Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Category: tenure

Lessons from German Housing?


IPPR has recently been producing a series of reports on housing in Germany asking why can’t the UK follow in its stead and take on some of the apparently desirable features of their housing system. As with other examples of policy transfer, diffusion or mobility, I don’t think it is always as straightforward, though IPPR are demonstrably aware of either the barriers to transfer or that we do need to look closely and critically at the German system as well as positively regarding certain undeniably positive outcomes.

What do IPPR say in their reports? The first one says why is it that Germany builds more homes, has a less volatile housing market and a bigger private rented sector? The second report, out last week, describes renting (i.e. the PRS) as the dominant tenure, more stable and with greater rights than for those in England. Since 1995,  and with much lower levels of volatility, German house prices have risen by 50%; in the UK they have gone up 400%.

IPPR argue that greater levels of housing construction are associated in Germany with a wider range of builders, both SMEs and larger firms. Ostensibly similar (a plan led system like in the UK), Germany seems to do better at converting planning permissions into new supply (i.e. the housing delivery system) but they have also seen a significant reduction in the volume of affordable housing being constructed. Perhaps more significantly, German public authorities are more proactive in the land market assembling sites and delivering infrastructure. Unlike the English, they continue to use planning gain to support the development of affordable housing. The lending environment is  more conservative than the UK and mortgage debt to GDP is considerably lower. While the housing tax regimes are not dissimilar, the German system of capital gains tax encourages long term property holding rather than speculation.

Interestingly, the IPPR conclusions include what they call mis-steps that should be avoided in the UK: first, they argue that a model of long term covenants (20-30 years) has failed to deliver more affordable units and second, they argue that there are higher transactions costs and inflexibilities that may impact negatively on the labour market.

Turning to the second report on private renting, IPPR stress that alongside security of tenure, private rents in Germany are much less likely to be associated with housing stress or very high housing cost to income ratios. Germany has a large supply of rental properties (which helps reduce the impact of longer tenancies on the supply of vacancies and this is supported by rent controls and a further control or brake on rents when properties are re-let. Not surprisingly, in such a different tenure distribution, tenants are also organised politically and have voice in a way that does not exist in the UK. This leads IPPR to recommend for the UK that: government should let LAs construct build-to-let schemes as part of the PRS and also recommends longer tenancies if public subsidy is involved.

The reports are worth reading and make excellent points. However, one must recognise the universal challenges of lesson-learning, transfer and diffusion of policy across national boundaries where market contexts, institutional settings and the evolution of housing systems move differently. Germany has more than half of its households in private renting but the institutional features of the PRS in Germany are quite different, as we have seen, from the deregulated UK. The benefits of the system stability and much more moderate volatility have taken decades to achieve and have had to overcome the challenges of reunification and surplus low demand social housing in the East. They have also enjoyed a comparatively stable policy framework without the catalogue of initiatives and innovations that we suffer from.

Yes, it is true that they do not meet their housing need targets and affordable housing completions are moving in the wrong direction. It may also be the case that the German mortgage market is more conservative and it is undoubtedly true that their rental market (by definition) is less flexible than that of the UK. But this may be an acceptable trade-off in terms of overall housing policy outcomes?

The point about the mortgage market is interesting for other reasons. Recently, in the House of Lords Economics Affairs Committee inquiry into housing, Dame Kate Barker made the point that there is a massive tension between housing-related government departments trying to boost housing supply and home ownership while, at the same time, HM Treasury, the Bank and the financial regulators are re-regulating and constraining mortgage lending.  Acknowledging this difficult trade-off and trying to develop the right balance is a critical requirement for housing policy and the forthcoming White Paper on housing.

I think these reports are a fundamentally good idea because it is by looking at other places in some depth that we shed light on some of the things wrong with our housing system. However, apart from one references to legislating over letting agency fees, I was a little surprised that IPPR did not make more reference to Scotland, given that we have just undergone fundamental reform to our tenancy laws (creating open-ended tenancies and limited specific routes only for eviction) and also proposed rent uplift limitations in pressured market areas. It is Ironic that there appears to be less interest with intra UK policy diffusion. After all while housing policy is diverging rapidly across the UK, it is nonetheless much more similar than comparisons made with Germany. Although it is early days and the law is not yet in force,  considering reform along Scottish lines might be preferable to the IPPR proposals suggested above which are premised on retaining the present tenancy laws and hence privileging, it seems to me, labour market flexibility over housing security.



