery of Social Security in Scotland’.

Welfare reform is the defining pinch point for the post Smith constitutional battle between the Scottish and UK Governments as they come to terms with what the new developed powers mean (and wrestle over the fiscal framework) and in particular try to make the new welfare powers and specifically the required integrated systems work properly from day one. Of course this is all happening in the middle of the DWP’s (contested) welfare reform project. But in addition to that there are quite fundamental policy implementation challenges ahead of whoever runs the Scottish Government after the election.

What does the report say? First of all it talks about the culture shift required within a new Scottish system of social security to move beyond the current stereotypes of skivers and attitudes of suspicion and mistrust that seems to pervade the present arrangements. Instead, the new system, drawing on both DWP and Scottish administration, requires to be grounded in principles of dignity, person-centredness, respect for claimants, and that the system be non-punitive (accepting the need for conditionality but only using sanctions as a genuine last resort). Person-centred means not running the social security system for the ‘convenience of the bureaucracy’. They point out the growth in advocacy services for claimants, which is of course itself a failing of the system to use plain language, simplicity and transparency in its dealings with citizens. The system should also at heart be responsive, fair, consistent, helpful and supportive. The report also nicely points out that while signing up to and legislating for such principles is fine itself, achieving and implementing such principles in practice will be a ‘substantial task’.

The report identifies a list of ‘big issues and tough choices’.  First of all, the new system has to be coherent. The new proposals in the Scotland bill create a dual and therefore much more complex social security system for Scotland. This will require commitment, consistency and genuine inter-governmental working of a standard and level not really attempted since devolution. Second and related, there is a fundamental choice to be made between contracting DWP versus setting up a new Scottish agency to deliver social security. Neither option is without its problems. Third, there is the question of how much of the Scottish system ought to be devolved locally – again there are arguments in both directions. Fourth, although it will be fundamentally shaped by the ultimate fiscal framework deal, the Scottish government will have powers over topping up existing benefits but the Committee Report argues that this can readily have big funding implications and will require national debate before it can move forward on any major reform proposal. In the report they stick to more modest funding recommendations.

The report also makes a number of specific recommendations, which include:

  • Introducing a long term DLA/PiP scheme for those with severe long term conditions, thereby doing away with multiple re-assessments. They also support the planned increase in carer allowances to JSA levels.
  • The housing element of Universal Credit should be paid fortnightly directly to landlords and allow more than one payment per household, where necessary. They also advocate the immediate abolition of the ‘bedroom tax’, which would allow returning discretionary housing payments back to their original wider purpose.
  • They also make proposals about widening the provision of ‘welfare to work’ programmes to promote more local operators and that the devolution of the Work Programme does offer the chance for the Scottish Government  to influence how sanctions are used – and this could be a genuinely progressive development (though would not remove all tensions over sanctions between respective Governments).

There is a lot to like here. The ideas about using the powers to impact on the conditionality regime in at least two areas (DLA/PiP and the Work programme) are constructive, the recognition of the administrative complexities of a dual system with different benefit regimes is welcome on this side of the Border, as is the implicit sense that top-up and real discretionary power has a cost attached to it which is part of the political choice associated with greater devolution. But this is happening in a context of austerity and further cuts to (unprotected) budgets. So, it is really important, it seems to me, that the political elites fully understand the difficulties and tough choices that lie ahead. This may be one of the biggest of these emerging tricky policy implementation areas in the devolution sphere, but it suggests that we need a political culture change as well as in the social security system. Hopefully, the Welfare Reform Committee have started that process.

 

 

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Politics and the Local Tax commission Report

This morning the Commission for Local Tax Reform published its final report. They said that it is time to change the council tax system, to seek ways to end the council tax freeze, but they did not offer an alternative solution. Instead, as was widely expected, the Commission presented a menu of choices and evidence on the principles of three different systems – a property tax-based system, a land value tax approach, and a local income tax basis. The conclusion seemed to be that the predominant view among the Commission was that such an alternative should be property-tax based but should, if feasible, be broadened to include local income tax (sections 13.12 and 13.14 of the report). Indeed, at one point they make a case for a multiple local tax system around these two components. They argue that no tax alone meets all the important criteria: fairness, economic efficiency and local democratic accountability. There must be trade-offs and compromises. And, there must be a period of transition.

While this is not exactly a definitive statement, it is a reasoned and well-evidenced report. The plan is that this will now inform debates within political parties who are preparing their Scottish Parliament election manifestos and will come up with their own ideas for domestic local taxation. All major parties were signed up (apart from the Tories) and the shared diagnosis of the problem, to an extent, supported by the Scottish government who established the Commission, probably means a couple of important consequences.

