Unpacking Rent Pressure Zones

Scotland recently broke ranks with the rest of the UK over private renting by introducing a new standard tenancy which will mandate the grounds by which a landlord can end a tenancy; otherwise they are open-ended and average tenancy lengths are expected to lengthen.  While some see this as a revolution in the rental market; others are more sceptical. It certainly has been the case in recent years that average length of tenancies had been growing under the old rules, as well as evidence that  more families are letting in the market. At the same time, others remain to be convinced by the new legislation. The new law is less than 6 months old and credible evaluation will take some time to surface and perhaps resolve these disagreements.

Alongside the tenancy reforms sit a new form of second degree rent controls in the shape of rent increase limitations in what are called local rent pressure zones, designated and applied for by local authorities. These are approved by the Scottish Government on the basis that the councils in question provide credible evidence that there is a clear case for such limitation to stop excessive rent increases. It is worth noting two or three things: the proposed limitations do not interfere with the initial rent setting that takes place at the beginning of a tenancy (they are not controlled) and any subsequent limitations will be capped but above the rate of inflation (a minimum of CPI & 1% for up to five years). These new proposals are, all in all, relatively modest.

For me, the most important issue is what the Scottish Government requires in terms of  credible and legitimate evidence from the council in question? Helpfully, the Scottish Government published a document which sets this out and I have just got round to reading it.

The first thing one is struck by in the guidance is that the evidence demands on a council are substantial. The early perception that many councils would be seeking such RPZs is clearly a misjudgement.  Paragraph 7 of the document says: Evidence of rent rises alone will not be sufficient to prove that they are rising by too much. Authorities also need to prove that rent rises in the proposed RPZ are causing undue hardship to tenants; and the rises are having a detrimental effect on the local authority’s broader housing system.

The cap only applies to tenants operating under the new tenancy in the designated geography of the RPZ. The guidance says that such a zone may be at different geographies such as a street, post code sector or data zone (but not necessarily a broad rental market area, as one might have intuitively expected). The guidance argues (para 18) that the provisions are intended to be used by a local authority to deal with excessively rapidly rising rents and where the Scottish Government consider that rents are rising too much, they are causing undue hardship to tenants, and, the council is coming under increasing pressure to provide housing  or subsidise the cost of housing as a consequence of rising rents (the Scottish Government expects the council to have plans to increasing housing supply and to link these to their RPZ application).

This is expected to be a transparent process where councils must publish their case and their evidence for RPZ designation. The guidance says (para 23): ‘the evidence will be a mixture of quantitative analysis e.g. statistics which demonstrate rent increases and qualitative analysis e.g. consultation with tenants. Councils will have to gather specific/ new evidence themselves where they do not hold this information already or where national data collections do not provide the level of detail required for an application. As such, councils might consider contracting with a third party with statistical and research expertise’.

Annex 1 of the guidance (criterion 3-5) sets out what is expected: a profile of the stock, time series evidence of rent increases, sample information and clarity over analytical methods, data from existing tenants, evidence that they are experiencing hardship, evidence that this rent pressure has increased pressure to expand supply and deliver more subsidy.

It would seem likely that the extent of evidence required will deter councils from making multiple applications and so the geographies may be comparatively wide. Second, it will take time for the new tenancies to generate the evidence required so do not expect RPZ applications immediately.

So, is this a modest proposal that sends a signal that may give tenants some comfort (and indeed landlords since they would have certainty about greater than CPI rent increases and can still set market rents initially); or might it be the thin end of the wedge that opens the door to greater levels of intervention?  I think it will be some time before we can assess the impact of RPZs.  Moreover, I think we need to place these reforms in a wider context of policy change for the private rented sector which go in different directions. These would include the adverse tax changes on landlords via LBTT, capital gains taxation and the tax relief available on borrowing, as well as the ongoing welfare impacts of the LHA cap and the treatment of younger single people (i.e. the single room rate). There is also the rental income guarantee pilot to encourage build to rent in Scotland.

And of course, the rental market is actually a series of more or less separate market segments on both sides of the market. We need to think through how these policy changes affect the different segments and the sector as a whole. Returning to the overall assessment of these interventions – rigorous analysis will have to both disaggregate the combined effects of these policies over time and ascertain their impacts across the multiple segments of the modern private rented sector –prs 1). All in all, we should be cautious about early evaluations telling us conclusively that the new system works or does not work later this year or even next.

 

 

The Last Post (for 2017)

A final piece for 2017 reflecting on the year now ending.

Brexit overwhelms most everything else. Back in the Spring, Duncan Maclennan and I presented a paper at the Housing Studies Association on our thinking about Brexit’s implications for UK housing. The consequences of Brexit remain far from clear (and that is the most constructive excuse I can give for not yet finishing that paper). That said, it seems evident that there will be important housing consequences flowing through exchange rate risk, medium term fiscal pressures, construction capacity shortages and the wider changes on economic prospects and how they feed in to housing demand.

The General Election was a curious affair. It seems like a long time ago now but even in the summer of 2016 when Theresa May became prime minister, people began to speculate on when the election she said would not be called, would actually, inevitably, happen. No-one in the media questioned the election until probably the day the publication of the manifesto pushed the funding reforms for social care. Very few people felt even on the day of the election that the Conservatives would not have their majority and mandate for their form of Brexit. Key assumptions have not been borne out or are at risk: a majority with the mandate to go forward with its vision of Brexit; a pliant Commons allowing them to ‘get on with it’; and, the capacity competently to manage the domestic economic and social agenda (what has come to be called in Scotland the ‘day job’).