Gimme (a ‘standard’) Shelter

Showing their undoubted media abilities, Shelter today launched a new study describing a model of a living home standard (LHS). The standard is based on 39 attributes of essential and more ‘tradable’ attributes of five dimensions of ‘home’ drawn from intensive research with the public carried out by Ipsos MORI. The hook was to show many homes in Britain fell below this new standard, an approach characterised as in the same spirit as the national living wage. The social, tv, radio and print media took to it hugely. So well done Shelter for getting the housing crisis and housing deficit to the top of the news agendas.

In this short post I want to review how they arrived at this new standard and reflect a bit on the national results that they hung their story around.

Ipsos MORI carried out nine months of investigative qualitative research with the public to uncover the five themes and 39 attributes deemed to make up the living home standard (regardless of tenure age or size). This was reminiscent of the approach taken by the Oxfam Humankind Wellbeing Index.The themes were based on: affordability, decent conditions, space, stability (i.e. security) and neighbourhood. Passing the standard required that it meet all of the essential conditions for each theme and a minimum number of the tradable ones for each theme.To take affordability as an example: the essential requirements were 1. Can meet the rent or mortgage payments on the home without regularly having to cut spending on household essentials like food or heating; and, 2. Not worried that rent or mortgage payments could rise to a level that would be difficult to pay. Tradable requirements for the affordability dimensions involved: 1. Can meet rent or mortgage payments on the home without regularly preventing participation in social activities; and 2. Can meet rent or mortgage payments on the home without regularly being prevented from putting enough money aside for unexpected events.

This sort of approach to affordability is refreshing in that it gets us away from the tyranny of specific ratios (cost to income ratios) and minimum values (residual incomes) but clearly does require household survey data. However, it would be incorrect to say that this type of approach is unassailably objective – it is not. Its attractiveness is that it has been robustly built up from the views of real people but of course even that has to some extent been conditioned by the design of the approach in the first place. More significantly, the quest for definitive objective measures is illusory and must require judgements about what is included and excluded, how threshold values are set and why, weighting (and how such weighting is approached) and the fundamental realisation that housing need, affordability and an overall LHS is and must be subjective and to an extent derived from judgment. However, that is not to say that this is anything but a comprehensive and well thought through approach. It is. We just need to recognise that while some forms of housing deficit are apparently objective and straightforward; others quickly become harder to pin down. We should welcome multi-dimensionality to thinking about housing problems but it bring challenges too.

A survey of just under 2000 adults, with results weighted to reflect the national (GB) population, was then undertaken to measure the extent to which the LHS was met and where it was not met. The analysis found that 43% of people live in homes that fail to meet at least one of these dimensions of LHS. Affordability was valued as one of the most important aspects of whether a home was acceptable but was the area that most failed on (followed by decent conditions). However, of all that failed only 1% failed in all five dimensions; the vast majority failed on one dimension or not more than two. The percentage failing the standard was negatively related to income i.e. lower income households were more likely to be in homes that failed the standard. A similar regressive gradient was found contrasting LHS with social grade. Third, fully 69% of private tenants failed the LHS and across age bands, the highest proportion failing (at 58%) were young aged 25-34.

This is more than a useful start and I particularly liked several things about the model – for instance, its multi-dimensionality and the concept of tradable relative to essential attributes. But it would be good to look at the LHS at different more local spatial scales so that it could articulate directly with complementary measures like official measures of housing need. Shelter have done a great job in getting their message out clearly and simply and doing so with such effectiveness. Housing needs to be up there near the top of the agenda because chronic problems rarely seem to inhabit the upper echelons of the news cycles for long. For all that, it is amazing how quickly fairly straightforward concepts and ideas get mauled and can confuse. Last night one of the BBC reporters struggled with the idea that 43% overall could fail the LHS but at the same time 69% of (private) tenants lived in homes that did not meet the standard.





A Different Class?


Just under a year ago many of us sat looking at the ONS website waiting for the news about whether or not they would reclassify English housing associations as public bodies for public accounting statistical purposes. On the basis of a review of the powers of the Regulator created under the previous UK Labour Government, the ONS took the view that these powers of disposal of assets, board and senior staff appointments were sufficient to deem that enough degree of control from a government agency meant that reclassification was indeed appropriate. This shifted more than £60 billion of debt on to the public books and initially raised uncertainties about the freedoms housing associations would retain over borrowing.

This fundamental change was not wanted by Government or the sector or other major stakeholders. In the midst of last year’s controversial housing legislation in England, the Government proposed a series of measures aimed at deregulating the English sector sufficiently, they hoped, to re-re-classify the sector back into the private sector.

Still with me? Yesterday morning the ONS announced its decision regarding the classification status for public accounting statistical purposes for housing associations in Scotland, Wales and Northern Ireland, assessing them on a similar basis as was the case in England. They are now described as ‘public non-financial corporations’. The Scottish Housing Regulator (SHR) has been reclassified as a ‘central government body’.