First, in a finite time period, the council tax and the freeze are going to change in Scotland. Second, it seems unlikely now that the SNP will stick with the local income tax as the sole or principal means of funding the domestic local tax. The next few months will be the time for all the parties to build and then make a case for specific reforms. As one Commissioner said to me this morning – the real work (of persuasion) begins now.

There are many complexities. First, Labour do not appear to be keen on local income tax element particularly in the context of the introduction of the Scottish Rate of Income Tax (SRIT), though it is not clear whether this concern would extend to a comparatively small supplementary local income tax augmenting a property tax. Second, the pragmatic way out, the line of least resistance, is to reform the existing council tax and this might be minor tinkering or something more thorough-going.  This seems to be what the First Minster was hinting at in an interview a couple of weeks ago when she talked about a more progressive treatment of the bands (but without a general revaluation).

The third issue is how will the parties and the public respond? Infamously, Jack McConnell in 2006 rejected the Burt Inquiry’s call for a percentage tax on capital values before it was even published. The belief this time round has thought that the wider buy-in from across the political spectrum, makes the dismissal of the report and indeed putting the brakes on reform that much harder. Nothing I heard this morning or read in the report or associated media thus far suggests that the Commission’s work is heading for either the long grass or a high shelf where dust awaits.

A key test will be the Scottish budget statement on Wednesday from John Swinney which will also announce the first SRIT for 2016-17. Will we hear anything constructive about the end of the council tax freeze? Will the Government  be broadly supportive concerning the Commission’s conclusions? It will also be interesting to see whether he follows Osborne’s lead by increasing LBTT for second home and buy to let purchases. He has already indicated that he will in part be following the non domestic rate changes announced by the Chancellor. More significant, however, will be the translation of the Autumn Statement Spending review into spending changes across Scotland and for local government specifically.

Let’s hope that the report is the start of a feasible process of progressive local government finance reform, starting with the domestic local tax, and not the end of the story.

Rethinking Rent Indices

 

Private renting in the UK has been the primary beneficiary of the home ownership affordability crisis that predates the financial problems that occurred after 2007. The Buy to Let model allowed small landlords to grow quickly and the BTL formula responded well in the aftermath of the housing market downturn. Private renting has grown strongly from 8.7% in 1991 to 17.8% in 2012 (GB).

However, the sector has not been short of critics. Bad practice in some quarters had led to call for stronger regulation alongside growing interest in establishing longer more secure tenancies. This is now happening in Scotland through legislation currently at Bill stage. The Bill also includes limited controls on rent increase after a tenant and landlord agree the initial rent, provided the local area is deemed to be high pressure. At the same time, and perhaps linked to the belief coming out of the Bank of England that there may be a bubble in the Buy to Let sector, the Chancellor has been explicitly moving against the Buy to Let sector. First of all, he removed higher levels of tax relief on mortgage interest payments and then, second, in the recent Spending Review, he announced adding 3% to all levels of Stamp Duty Land Tax on second homes and rental investment properties.

So, there is a lot of policy action currently concerning the rental market. In this light it is striking how impoverished our evidence base remains on the rental market. A long standing view among researchers is that the sector is highly regionally varied, it is made up of quite distinct segments and sub-markets; it has problematic aspects undoubtedly but it also has areas that appear to be working well. We know relatively little about the behavioural impulses and motivations of the large number of small scale (often recent) landlords who dominate the sector. At the same time, we assume that most tenants are, in Peter Kemp’s nice phrase, conscripts rather than volunteers i.e. it is a constrained choice because of a lack of affordable alternative tenures especially home ownership that puts people in private renting, rather than a direct preference to rent. But is that really true and is it still as true as say ten years ago?

All of this heterogeneity is not reflected in much of the policy discourse about the sector. One area of evidence that is remarkably absent is good consistent data on rents. ONS have an experimental rent index, which suggests Scottish rents have risen 2.1% in the year to June 2015 and 2.5% in the UK. There was a good index developed in Northern Ireland  and there are a few other significant commercial data providers. However, compared to the high quality house price indices available there is a serious lack of consistent local market transparency, despite the small number of  honourable exceptions noted.

This is all the more important because, for one thing, the local housing allowance system relies on robust measures of the distribution of private rents by size across so-called broad rental market areas (something that assumes that these are in all places well-defined unitary market areas).

Why am I writing this just now? The main reason is that, and given this context, I saw today an interesting article in the new issue of the Review of Economics and Statistics by Brent Ambrose, Edward Coulson and Jiro Yoshida (‘The Repeat Rent Index’, Volume 97 (5) pp. 939-50). In an American context they point to the lack of data on housing flows (as opposed to the stock prices transacted as assets for home ownership and investment).