In Scotland, we have now had a full year of the new Scottish Parliament and have settled in to a minority government and a new domestic political agenda majoring on the new tax and social security powers, narrowing the educational attainment gap, legislating on planning system reform, delivering affordable housing supply targets and doing more to tackle homelessness. This was also the year that legislation reformed the private rented sector creating open ended tenancies and the capacity for local rent pressure zones (a form of locally designated limited rent increases).

The Grenfell Tower disaster was a human tragedy and a collective failure of policy and practice. It is still, at this distance, hard to grasp the scale and horror of what happened. It will continue for many years to have substantial repercussions, especially for social housing high flats (just last week my council, North Lanarkshire, floated long term plans to demolish and replace their entire stock of multis). The response is also in part a recognition after the fire of the wider lack of understanding of contemporary social housing, who lives in it and what they experience. The enhanced concern with fire safety is also now rightly moving beyond the nonmarket stock to the rental market too. Grenfell in the short run is about understanding what happened that caused the fire and looking after everyone affected; in the longer run it will have wider consequences for housing, neighbourhoods and landlords.

The year for me, professionally, has been transformative. We established the UK Collaborative Centre for Housing Evidence, which started business in August in the Olympia Building in Bridgeton. After the best part of 10 years as a head of department and then directing Policy Scotland, I can now focus on housing research and have the privilege of working with an excellent team of co-investigators, staff and partners across the UK and beyond. It is all-encompassing and immensely enjoyable. However, we are now moving beyond set-up stage and into implementation and I look forward to delivering our projects and activities, and in playing a constructive role bringing evidence to housing policy across the UK.

Next year will see the Brexit story continue into its critical trade discussions. How will the key battlegrounds fare?  Domestic politics will be surely driven by Brexit and the capacity to manage domestic politics and policy as well as the complex realities of minority government and parliamentary tactics (i.e. shades of the late 1970s). Will Scottish politics remain primarily on the ‘day job’ next year?

In 2018, we will see a new green paper on English social housing, concerted work in different parts of the UK is now promoting good practice and evidencing innovations both to end rough sleeping and to consider effective homelessness prevention. I am involved in CiH’s new project on rethinking social housing, which will contribute evidence around the big themes in the green paper. I am also delighted to be on the shadow management board of the fascinating new evidence-focused homelessness impact centre, led by Ligia Teixeira (and is partnered with CaCHE). Next year will also undoubtedly see the first evidence of the impacts of the 2016 rental market legislation in Scotland, as well as the recent stamp duty changes for first time buyers. Hopefully, there will also be further work by groups like CaCHE, to make more sense of the housing system as a whole, how it interacts and how actions in one tenure or place have repercussions on others. Duncan and I also need to finish that Brexit paper.

Thinking about the Budget, Housing and Scotland

I have long felt that making sense of the Budget each year requires a few days and the lifting of at least some of the immediate confusion, argument and data fog that descends. There was considerable anticipation that the Budget would mark an important staging point in the apparent prioritisation of housing by the UK Government for England – something that goes back at least to the Fixing the Broken Housing Market white paper and now continues with the preparations for the social housing green paper. Alongside these developments, it was anticipated that more plans to achieve ambitious housebuilding targets would be set out and that this would include a major commitment to more affordable supply.

I will come back to housing and also some specifically Scottish dimensions of the budget below. The Sunday papers this morning, at least those to the right, have columnists suggesting that, politically, the budget went well. But this seems to be about not compounding ongoing political problems for the government and surviving the immediate period so as to be able to fight on.  However, the troika of the IFS, the OBR and indeed the HMT’s Red Book itself sforecast low productivity growth, difficult public finances and continuing stagnant real earnings. This is a grave context and yet of course it is all too often buried by the understandable but overwhelming Brexit steamroller.

There were many housing announcements, though some were better defined, costed and designed than others. Inside Housing summarised the intended housing changes:

• £125 million over two years’ increase in targeted affordability fund for LHA claimants finding it difficult to pay rent
• Changes to universal credit worth £1.5 billion including allowing HB claimants to continue claiming for another 2 weeks after a new claim
• Committing to achieve the 300,000 net additions to housing supply by the middle of the next decade and to support this through £15.3 billion of a mix of capital funding, guarantees and loan funding which would in part support the unlocking of strategic sites and estate regenerations – although the majority of the money appears to be for private development (though the Treasury say that part of the new financial guarantees ‘could’ be used for affordable housing as well – Inside Housing, 24 November 2017, p.2).
• £1 billion of extra borrowing capacity for councils to build affordable homes in areas of high demand.
• Pilots will be carried out in the West Midlands for the new HA right to buy.
• Councils given the ability to charge 100% council tax on empty properties.
• On the planning side pledges were made to invest in five new garden towns and also an ‘urgent review’ of how to close the gap between planning permissions and house building.
• Homelessness initiatives will include three new housing first pilots .
• Fiscally, stamp duty will be ended for all first time buyers in England, Wales and Northern Ireland purchasing homes worth up to £300,000 (and on the first £300,000 if the property is less than £500,000).