Interestingly, the Scottish Government had taken pre-emptive action by preparing and pre-announcing deregulatory legislation on a similar basis to the English proposal in order to reduce uncertainty and get back to the pre-announcement status quo. In 2012 the ONS re-reclassified English further education and sixth form colleges which it has earlier reclassified in the public sector in 2010 because Government relaxed some of its earlier controls. So there is a precedent.

According to Inside Housing, the reasons for reclassification in Scotland were threefold: the SHR has a degree of control over the management of housing associations, the housing associations need consent from the SHR over ‘constitutional change’ such as mergers and take-overs, and, associations also need consent over the disposal of assets like land and housing.

The Scottish Government plans to respond with new legislation which will first remove the need for consent over the disposal of assets, they will ‘limit’ the power of the SHR to appoint board members and officers, and, remove the need for the SHR’s consent regarding restructuring, voluntary winding-up and dissolution of housing associations. The Scottish Federation of Housing Associations appear to share the Government’s optimism that this will be enough to put the sector back in the private sector, though they reserve the right to scrutinise the ONS details closely. They do make the point that the Scottish regulatory framework has evolved in recent years to put some distance between the sector and public control [link].

This is a statistical exercise but it has real implications, potentially. Governments around the UK would not seek corrective legislation if it were not of significance. Linked to this is the wider question of the degree of autonomy or level of external control applied to an important part of the voluntary or third sector, The reclassification also creates some uncertainty which may impact on policy delivery i.e. the Scottish Government’s preparedness of response in part reflects their desire to protect their priority to deliver the 50,000 affordable housing supply target over the life of this Parliament.

Deregulation is not without its risks – how will lenders respond to the changing regulatory environment? The English experience will provide a guide. Second, is this the end of the matter – will ONS accept the deregulation as sufficient basis for changing the classification back? The plans set out by the Scottish government may well turn out to be quite appropriate and sufficient for this purpose. ONS reclassification could be the dog that did not bark. We will see.



Today was a milestone day in our household. We finally paid off our mortgage. Our journey is probably not too different to many of our vintage and trajectory but certainly it now looks like a housing career much less likely to be possible or typical for many folk starting out now wanting to buy a home.

As many did in the high water mark of mortgage deregulation, we started in the late 1980s with a 100% endowment mortgage. This was for a two bedroom interwar four in a block or cottage flat purchased a couple of months after I started my first full time job as a research fellow. Mortgage rates were 15%. It needed a lot of work, much of which family and friends assisted with and we stayed there, in hindsight, too long. There was a dodgy roof and a comparatively large garden, which were both in their different ways time-consuming and stressful.

I really wanted out of that house by the time we moved- I still occasionally have a recurring dream that we have to move back there (and to be clear I wake thinking I have had a nightmare). We moved about half a mile into a new home and watched it being built, which was an exciting time. This was a semi-detached three bedroom house, our larger mortgage was in two parts (a legacy of that earlier endowment). The new house was an incredible contrast to its predecessor and we had a little more than five years there. We would probably have stayed longer but an attractive, detached house around the corner came on the market and we managed to get it (the vendors also moved to another house in the immediate vicinity).

We have been in the present house more than 11 years now and we were able to use the redemption of the endowment (at nothing like its original supposed value) to pay off one bit of the mortgage and then overpay the other part till we could clear it today. A combination of very low interest rates and two jobs made this possible.

We know we have been fortunate working in comparatively secure jobs while escaping the vicissitudes of economic turmoil both in the early 1990s and late 2000s. We were able to secure a 100% loan in 1989 and make incremental progress thereafter. This is now a much more challenging problem for would-be buyers because of the binds of higher entry level house prices, weaker earnings growth, greater job insecurity and the much more significant down payment constraint.

If people cannot access funds, build savings or inter-vivo transfers or other financial support from family or friends, and do so when it is required or opportune, the average age of first time buyers will remain high except for the lucky few. As an aside I think there would be much merit in detailed and extensive independent research in the binding nature of these down-payment constraints and the effectiveness of policies that try to relax them. While there is much to be said for not returning to 100% mortgage loans the industry may have gone too far in the other direction but it is a complex multidimensional problem and simple pat answers about how to safely increase mortgage lending should be viewed with suspicion.

So, it is no more ‘I owe, I owe, so it is off to work I go’. However, to be honest I never really felt like that about work. Still, it is a rite of passage to close the mortgage account, and, as so many aspects of life increasingly do these days, it does make one feel old. The future will be about maintenance rather than a mortgage. We will just have to plan it ourselves.