Interestingly, the authors seek to construct a repeat rent index modelled on the famous repeat sales index developed by Case and Shiller and now widely adopted, particularly in America. The essence of the idea is to link sales or, in this case, new leases, when the same properties come back on the market. One can measure price/rent change on the same property directly, as, if suitably controlled, you have the same broad quality of property and hence can overcome quality variation problems that bedevil house price data. There are well known problems in the repeat sales index. Bias in the type of properties that trade more frequently e.g. starter homes and also heterogeneity in terms of the time gap between two sales points for different properties – but this is arguably  different and less serious in the rental market. Based on national rent contract data held by a major data provider, the authors worked with observations  from 1998-2010 involving 1.4 million leases. Analysis was then conducted on cleaned and filtered data on metropolitan housing markets and the research also included robustness checks and careful supplementary empirical analysis.

The actual results are less important in a sense than the  filling of a significant  evidence gap – providing robust rental data for American cities to a level that simply did not exist before. The authors did find considerable spatial variation across the cities and over time. While this is new research, and by no means the final word, it is an indication of what is possible.

While repeat sales or rent models are not without their problems, it does seem to me that with sufficient observations, some of the constant quality assumptions that are important for sales indices are arguably less problematic for rental market housing. This is in itself a reason to seriously consider such indices as a useful way of adding consistency, transparency and policy relevant knowledge about how our rental markets actually behave.

 

 

A Housing Research Legacy: Remembering Alan Holmans

I was in London today at an event put on at the LSE in honour of the life and work of Alan Holmans. Alan had a long and valuable career in housing first as a civil servant and then as a researcher mainly at Cambridge’s Centre for Housing and Planning Policy. Alan was originally an academic economist and lectured at Glasgow but he really made his mark in the Government Economic Service because of his interests in statistics, historic data time series, housing needs and demand research and especially the role of demography in supporting forecasts and projections. Alan was also a stalwart of the Housing Studies Association and was author or co-author of innumerable papers, reports and other research publications.

The event today was ably organised by Christine Whitehead and featured many colleagues who had worked with or knew him, several for more than three decades. There were quite a few stories and anecdotes but, as is often the case with these sorts of events, there was actually a lot substantively to get your teeth into from the many and varied contributions by speakers and from the floor.

More than anything Alan was an enthusiast and advocate of robust evidence supporting the development of policy, be it a local or regional needs or demand study or making sense of land requirements for new housebuilding to meet demand. Some in the room lamented the shift away in recent years from evidence and analysis in policy development. But Alan went further arguing that in some cases the evidence simply took you so far and then the politicians had to make choices.

A case in point is the handling of backlog or existing housing need. Should a needs assessment assume that policy intervention will attempt to ‘clear’ it in three, five or even ten years? At one level this is a resource or commitment question but the choice has a massive effect on the numbers. Recently, the new national affordable need estimates in Scotland chose five years – twice the implied commitment and spend than the ten years often used in local studies. The key thing is to be upfront about the judgement made and equally explicit about your assumptions.

At the heart of much of the debate this afternoon was the old controversy between economics and demography. Which is more important to understanding the housing market? Of course, it is really a false argument: both are important and matter and they are undeniably connected. Some of the most interesting points made concerned the economic elasticities that impact on household formation decisions I.e. Non-affordability may well reduce household growth below more unconstrained projections, just as jobs and relative wages impact on net migration. At the same time, understandable scepticism about economic forecasting can also be a sensible attitude with which to approach long range demographic projections. Alan was comparatively rare, as Glen Bramley pointed out, because he was an economist interested specifically in demography.

A recurring theme was the importance of uncertainty both for the researcher as an undeniable feature of the contemporary housing market but also for thinking about demographic trends e.g. the effects of ageing on the market, let alone the effects of the blizzard of often incoherent housing policies coming from Whitehall. To be clear, people were not talking about quantifiable risks but a series of unknown parameters and unknowable futures that can impact in quite different ways on the housing system. This was more Keynesian uncertainty than expected utility calculation. My colleague Geoff Meen warmed to this theme noting that market volatility made it hard to predict house prices in the short run of say a year hence, let alone contemplate the complexities of long term forecasting for housing planning purposes in the face of multiple uncertainties.

Several speakers noted the historical analysis conducted by Alan which chimed with a number of people in the room. Geoff argued that a longer view suggests that affordability can’t keep getting worse – at some point there will be a correction, a reversion to the mean, but this may not be a pleasant experience! At the same time, Alan’s historical housing supply data suggested that there is no long term trend in supply so making the kind of step change required i.e. sustaining 200,000 to even 300,000 completions, does seem fanciful. Geoff is leading a book (that I am also involved with) which explicitly ties historical urban development to housing economics today. It will be published in the new year.

Alan was fondly recalled by all who attended today. There was also recognition of the significance of the research he did, the rigour with which he did his work and the need for analysts and Governments to carry on the work and the spirit it was done in. In a way, this is (and should be) a continuing challenge for future housing research, research commissioners and the users of that research.