While there has been general recognition of the scale of the supply measures (which also include continued help for SME builders) and the direction of travel on homelessness, there has been less enthusiasm for the perceived limited additional support for affordable housing supply and a sense that they signal incremental rather than fundamental change (as suggested by David Orr).  Even the FT commentary after the Budget suggested that it was time to just end the English councils’ ceiling on housing borrowing altogether. Further valuable commentary from the housing sector on the Budget announcements can be found from various sources can be found here (CiH, Jules Birch, Shelter and NHF).

I want to say a little more about the stamp duty change.  Many economists are rightly critical of transactions taxes in terms of inefficiency compared to recurrent property taxes. The changes announced this week are the latest demand-side housing market interventions which, while targeted to first time buyers, will in all likelihood put upward pressure on house prices to the benefit of existing owners of housing assets and reducing the benefits to the formal beneficiaries. Both IFS and OBR have made this point, as have many commentators elsewhere. The evidence will out on the actual effects (insofar as models can actually, credibly, separate out the effects of the fiscal change on house prices and activity) but there is a wider question.

A slightly perverse outcome of greater fiscal devolution to Scotland has been fiscal competition between rUK and Scotland. So far, this has been exemplified by housing taxation: the tax rates competition between the two parliaments over stamp duty (land building transactions tax in Scotland) and the decision of Scotland to follow the 3% tax hike on second properties and buy to let landlords purchases. Now, the Scottish government has to consider how it will respond to a sizeable reduction in stamp duty in the rest of the UK.

There is an interesting reversal of classic oligopoly theory going on here. Traditionally, it is argued that where a small number of suppliers dominate a market, one firm raises prices and no-one follows; but if one cuts prices, they all follow and reduce their prices too. With fiscal competition in this devolved duopoly of the UK there is a different asymmetry.  Tax increases are followed in this case by Scotland because economic revenue benefits trump political costs (e.g. buy to let landlords are the main losers from higher stamp duty/LBTT rates) but where taxes are cut in the present UK budget for political reasons (and they arguably trump economic arguments in this case) how should or can Scotland respond given its public finance constraints (the opportunity cost is larger because of the smaller budget Scotland manages).

Housing is more prominent now as a domestic policy priority and is much higher on the political agenda. It is complex and multi-faceted and that is represented by the breadth of housing-relevant announcements last week. Policy to move us beyond an incremental change, however, will require sustained commitment over at least a decade. To return to the microeconomics of housing, we need a permanent, structural, change in the shape of the supply curve (so that it is more elastic), not a short term shift, welcome though that may be in its own terms.

 

Disruptive Ideas for Housing Land & Infrastructure

I chaired a panel session this week at the annual Homes for Scotland conference in Edinburgh. The idea was that our four speakers would consider land and infrastructure challenges around the risks and opportunities created by disruptive changes. These disruptions are novel ways of delivering housing, changing how funding and infrastructure is done in order to deliver more housing that is less expensive and can, arguably, and to different degrees, alter the way our housing system functions.

The populariser of the disruptive innovation concept, Clayton Christiansen, argued that small scale innovators take root and outcompete incumbents. They are, in other words, a silent but growing threat to business as usual. In this context innovations aimed at either using land value uplift capture through planning law reform to fund new infrastructure (rather than from scarce public finances); or, separating out land and infrastructure (into a common good fund underpinned by a state guarantee) and a separate element for the build cost – serves to offer a threat to the status quo business model of land oriented speculative housing developers.

The planning reform proposal, from Thomas Aubrey at the Centre for Progressive Capitalism, and the plan to separate out land & infrastructure from bricks & mortar (Matthew Benson from Rettie and Co) were the central examples provided of disruptive challenge in the panel session.

They entered this lion’s den this morning on the premise that the current housing system is broken – new housing needs to be affordable or at least considerably less costly, there needs to be much more of it and infrastructure critically needs to be funded upfront to facilitate new home development. Typically, in the UK, unlike much of continental Europe, this is funded by central government in different ways and from a range of government departments. It is typically not, and despite initiatives like community infrastructure levy, in the form of capturing (part of) land value uplift on the granting of planning permission.

There is thus a public finance argument in favour of such a shift – a charge or tax could in principle reduce the requirements on public revenues to pay for new infrastructure. Second, lower priced housing costs and the development of the long term funded investment in a common future fund – could reduce the cost of housing over time and again reduce important aspects of the housing budget (ie by reducing unit costs). As my colleague Christine Whitehead has often said, one measure of good housing policy is its capacity to reduce the cost of housing to households and the tax payer.

Our first speaker, Nicola Woodward (Lichfields), went further and argued that new housing and an efficient housing stock, are essential economic infrastructure, vital to growth and productivity. My colleague Duncan Maclennan has been making this argument for some time and indeed goes on to argue that benefit-cost ratio metrics that propose large productivity impacts for things like transport investment are often mis-specified and overstate value relative to housing investments and which in turn are often understated. This is partly about attribution i.e. increased densities attribute to transport rather than housing social returns, but also due to a failure to properly consider the counterfactual i.e. the cost to the economy of not investing in housing. Duncan’s argument, till now at least, seem to have been more positively received in other places like Canada and Australia than here.