Glasgow’s rental market affordability challenges


In Scotland we have statutory housing strategies for each local authority. Even though it has no council housing, this is a big deal for Glasgow. The city has control over the distribution of capital grant funding to the housing association sector, remains a key landowner and rightly sees housing as central to the delivery of many of its wider corporate objectives. Glasgow like all Scottish councils manages a number of statutory functions such as homelessness and housing planning. Tuesday past was the first set-piece external consulting event and I was speaking at it on the topic of private housing, need and affordability.

The central evidence base that the housing strategy is informed by is the Glasgow Clyde Valley joint Housing Needs and Demand assessment (HNDA). This is an impressive piece of work and one that conforms to a standardised model of quantifying demographic and economic trends, and the overviews the existing housing system, before then going on to examine sources of housing need and estimate three scenarios (low and high migration and the principal projection). This Scottish Government supported statutory analysis is built on earlier eras of housing planning (such as the Local Housing Systems Analysis framework that I was earlier involved with). It is a solid and internally consistent approach that makes best use of data but, as is widely recognised, it is replete with conventions, judgments and assumptions. There are undoubtedly weaker areas in all HNDAs and one of the main challenges is the private rented sector.

Private renting has grown rapidly in the city (and is now over 60,000 units or 20% of the stock) and while we can put together a narrative about the emerging market based on different sources of quantitative and qualitative evidence, it remains impressionistic and I would argue that, generally, we know little about market behaviour on either the supply or demand side. Consequently, we risk undesirable outcomes if our policies for the sector are not based on firm evidence and convincing models of how the sector works and interacts with the rest of the city. Below is my impressionistic version.

Citylets data for the 4th quarter of 2015 suggested an average monthly rent in Glasgow of £701 (compared to £741 for Scotland). While the level is lower, Glasgow how has higher rental inflation (4.2% compared to 2%) and a reducing time to let period – 21 days compared to 30 for Scotland as a whole. So, the market has rising real rents and a tightening around vacant units being filled more quickly Wider evidence suggest that Glasgow (and in some cases Greater Glasgow has been experiencing rising real rents since 2010 and again this is outpacing the Scottish average. Scottish Government evidence also suggests that rents are diverging with upper quartile rents growing quicker than lower quartile rents.

I sat in a breakout session at the conference yesterday where it was suggested by someone in the industry that Glasgow’s 60,000 or so private rented units and no fewer than 35,000 landlords – that is quite a stylised fact if broadly true. It makes policy intervention, regulation and analysis of the sector highly challenging. Landlords may be largely single property landlords alongside a smaller number of multiple unit portfolio landlords. The former may be more ‘amateur’ and short run in perspective – but some actually may see the property as a pension substitute and hence be in for the longer haul unless external drivers like tax changes force then out.

Two things struck me about the landlord suppliers – the recent tax changes to mortgage interest tax relief, LBTT and capital gains tax will have highly differential effects on landlords. Those with stock and not planning to invest will be less affected by LBTT increases but those investing will. And as was pointed out in the meeting, constraining the tax relief to the basic rate could turn for some a profitable business into a loss-making one. Another colleague, second, differentiated between the amateur landlords being likely to be more likely to exist as the market recovers and in the face of these negative fiscal pressures but also as a result of concerns about the new Scottish legislation and how this all affects capital gains. On the other hand corporate investors with several properties will be more concerned about cash flow and income returns.

I remember my former colleague Peter Kemp used to talk about a highly segmented private rented sector with landlords composed of volunteers and conscripts. I think that both notions apply all the more so now – we have a highly differentiated market which caters for discrete groups: students, generation rent working households, those with short run easy access housing demands, and those at the bottom end of the housing ladder unable to access social housing.  I am not convinced we have the research evidence or monitoring capacity to really understand what is going on in each of these segments. Policy is overwhelmingly concerned with the latter problematic group but actually there is much more going on which has an important impact on the rest of the urban housing system.

I think the other really interesting idea raised by Peter’s characterisation is that we cannot assume all tenants are conscripts but indeed some of them are clearly volunteers. Not all Generation rent working tenants, usually younger households. are potential home owners. Some are clearly happy with their rental experience, do not expect to have the sort of job security associated with a traditional mortgage and certainly do not have the savings required for a deposit). But many are content with that reality and would rather trade off a good location (and a relatively high rent) to be able to access the amenity important to their preferences. But we simply do not know enough about the profile of these two forms of tenant who essentially substitute for the presently less accessible home ownership sector. But we need to know more and Glasgow needs to prioritise this in its evidence gathering and ongoing monitoring of its housing system.