What about the critical responses? One interesting response from the panel was that those who might feel that these sorts of new models or reforms to planning would damage the interests of the existing players – were essentially missing the point in that the objective is to improve the working of the housing system. There will be losers and they will typically be loud while winners will probably only whisper at best. So, the political economy of pursuing this credibly is both interesting and challenging. Two possibilities suggested were, one, to set up demonstration pilots; or, second, to attempt forms of innovation in planned new towns.

It might be pointed out second that using funds from value uplift for new infrastructure for roads, schools, water, etc. means those funds cannot be used for S75 affordable housing. On the other hand, as Matthew Benson pointed out, his model could be applied to any tenure mix including social housing and it would all be cheaper than the current new supply status quo. A worry was also expressed that this class of reforms might impact on house prices, though the direction of impact was not completely clear to me. Benson argued in any case that house prices are dominated by the existing stock and the proposals suggested would not in reality be big enough to affect the overall housing market.

Will these or other similar ideas actually disrupt land and planning to support more, less costly, housing supply work? How will they relate to wider community plans, the work of the new Scottish Land Commission and the upcoming planning legislation coming in Scotland? Some of these ideas are not unlike more traditional disruptive ideas like land community truss. Perhaps we therefore need a suite of ideas that can be used at different times across our range of market contexts. I am sure the debate will continue.

 

 

 

Trends and change in Scottish Housing

This week the Scottish Government published the new trends summary for annual housing statistics across Scotland. There is always something interesting or surprising to be found here and I thought would briefly identify and comment on a few things that struck me (all figures from the new trends summary).

Level of completions

• In 2016-17, there were 18,539 total completions, the biggest total since 2008-09 but still well below pre-recession levels. Looking at the composition of the total, private completions were down a few hundred at 13,187, housing associations built 2,748 units (428 units greater than 2015-16) and councils built 1,143, much the same as the previous year. However, rehabilitation and conversions accounted for more than 1450 units
• Within specific council area patterns vary significantly. In our largest cities, for instance, 76% of new supply in Edinburgh is private sector but only 32% is in Glasgow (fully 42% was housing association development).
• Long term trends suggest private housebuilding, while on an upward trajectory, is still well below the average over the last 20 years.
• The first diagram show very long trends back to 1920 for the share of housebuilding completions between private and social sectors.

 

 

Level of affordable supply programme completions and its composition

• Scotland is spending more than £3 billion of public funds in order to build 50,000 affordable units in the current Parliament, 35,000 of which are to be social. In the first year of this programme, 7,336 units were completed, below the averaged target of 10,000 but 13% up on the year before. Just under 2/3 of these were new build and the rest were either rehabilitations or off the shelf purchases.

Tenure shares and tenure change

• Tenure change in Scotland continues to be noteworthy. The bulletin points out that in 1981, 40% of the Scottish dwelling stock was owner-occupied, rising to a peak of 63% but then fell back over the last 6 years to just 58% in 2015. Alongside this has been the remarkable growth of the private rented sector, trebling as a share of all units since 1999 and increasing from 10% to 15% between 2008 and 2015.
• The second chart shows the movement on absolute numbers of the three main renting tenures between 2001 and 2015. The PRS is now comfortably the largest of the three.
• Locally, home ownership varies from 83% in East Renfrewshire (2015) to 44% in Glasgow (2015). Private renting (also in 2015) varies from 4% in East Renfrewshire to 27% in Edinburgh. For social housing shares, and always the outlier, East Renfrewshire has 12% of its stock in social renting tenures compared to 37% in West Dunbartonshire.

 

 

Local authority evictions

• The data indicates that for 2016-17, there were 1,421 evictions or abandonments associated with council tenancies. This equates to 15% of court actions initiated, 5% of all proceedings issued and 0.5% of all lettable stock.

Trend in LA lettings

• A long term decline in local authority lettings has stabilised. In 2016-17, there were 25,788 lettings, slightly down form the previous year, and 40% of lettings were to homeless households  as against 38% the year before. At the beginning of the previous decade, there were more than 50,000 lettings a year, though much of the reduction is due to stock transfer in general and Glasgow’s transfer, in particular.
• Only an incomplete proxy for social need or demand, local authority housing lists (and common registers) were standing at, as of 31 March 2017, just over 162,000 households, a 3% decrease on the previous year and the 9^th successive annual decrease.

The arc of the RTB in Scotland

• Just under half a million public sector (and stock transfer) homes were sold under the council house sales right to buy scheme, now ended in Scotland. The third chart shows the rise and fall of annual sales.
• In 2016-17, RTB sales totalled 3,510, up 38% from the previous year. Locally sales were highest in absolute terms in Fife, North Lanarkshire, South Lanarkshire and Glasgow.

Lots to think about in this data but it would be nice to join this up with private market data (via the Centre for Housing Market Analysis) and housing association data from the Scottish Housing Regulator, Maybe one day? I am working with colleagues at the Urban Big Data Centre at the University of Glasgow on monitoring the private rented sector through letting and adverts data – that might help to further close the data loop.