Finally, it is interesting that, in a small way, housing associations in Glasgow are dipping their toe into mid market rent and indeed ‘normal’ private renting. Do they have the skills to manage properties commercially and which segment should they operate in? How do you manage estates or neighbourhoods where you have tenants with quite different rights and conditions? This may be anathema to some housing people but to others it is a diversification that makes sense and offers opportunities to improve local housing quality and widen the range of housing on offer.

Changing times.

The ONS Returns

After the reclassification of English housing associations in the Autumn of 2015 into ‘public non-financial corporations’, many in Scotland believed that it was likely that in due course ONS would decide to look at the other housing association sectors across the rest of the UK. Last week ONS confirmed what many thought probably inevitable. The proposed work will be carried out by ONS in the last three months of 2016.

In its work programme, ONS said:

Cases scheduled for assessment:

  1. Registered providers of social housing (known also as registered social landlords in Wales) including registered housing associations in Wales, Scotland, and Northern Ireland

Current classification: Private Non-Financial Corporations (S.11002)”

ONS last assessed the classification of social housing providers in devolved governments in 2003 under the 1995 European System of Accounts rules. The existing classification will be reviewed to assess the impact of the latest 2010 European System of Accounts Rules and, where relevant, of changes in legislation which have occurred since the previous assessment. This will establish whether these bodies should be recorded in the public or private sectors for statistical purposes and whether they are market or non-market producers. Altogether, this will establish in which statistical sector their activities (including their assets and liabilities) should be recorded. As part of this review, ONS will also consider the classification of the associated social housing regulators where applicable.”

While this may not be clarified until the end of 2016, the Scottish case, like in England, is one based fundamentally on the relationship between the regulator and the sector. A number of implications would flow if Scotland is similarly reclassified. First, liabilities and assets would go on to the public sector books, adding to public debt. This may also mean wider government influence and a degree of control over new borrowing. Second, the question then becomes: will the Scottish Government go down the same road as the UK Government and try to deregulate the sector and hence have the reclassification reversed.

Just how this deregulation might be attempted and what its intended and unintended consequences might be for the sector – are quite hard to discern but require very careful consideration. Whatever else, deregulation should not be undertaken lightly or too rapidly. The English deregulation experience over the next few months will be an important if not critical guide for the Scottish government and the Scottish housing regulator. All of the UK devolved governments need to work together.

So, other things equal, we will now engage in a debate for several months about the appropriate way for the Scottish Government to respond to the probable reclassification and what form of regulatory level is both sufficient for reclassification reversal and adequate for the needs of the sector (indluding finance), its long term commitments and the interests of tenants (the current primary purpose of the SHR). What might this mean in a Scottish context for the delivery and composition of the 50,000 affordable units proposed for the next Parliament, if the present government is re-elected?

But we may be getting ahead of ourselves. The ONS has not started the work yet; it may be affected one supposes by the English experience (i.e. it may even be possible to short circuit multiples changes to classification). We will also have to see if primary legislation (as in England) is required to make the changes that the sector and presumably the government want.

All of this is about regulation and ultimately control over the sector. It is ironic that whereas all four UK nations adopt recognizably similar forms of housing regulation, the significant substantive policy divergence over the last few years between England and Scotland regarding social housing policy has absolutely no bearing on the current classification debate.


Three (tax) strikes and you are out 

A relatively little-mentioned aspect of this week’s budget was the continuation of the fiscal assault on buy to let landlords. As we know, the rate of capital gains tax has been cut but the private landlord has been exempted from this effective tax subsidy. The rate of CGT remains at the old higher rate for them. While this is only a relative disadvantage compared to other forms of assets, it is a continuation of a process whereby the Treasury has accumulated fiscal penalties on the sector over the last year or so (reducing tax relief to the basic rate for interest on borrowing and also the 3% hike on all rates of stamp duty quickly replicated in Scotland).

The rationale from the UK Government is two-fold: they want to pursue a tenure-based housing policy that promotes the growth in home ownership and are of course pursuing a range of more or less credible policy proposals to do just that. Second, however, they are justifying this approach insofar as it means reducing the incentives to invest in private renting (or stay in the sector), because the Bank of England published its view that BTL investment may be pricing out home owners and creating bubble like inflation in the housing market (that needs to be moderated).

The logic of this argument is I think pretty ropey. It is one thing to say that rental investors are bidding up the properties they purchase (they obviously are very active and taking a large chunk of new lending and yes may be pushing prices up a bit); but it does not follow that by choking off the return to such investment via blunt fiscal interventions will (a) deflate any such bubble (whether or not it is a real issue consistently or largely outside of the Metropole) or (b) that this will in the short to medium run actually make things better in terms of the supply of housing. Let’s unpack the argument a bit.