 

 

Exploring the Scottish Economy

My last official act with Policy Scotland is to participate today in a launch for our edited book ‘The Scottish Economy: A Living Book’. I edited this new overview with Duncan Maclennan, Des McNulty and Michael Comerford. We are immensely grateful to all of those who contributed to the book’s 19 substantial chapters. We think it is a genuinely useful and serious contribution to an empirical understanding of both the state of key sectors and the economic challenges the country faces.

Of course, Scotland is a place for different kinds of economic debates – those that mirror wider conceptual and empirical debates elsewhere about macroeconomic policy, government intervention, national strategies and what works. But is also, rightly or wrongly, where so much of the constitutional debate about Scotland turns. Just in the last week, both aspects of these debates have surfaced as a result of the Scottish Government’s publication of the new GERS data on Scotland’s public finances and in the anticipated economic strategy content of the new Programme for Government to be launched next week.

This book has a unique history. Sir Alec Cairncross established the Department of Social and Economic Research at the University of Glasgow after the 2^nd world war as an empirical research–intensive group of social scientists. In the mid 1950s, he edited a book entitled ‘The Scottish Economy’, featuring an empirical account of all the major Scottish sectors, which involved wrestling with often quite primitive data, but as was characteristic of the diagnostic investigative approach, often featuring remarkable forensic analysis of what was available. Of course, post war Scotland is in some respects now barely recognizable but many root issues and characteristics like inequality, spatial variation, the problems confronting Glasgow and the debates over strategy, productivity and growth still to the fore.

The Department of Social and Economic Research begat the Department of Urban Studies in the 1990s and now Urban Studies is a successful subject area in the School of Social and Political Sciences. The ESRC Centre for Housing Research, led by Duncan Maclennan, was located within S&ER, where, for a couple of years, Sir Alec’s daughter, Liz, was a researcher with us. We thought that as a commemoration of that excellent path breaking empirical study, we should seek to re-create its essence 60 years on. Although the subject material has changed (we don’t, for instance, have a chapter on the church in Scotland), we have, we hope, produced a significant substantial volume that should add value for academics, students, political and commentariat classes across many domains in Scotland. Retaining the link to the history of the book, we were delighted that Frances Cairncross could offer a foreword and Laurie Hunter, long term head of the department of Social and Economic Research, could add an afterword, too.

The book has a series of five chapters at the beginning of the book that are broad-based about the history of the Scottish economy since the 1950s, including one on the development of economic policy, alongside chapters on fiscal matters, the contemporary landscape and the Scottish population. We then move on to a series of sector or more topic-specific chapters concerned with issues as diverse as: oil and gas, infrastructure, rural Scotland, education, health, housing, the environment and renewables, the financial sector, urban Scotland, women in the labour force, local government finance, inequality and poverty, and government’s place in economic strategy. Chapters combine careful analysis of descriptive material with reflection on current and future challenges.

The main strength of the book is that we have assembled many of the key writers academic and non-academic who can write with authority on these matters (and they have done so). Second, a distinctive feature is the ‘living book’ element, by which we mean the updatable accompanying website which visualises much of the data contained in these chapters. The empirical focus is a drect legacy of the original Cairncross volume and we hope readers will find it useful. We also intend to use the website to provide periodic additional content, perhaps through blogs and author/editor notes.

In this way, and short of further editions (which we hope there will be an appetite for in time), we hope to overcome the classic problems such volumes face (subsequent events overtake the book). Our main such example, which only features in the introduction, is Brexit. Several of our authors (and indeed one editor) are thoroughly versed in the economic debates around leaving the European Union but our timescales precluded adding a further chapter late in the day. I hope the website will be able to host a series of contributions on that pivotal topic.

It is a nice way to sign off from Policy Scotland and I would like to thank my editorial colleagues, all the 33 contributors, the publisher and Policy Scotland staff and interns and for doing such a great job throughout the project. I wish the new director Chris Chapman well and Policy Scotland continued success. The new housing evidence centre, CacHE, will be working directly with Policy Scotland and we will have many continuing overlapping strands.

 

 

 

 

 

 

 

Private Renting Redux

This post follows three different rental market developments in the last few weeks. First of all, I chaired Professor Peter Kemp speaking in a seminar reflecting on Scottish market renting and PRS policy from the remove of England (though he is a former colleague of mine in Glasgow). Peter was joined by an excellent panel of  Rosemary Brotchie, Nick Bailey, Susan Aktemel and Anna Evans. Second, the Scottish Government published online their instructions for landlords and tenants regarding the new private rental tenancy that will come into effect for new tenancies in December 2017. This will assume tenancies are ongoing unless specific mandated conditions for termination are met (and are verifiable). It also creates the right for councils to seek local pressured rent zone status which would allow them to seek caps on annual rent increases (though not on initial contract rents. Third, my new colleague in the Collaborative Centre for Housing Evidence, Tom Moore, has recently published an (currently) open access paper in the International Journal of Housing Policy contrasting regulation and rental policy for the PRS in each of the UK’s four nations.

Tom’s policy review paper does the interested reader a great service by laying out the background context and policy divergence across the UK in terms of tenure security, regulation and affordability. While all four nations have experienced considerable growth in private renting since devolution, there are both common and distinct trends across the home nations. While traditionally a sector of transition, more people are living longer in the sector and more families and other longer term household structures are opting for the rental market. A key question is the contribution of either lack of choice forcing people into the sector or whether the sector is a destination of choice (perhaps this also suggests the weakness of the use of the word ‘choice’). Tom stresses that not only are tenure rights and regulation very different across the UK (with England as the default most deregulated n most regards), none of the UK nations approach the levels of protection and regulation found across much of the continental Europe.

Moore stresses that to the extent that more low income households are now in the sector, their vulnerability may exacerbate inequalities and disadvantage. Second, he rightly emphasises the importance of greater tenure security in policy discussions as the sector grows in importance. Third, management practices by some landlords remain a cause for concern.

There is much to like in this paper especially the comparative analysis of divergence across the four nations. If I was being picky I would challenge a few points: Scotland does have limited policy control over housing-related aspects of the housing elements of universal credit and discretionary housing payments. They can also top up and create new benefits – but they have to pay for them out of their budget. Second, I think the paper downplays important UK level ‘reforms’ of the sector, particularly via HM Treasury (the Scottish Government chose to follow the 3% uplift in stamp duty via the devolved Land Building Transactions tax).  I am also one of those people sceptical about rent regulation and in particular the ability of people like the rent officer to find a balance between tenant and landlord interests. Scotland’s reforms will be an important natural experiment for Scotland and the rest of the UK.

The Glasgow seminar with Peter Kemp was both stimulating and challenging. Peter made many important points. First of all, he noted that there is a definite asymmetry in terms of the new Scottish tenancy in that it is considerably easier for a tenant to leave under the new settlement than it is for a landlord to end a tenancy. Second, he stressed that the likely cap on rent increases is likely to be CPI plus 1% – which, compared to the Scottish average rents as described as ONS is actually quite high (unaffordable areas excepting).

While there was some concern in the seminar about policing the landlord grounds for repossession of property, there is clearly much anticipation about the impact the new tenancies will have for Scottish housing.  There was also a focus on other concerns of the moment like short term tenancies and Air BnB.

For me, Peter’s most insightful comments concern the changes to the tax regime for private landlords. Until listening to Peter I had generally considered these to be a tax grab that was rather unthinking about its housing system consequences (ie reducing the supply of lets just when the rest of the market is difficult to access, possibly pushing rents up). That may be true but I interpreted what Peter said as a sort of blindside attack on individual ‘mum and dad’ landlords in favour of the corporates – not by subsidising them (although there is some of that going on  via guarantees, etc.) but by using the tax system to penalise small landlords. (who make up 90% of the supply side)

How so? First, they do this by charging an 8% surcharge on capital gains tax compared to other assets. Second, there is the 3% surcharge on the tax on buying properties if you are a landlord (which may help potential first time buyers but might just push rents up or broadly discourage investment). Third, mortgage tax relief has been cut to the basic rate (unlike for other forms of investment business loans) and this is also has been turned into a tax credit which essentially means that rather being applied to corporation tax, it is now really a turnover tax and this has the unintended (?) consequence of pushing many small-scale landlords into higher tax bracket. There is concern in the sector that will lead to a large scale departure of small scale landlords. Will this gap be closed by other providers? Will first time buyers fill the gap as properties come onto the market – perhaps to an extent but they still face high deposits even if prices weaken.

This highly dynamic sector is the fulcrum of the housing system and its segments and interdependencies remain comparatively poorly understood and recorded. This has to change. And now social landlords are increasing their interest in and provision of mid-market rent – slightly sub market rents on short tenancies aimed at key workers (though this will also have to change for new tenancies after December in Scotland). How will this new sector niche perform and will it impact on the quality of the traditional private offer (and indeed how will it impact on social tenancies also provided by the same landlord)? Peter made much of the growth of the sector but did point out that it started from an incredibly low base in the 1980s – perhaps is the real international comparison to note-  just how did the UK end up with such an infeasibly small sector, something which of itself creates much deeper inflexibilities in the wider housing system?

 

Prevention and Predictive Analytics

 

I was at a What Works Scotland seminar this morning, the latest in our joint events with NHS Health Scotland on the Economics of Prevention. Papers and slides and a summary of discussion groups will be posted at the WWS website. We heard papers from Heather McCauley on the use of predictive analytics in New Zealand, on modelling the burden of disease by Diane Stockton and using agent-based models to consider informal care and obesity by Eric Silverman. They were followed by Ian Marr who summed up, drawing on his first-hand knowledge of social impact bonds and the social impact partnership model he has been developing.

A key aspect of preventative thinking, from Derek Wanless to Campbell Christie and beyond, is the issue of understanding where the most public service spending goes and therefore targeting spending, as far as one can, to those people and needs that will otherwise generate disproportionate public cost e.g. early year intervention to prevent what would otherwise lead to, in high likelihood,  negative future outcomes such as less good education and employment outcomes, poorer health and or episodes involving the justice system. A key issue is also how to manage the disinvestment that goes with a shift to prevention.

While it was fascinating to hear Eric Silverman tall about these simulation model as safe playgrounds of policy experimentation without consequences (unlike piloting, for instance), I want to talk  primarily about Heather’s exposition of preventative predictive analytics in New Zealand. She told us about the evolution of the programme, how it works and provided detail in terms of policy spheres such as welfare benefits and children in care.