Clearly, private renting and owner-occupied segments of the housing market are interdependent – they are a more or less functioning system where change in one affects the other. In recent years, largely though not wholly as a result of the non-affordability of home ownership and linked  long term supply shortages, demand has grown and supply has responded on the rental market to accommodate unfulfilled home ownership demand and, to an extent, meet new demands independent of this frustrated non-owning segment. Intervening through fiscal levers to make the rental sector less attractive may well reduce new investment and stimulate disinvestment – slowing the growth and even reducing the sector’s actual size. But there are least three problems that arise in this system where I think the Treasury is not thinking it all through.

First, it will take a long time for any downward pressures on prices caused by a landlord or investor exit to impact on house prices to the extent that they make a material difference to potential first time buyers (and it is questionable if this would ever be the case in some parts of the U.K.)..

Second, the PRS is not the only force acting on house prices – there remains the chronic weakness of new supply to deliver and the myriad host of new announcements and policies supposed to unlock housing supply, as well as of course other demand side policies like Help to Buy.  Where is the evidence that this strategy adds up or that BTL is the critical driver of prices?

Third, in the (potentially lengthy) intervening period while we wait optimistically for this supply renaissance to deliver large numbers annually of a range of owner-occupied supply to locations where there is demand and a good proportion of it is accessible to potential purchasers – just where are the growing number of households going to be accommodated? Will a shrinking rental market simply not reduce the options for people to rent and bid up market rents?  Surely, this continuing long term problem in the home ownership sector is precisely why we need a well-functioning, better regulated (e.g. longer length of tenancy) and well policed rental market? Actively trying to make it less competitive and less attractive to investors is simply wrong-headed.

Housing, Incentives and Work

This week, the Joseph Rowntree Foundation published our research on housing and work incentives [note]. This project was funded in 2013 and stretched over 2014 and all of 2015. It was a great team effort and I am very grateful to my collaborators – Mark Stephens, Darja Reuschke and Sharon Wright as well as the fantastic efforts of our researchers, Filip Sosenko and Kirstin Besemer.

The project involved an international evidence review, quantitative longitudinal analysis of the BHPS and Understanding Society and 5 qualitative case studies of different labour market and housing situations featuring in-depth interviews with more than 50 people at the margins of work.

The project was part of the funder’s housing and poverty programme and asked what we know about whether housing enables or acts as a barrier to both entering work and if in work to progressing within one’s job. Our approach considered the key distinguishing features of housing such as its heterogeneity, spatial fixity, financial incentives, tenure and neighbourhood, housing quality and an increasingly dynamic policy context. These features were set against alongside key channels by which we believed housing processes and outcomes might impact on the labour decisions of those at the margin: 

– Housing in relation to place

– Jobs, housing and mobility

– Tenure-based housing costs

– Housing as business collateral 

– Housing deprivation. 

Our reading of the existing evidence was that while economic evidence suggests particularly women respond positively in labour supply terms to higher earnings, the evidence is less clear and more nuanced concerning the impacts of welfare reform and other welfare to work programmes. We also found mixed evidence that deprived neighbourhoods negatively impacted on working and that mixed neighbourhoods have positive impacts on employment. However, the importance of support networks especially child care was confirmed (as well as the wider gendered nature of the labour market more broadly). The evidence also stressed the continuing long term effects of economic restructuring on job opportunities in specific places. Commuting issues were found to be critical as are the costs and feasibility of relocation to be closer to work. Self-employment has grown in recent years but is risky and often an involuntary response to the wider employment situation.The early evidence from welfare reform suggests that it may be unfavourable for  the labour market situation facing the sick and disabled.

We used panel data to examine the pathways in and out of poverty and found that it is for one thing a little misleading to adopt a standard three years continuous episode of poverty as ‘chronic’ poverty’ – our evidence is just too messy and varied to adopt such a measure. Rather we found all manner of poverty experiences – some short-lived, some enduring, others with periods in and out of poverty of different durations. Only 7% remained in poverty throughout 2000-2008. Moreover, we found important correlations with housing tenure, employment status, household or family type and the gender of individuals in/free of poverty. Examining exits from poverty it is clear that employment may not guarantee being free of poverty but few escape it without work. While social tenants had a high rate of poverty they also exited poverty frequently. Taking 2008 as a snapshot, 70% of those in poverty were actually owners with a mortgage. In our report further econometric work was undertaken to try to better understand the processes underlying these and other findings.

Our five case studies were located in the London Borough of Lewisham, Oldham, Merthyr Tydfil, Scottish Borders and Larne in Northern Ireland. There was considerable rich material gleaned from the interviews but they can perhaps be boiled down to the following key messages:

– Neighbourhoods can act as informal recruitment hubs as well as offering affordable child care. These advantages are lost to new comers and outsiders. 

– Poor quality housing and neighbourhoods may either dissuade or instead motivate individuals to progress and seek work.

– Many were unwilling to relocate because of insecure housing which compounded the part time and short hours working opportunities they often faced. On the other hand available social housing seems to encourage labour mobility.

– The quality and cost of transport is a key constraint and several noted the lack of public transport to support shift and part time working schedules.

– Especially in rural areas, there is much dependence on car transport. The cost of owning and running a private car is often a major barrier to work.

– The level of rents especially in the private rented sector is an important constraint on the reservation wage (but also possibly important to social renting in London) because of the tapered removal of HB as people enter work and their measured income rises.

– Those with low skilled are often most effected by housing constraints on labour market opportunities and this often compounded by age discrimination and the lack of opportunities for the sick and disabled. 

The research found a well entrenched and completely normal work ethic among people who could only command modest wages. It is just that for different reasons they are not competitive in their local labour market. We also found a consistent story of working age poverty closely intertwined with low wages, weak labour market positioning and housing insecurity and affordability risks. These are compounded by the other key constraints relating to commuting costs and availability and also for accessible and affordable child care. On this basis we suggested six key policy recommendations:

1. Invest in neighbourhoods – local 3rd sector organisations if supported can do much to develop skills, employability and create sustainable jobs. Our case studies found much evidence of such good practice. This may allow specific neighbourhoods to build on the positives they possess that were outlined above.

2. Support affordable transport policies and those better linked to the actual working practices of those currently under-provided for.

3. Go further to prioritise affordable child care targeted at those currently most at the critical margins of affordable work.

4. More not less tenure security would reduce the double insecurity presently identified above (this is in effect a restatement of the case for social rented housing).

5. Paradoxically, the qualitative evidence suggests that greater tenure security (including longer private tenancy lengths) would increase labour mobility.

6. The way HB and Universal Credit are administered should not be designed so that they discourage employment as seemed to be the case in some of our interviewees’ experience.

Much of this research project was exploratory and confirmed our thinking and expectations – we have to bring together work opportunities and decisions with housing/neighbourhood questions, transport and child care issues. But looking at the project in the round now it also suggests that while in work poverty is both important and a challenge for policy, passing the problem on to employers through a mandatory living wage, as proposed by the Chancellor, is not without risks. How will employers respond in terms of the contracts and hours they will ask those we are most interested in to work; and how will it plays out for this group in terms of classic economic concerns about the unemployment effects of minimum wages? These are empirical questions but should not be ignored.

Note: Report and findings available at:  

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.



Complete Control

In January 1989, long-awaited rent deregulation in the private rented sector came into effect across the UK for new tenancies, normalizing freely contracted market rents as the basis for private tenancies. Lease lengths under assured tenancies were standardized and the era of rent controls in the UK appeared to be over.

While the private rented sector did not really demonstrate recovery and growth for another decade or so and not strongly before 2000, most of the subsequent growth has been through the remarkable success of buy to let landlords. If there has been a policy failure in investment terms it has been the inability until very recently to encourage larger scale corporate landlords and institutional investment.

However, rental market growth has brought problems including concerns about affordability, tenant-landlord problems and the instability associated with six monthly leases. Before the last general election UK Labour promoted a case for longer lease lengths traded off with indexing rent increases for the length of the longer contract. Meanwhile in Scotland consultation leading to legislation is underway to reconstruct the private tenancy lease, including the possibility of some form of new rent restrictions.

It is in this context that longstanding polarized positions on rent controls are being dusted down and rearticulated. This week, Retties posted a blog setting out a variant on the traditional economics critique of controls. Andrew Meehan’s piece raises two main issues for me: one, the extent to which the analysis is sound; and, two, the questions it raises for economics and economists.

Meehan sets out the fall and rise of private renting in the UK, the standard economics critique of rent controls buttressed by a few choice quotes from economists and a straw man argument that we cannot rely on the German case as a defence of rent controls for the UK. What is the essence of his argument?

• Decline of the UK PRS is associated and probably caused by rent controls after 1915. I think this underplays mortgage market growth supporting affordable home ownership and the waves of new council housing that followed – these things are all connected but it is not the case that all happened because of one albeit important cause.
• There have been different kinds and levels of rent controls (hard and soft or first, second and third generation rent controls) with different effects and consequences; however, the supply and demand analysis is based on a very simple absolute rent ceiling type of argument.
• The conclusion is that rent controls and the end of no fault possession will reduce rental returns, development and risk social bias and legal disputes. To the extent that new regulations usher in political risks and uncertainty that would clearly be bad for investment but if it is able to create a stable environment that may encourage long term income generation based models of renting (rather than on capital gains) – this may actually help support a better quality sector.