The three big lessons and challenges that arose for me were as follows:

• Moving government to think and act in terms of the lifetime costs (on an actuarial basis) rather than the annual cash costs of a high need individual, household or client;
• Using statistical/econometric methods to uncover the probabilities that signify the high need households and individuals – the diagnosis of where lifetime costs are very high and therefore where large potential savings can be made; and
• Designing the optimal mix of practice and policies that allow case managers to maximise the effectiveness of intensive interventions (what works?).

All three are difficult – the third, perhaps the most challenging. Let’s look at each in a little more detail.

Heather described the need for culture change to take on the lifetime cost approach. She pointed out that New Zealand has a culture of seeking the best possible value for the public dollar and so the shift from short term to a longer, multi-parliamentary term perspective, can be made and perhaps done so more readily than in the UK or Scotland. Many of us might be comfortable with the idea of focusing on the lifetime savings made by preventing someone falling into the negative outcomes suggested above – but it does require current governments spending money now and postponing benefits to future governments.  Heather provided the example of using a helicopter to transfer a spinal injuries patient from an accident site immediately to hospital with potential long term savings in reduced future health care costs. Lifetime benefits considerably outweigh upfront (helicopter usage) costs.

Second, the New Zealand benefit figures suggest that much of their employability spend goes to job seekers who are a small proportion of the total client group compared to the higher and persistent incidence of for example those on disability benefits and lone parent benefits. They cost more in lifetime terms and represent longer term need. Modelling under certain conditions offers, to different degrees in different policy areas, a reasonable basis to diagnose where highest need is concentrated and where benefits might be maximised by effective targeted interventions. But as was stressed in the presentation, these models produce probabilities and associations; they are not causal and indeed there is a fascinating question about understanding why some highly at risk groups remain resiliently unaffected in future years – what can we learn from their resilience?

Heather rightly recognises the suspicions and criticisms open to these sorts of approaches (often relating to big data and predictive algorithms): bias, non-discretionary model creating discriminatory or arbitrary outcomes, perverse incentives, moral hazard and discrimination like cream-skimming of the cheapest easiest candidates in areas like the work programme.  Transparent models (all on line from the New Zealand government) and independent scrutiny of the models, their assumptions and how they work ‘under the hood’, is essential, as is always seeking to improve the model and to reduce negative aspects of models.

Finally, there is the classic what works question – assuming that the modelling has indicated who and where the highest need target group resides, what are the suite of policy tools and interventions that best reduce the lifetime cost and make those savings because negative future outcomes are significantly reduced? How do we assemble good practice, policies, and effective case management in the variety of policy areas likely to be developed? A sector by sector repository and on-going discussion about these tailored responses is essential.

Predictive analytics has well founded criticisms but as in so many areas, this is one where continued independent scrutiny, a commitment to transparency and a willingness to continuously improve modelling, can provide valuable prevention benefits but there I can be no guarantee that this will be so. Furthermore, there is the small question of then designing the appropriate mix of policy responses aimed at those in most need

 

Returning to the Start: Housing and Public Health

 

Housing intervention by the state started with public health challenges. Public health approaches today have much to say about the structural determinants of health inequality, spatial inequities and connections to key sites and drivers of these inequalities. Housing is of course centrally implicated both in terms of physical and mental health, but also in relation to the broader wellbeing of individuals, families and communities. Housing conditions, fuel poverty, unaffordability, all manners of indicators of unmet need are relevant.

The Scottish Public Health Network have just published a new report: Foundations for Well-being: reconnecting public health and housing. A Practical guide to Improving health and reducing inequalities (lead author Emily Tweed). It sets out to be a ‘best practice resource’ to guide the Scottish housing and public health sectors to improve health and reduce inequalities through good housing. It is well worth a look.

The report is a primer that sets out the context facing the different professional communities, provides useful links to data and policy resources and provides recommendations for good practice and development for both. The big health themes touched on by housing include well-being, ageing, inequality and poverty, health and care integration, community empowerment and climate change. What is helpful as an educational and professional resource is that the report provides a basic grounding or primer for either group, sets out a long list of statistics and other policy and practice connections as well as key practice pointers.  There are also useful diagrams and boxed case studies.

The report (section 2 and appendices) has a nice discussion of the complex multi-dimensional relationship between housing and health (also see a recent review of housing and health inequalities by NHS Health Scotland ). These dimensions include:

• Bi-directional – while housing may influence health the opposite is also true with health issues constraining locational choices and housing design as well as impacting on financial constraints and employability.
• Context-specific – impacts and strength of these connections will vary across different populations (and sub-groups), eras and places.
• Direct and indirect dimensions – where indirect effects can include for instance burdensome housing costs reducing access to other health-benefitting activities.

As the authors say (p.15): “acknowledging these complexities helps add nuance to our understanding, but does not undermine the central fact that housing can be a powerful determinant of health and wellbeing, and of inequalities in their distribution across the population”.

Section 5 is an excellent compendium of resources for housing and public health. Just one example worth following up – a very useful public health oriented report from Wales on the prevention case for housing investment . The final section looks at opportunities for joint working, initiatives that might be taken to link data in housing and health (potentially very powerful) and specific priorities like the private rented sector and strategic joint planning around for instance health and care integration.

I would not pretend to have any background in public health other than reading about it in a housing context and occasionally debating these causality questions with colleagues. More recently through What Works Scotland and through public health colleagues in the University and beyond I have become more engaged with these important inequalities questions. A report like this one is a great practical way into these questions for researchers, students, practitioners and policy facing professionals alike. Well done.