Let’s go back to the analysis. A conventional demand and supply curve model with a price ceiling set below the equilibrium rent will cause misallocation of resources, shortage and deadweight loss – it must do so by its own internal logic. That is why, as someone with economics training, I am all too familiar with and have sympathy for the argument that rent controls that are set in this way are bad for housing supply, investment and tenants. Exactly the same argument applies for setting a national minimum wage above the equilibrium wage in a competitive labour market – it will cause a degree of unemployment.

A rent ceiling below the equilibrium rent will reduce new investment and encourage disinvestment to the extent that landlords can get possession. They may also choose to maintain profit levels by reducing maintenance spend – hastening quality declines and probably also worsening relations with their tenants. And there is not only a redistribution of profit between landlord and tenant, there is a redistribution of welfare between current tenants enjoying lower rents and those excluded because of shortage and disinvestment – a classic insider outsider problem. The welfare benefit enjoyed by the tenant in situ may also mean that they do not move when their housing requirements change simply because they have less economic incentive to encourage mobility.

But it is fundamentally an empirical question as to whether these textbook effects occur in this way and, moreover, whether other features of the regulations, may cause further confounding or reinforcing effects.

The interesting reflections on the standard model of rent controls for me are: first, is it an accurate representation of the market and second, is it an accurate representation of actual rent regulation in practice? With Alex Marsh, I was involved in compiling a reader on housing economics which include a series of interesting papers on rent controls analysis including two excellent studies by Richard Arnott and by Bengt Turner & Steve Malpezzi. It is worth pointing out that while Arnott and Malpezzi are quintessential neoclassical microeconomists – their conclusions on the impacts of controls on rents are not nearly as straightforward as the received wisdom would suggest. The discussion below draws on those two papers.

Is the textbook picture consistent with how the market actually operates? Perhaps not. Supply (particularly) and also demand are more inelastic or unresponsive that the standard model would suggest – which means that the deadweight loss may not be as large nor the short term shortage (it depends on the empirical parameter values). Also, leading housing economists have studied rent controls and thought it quite appropriate to depart from the conventional model. Richard Arnott for instance makes a convincing case to model the rental market from an imperfect competition and not a perfectly competitive model. Equally, Turner and Malpezzi, conduct an international evidence review and make a case for the use of bargaining models under asymmetric information and other models based on contract theory – because these are more useful and realistic settings to study rent regulation in private rental markets.

Arnott argues that there are models of rent controls that may benefit the overall working of the housing system. The empirical evidence is often flawed and real world models are so different from the textbook that they need to be carefully analysed in their own right. And that is the point – it is fundamentally an empirical question as to the impact of such regulations. Turner and Malpezzi agree that empirical analysis of the newer conceptual models are rare but that is increasingly what is required and suggests that we cannot simply rule these regulations out on the basis of economics 101. We should certainly be skeptical about new regulations but there is much distance between the abstract market model framework and a more nuanced representation of an imperfectly competitive market and how actual rent/ tenancy length/ rules for possession policies would actually operate in practice.

I am squarely against badly designed policies that have detrimental effects and consequences. Rent controls have had and can readily produce such bad effects. However, policies that seek to reduce tenant exploitation through licensing good landlords and policing or correcting the behaviour of bad landlords – may have administrative costs but they can set a floor that most would widely support (ie the social benefit exceeds the cost). At the same time, negotiating a context for longer leases and for those contracts to have subsequent indexing of rent increases within that contract, alongside reasonable rules over possession and eviction – need not be anti-investor or anti-landlord, particularly over time. Limiting rent increases to inflation plus X% for the life of a longer tenancy but not the initial contracted rent may also be helpful for the housing system as a whole, create much more certainty for all players in the housing system and in the long term provide genuine competition and choice for those who would rent housing.

Of course, the policy proposals may be different to what I have discussed above and we have to consider objectively whatever policy plans emerge and look critically at their empirical content. It remains to be seen if and to what extent the textbook model of rent controls will be relevant.

Note: Alex Marsh and Kenneth Gibb, K (editors) (2011) Housing Economics Volume 5. Sage: London. The original papers were by Richard Arnott (1995) Time for revisionism in rent control?, Journal of Economic Perspectives vol. 9 (1), 99-120; and , Bengt Turner and Steve Malpezzi (2003) ‘A Review of Empirical Evidence on the Costs and Benefits of Rent Control’, Swedish Economic Policy Review, Vol. 10, 11-56.