 

Revisiting the Scottish National Performance Framework

 

‘The purpose of the Scottish Government is to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth’

In 2007 the first minority Scottish National Party Government established the Scotland Performs framework based on a core national purpose (2016 version above), five strategic objectives, a series of (currently) 16 high level national outcomes, and a set of 55 national indicators that operate at high level but can also drill down to clusters of indicators within specific sectors. This approach has been widely acclaimed internationally (it was initially, in part, the product of drawing on a similar model in the Commonwealth of Virginia in the United States) but has also undoubtedly found sceptics, critics and critical friends.

The Scottish Government is now consulting over the framework, its outcomes and indicators and is undertaking a large-scale stakeholder discussion exercise to support this process . Last week they started with an academic roundtable in Glasgow co-organised by What Works Scotland [link]. The session was held under the Chatham House Rule and involved an historical contextualisation of the origins of the framework, a presentation on the outcomes approach to public policy by Ailsa Cook (shortly to be published by WWS) and a detailed discussion on the structure, format, uses and functions of the framework. Below are my personal reflections on the meeting.

The framework sits at the heart of the so-called Scottish approach to public policy, one that stresses pursuit of agreed high-level outcomes consistent with the national purpose and the application of these objectives down to local level through agreeing objectives with each community planning partnership across the country. It is also about a decisive shift to prevention, stressing partnership working and co-production, community empowerment, inclusion and the breaking up of departments and silos in the way Government is structured and led. The touchstone document for all this is the 2011 Christie Commission on the Reforming of Scotland’s Public Services.

One person commentated that we know, for all the critique that may justifiably exist, that Scotland is ahead of the curve on this accountability-outcomes-performance nexus of public policy. How do we now go forward to better work with the complexity of governance and public service reform rather than adding to it?

A first point that came out of the discussion was an exploration of the implications of the different and not necessarily consistent elements of the national purpose. Economic growth, inclusion and sustainability all feature and may well in normal circumstances represent a series of trade-offs – i.e. increasing one may be at the expense of the others. So, how do you determine the weight to be attached to each element and how does that accord to societal preferences? This quickly moved into a conversation about Kenneth Arrow and social welfare functions in economics and the wider appeal of Sen’s capability approach (which is the underlying normative framework used in much of the work of What Works Scotland).

A second theme was that while there was a perhaps surprising degree of consent around the table for an outcomes-focused approach, recognising that there remains little rigorous evidence at a national level about the impact such an approach has on wellbeing, there was much more concern with the relationship between outcomes and indicators that act as performance proxies. As one commentator noted, there is world of a difference between attributing performance to a conscious service or intervention approach and recognising that it may contribute to it (and that this is located in a credible theory of change).

The critique of performance indicators in general is well known – cream-skimming, parking, only counting ‘what can be counted’, focusing on the indicator rather than the broader outcome or purpose, the scope for a wide range of other perverse incentives that undermine a service or intervention. The meeting also discussed the need for consistently rigorous, generalizable, valid and reliable evidence and operational indicators with which to make meaningful judgements. There is often quite a gap between the outcome statement and the indicators in terms of specificity and measureability.

This would seem to make a case for 1. a greater investment in the evidence and data audit required to build better indicators and 2. a comprehensive attempt to ensure minimum indicator quality. On the latter point, I have always taken the view that there is nothing intrinsically wrong with performance indicators, or with the use of sharper incentives or indeed (as came up in the discussion), the use of payment by results mechanisms – what matters is the appropriateness of their design and the careful assessment of how they are used and concern for unintended consequences.

Perhaps this suggests that Government might consider the creation of an independent review group who could support the performance team, comment and propose amendments to the indicators, evidence and data used? Academics and independent researchers could play a potentially valuable role (and the potentially complementary relationship between quantitative measures and qualitative evidence on the ground was stressed by different speakers). This could be an opportunity from the top of Government down to evangelise the use of evidence in accounting for government and public service performance against desired outcomes.

A third element of the story is the fit between local and national level approaches. With single outcome agreements and now with local outcome improvement plans, local community planning partnerships sign up to specific goals which nest into the national performance framework. On the one hand, this provides for a clear place-based representation of these ideas in localities all over Scotland, but it also brings with it the danger of compounding the performance indicator problems and the over-zealous focus on indicators discussed above at the level of the local authority and below.

There were other useful points highlighted. First, make distributional or social justice outcomes and indicators more explicit and more benchmarked consistently with other nations (in the way for instance economic productivity performance is measured against OECD quartile scores). Second, presentationally, the refreshed set of national outcomes  should be discussed and part of the public policy discourse in their own right,. This should be quite distinct to and separated from the mechanism that seeks to use the best practice theory of change and credible analytical evidence (which is valid, reliable and generalisable) by creating high quality indicators of the journey towards the outcomes (and unlike at present – those indicators should nonetheless be mapped on to the outcomes they seek to measure).

At the end of the roundtable I said I thought it had been a valuable exercise on the criteria that I had both learned a lot and we had produced a genuinely multi-disciplinary conversation – economist shall speak unto sociologist, etc. I think the Scottish Government team also felt there was genuine value from the day and I wish their endeavours well.