The Broken Housing Market Conference, London

The Institute for Civil Engineering in Westminster hosted a one-day housing conference – ‘the broken housing market’ on June 1, 2018. The conference was organised by RICS, NIESR and CaCHE. The conference had a starry array of speakers, including David Miles, Ian Mulheirn, Kate Barker, Steven Aldridge, Paul Cheshire, Christine Whitehead and John Muellbauer, among others. I was asked to provide closing remarks which meant I had to stay honest and really concentrate throughout the four sessions, 13 speakers and discussion sessions. Short videos from several speakers can be found here.

The event was named after last year’s white paper – Fixing our Broken Housing Market – and covered different dimensions of what is conceivably wrong with housing and what needs to be done to address such shortcomings. It is important to state from the outset that different views were forcefully expressed about these problems e.g. whether they were ostensibly on the supply-side or demand side (or indeed both) or indeed were mainly about policy failure. Some of these differences reflected disciplinary or background factors but also in some cases concerned different approaches to housing economics as a sub-discipline.

The structure of the conference was in four parts. The first session was entitled housing and consumption and dealt with many of the familiar housing and macroeconomy questions – how does rising house prices feed into consumption and additional mortgage re-leverage; what role does housing collateral play; how has the UK market been changed by mortgage stress tests, lower LTVs and the macro-prudential policy context. The second session was ostensibly about affordability though it somewhat morphed into a much more fundamental discussion of how one views housing as either a consumption good or as an asset. After lunch Kate Barker reprised the housing supply question 14 years on from the review of housing supply. Stephen Aldridge provided a substantial reply. The final session involved four policy papers aiming different cases for reform and one which raised wider questions about what we actually mean by housing policy.

The main things that struck me today were the following:

• There is a lively debate between mainstream housing economists about what is going on in the housing market, how it fits together and what needs to be done.
• Mulheirn argued that the housing problem is primarily an asset issue, not a housing services question (in many places housing consumption costs are reasonable and stable). He also argued that the problem is much more a demand than a supply shortage issue. This was not accepted by many in the room who remain wedded to the need for more supply.
• There was much discussion of housing tax reform but it was strongly encouraged that promoters of housing/land tax reform invest in good policy design and careful, cautious implementation.
• Ian Mulheirn also spoke about a policy trilemma i.e. that it is possible to have one or even two but not three policy objectives simultaneously – where those objectives are financial stability, home ownership growth and pro-owner fiscal policies.
• We are still arguing about the definition of affordability but linked to this the assumptions set out in banker affordability stress tests are highly sensitive and contested i.e. they seem much more conservative than most credible independent forecasts of inflation and interest rates.
• David Miles sketched out a model that might help explain the future long-term trajectory of real house prices and argued because of the sensitivities of two key elasticities (between land and structures) and between housing and non-housing consumption, it was very difficult to confidently work out the fundamental real house price – and this matters materially for macro prudential policy if one is to have a benchmark from which to assess how far away prices are from a fundamental equilibrium. As an aside, he also argued that the tax relief reductions on private renting landlords were ill thought through.
• Christine Whitehead distinguished her interest on policy details from the grand design others had for housing and policy reform (even though she agreed with the aims). Her point was that housing policy has different governmental masters (MHCLG, DWP, Treasury, the Bank, etc), a plethora of different stakeholders and an alarming tendency to generate new policy instruments; yet little clarity on what the housing policy was really for or about – and more to the point in her view, it has always been much like this.

I particularly liked the eight stylised housing facts (i.e. that we should all agree with and take as our starting point) as laid out by Stephen Aldridge. These were:

1. Affordability pressures exist, particularly in London and the south east
2. There has been a 50% rise in the number of concealed households (alongside many more young people staying with parents)
3. Most young people who don’t currently, still want to own their own home
4. A shortage of housing supply is indicated
5. We can build more homes
6. We are building more homes than in recent previous years.
7. A sustained substantial increase in housing supply is required to impact on affordability
8. There is plenty of land in the right places for additional housing supply.

In my wrap-up, I tried to set out how CaCHE might play an ongoing role in this area. Kate Barker had indicated in her talk that the new centre was a rare opportunity to provide evidence and build conceptually. We certainly want to do just that. I also made the point that the private rented market is a complex mosaic of well-defined and largely independent segments on either side of the market. This is neither well evidenced nor conceptually understood sufficiently to allow us to have confidence that policy-makers reflect the sector’s subtleties. This led to my final comment, arising from the on-going policy transfer exemplar project we are undertaking, that we do not as housing researchers make anything like the full use of the policy studies or policy analysis literature i.e. the models that might shed light on the policy process in housing. We need to change that fact as we move on to our more empirical research.

 

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Housing Studies Association Conference 2018

I am writing this during the final day of the 2018 HSA conference, for the first time taking place in its new home in Sheffield. The structure, familiar faces and the good cheer of the annual conference remain the same.

During the conference I heard several workshop papers, I also attended two plenary sessions, one of which I held the coats for. This year, I also spent a considerable amount of time talking with CaCHE colleagues from far and wide, since we were well-represented and it was too good an opportunity not to catch up with people. Oh, and there was a bit of socialising, too.

CaCHE is now a partner with the HSA and we are delighted to be supporting early career researcher streams and to support specific plenary sessions. I hope that our relationship with them will only deepen with time. We have already worked with HSA on their first annual lecture last Autumn and I hope together we will be a good fit over the coming years.

To the conference. The plenary I chaired involved three very different papers: Keith Jacobs reflected on the neo-liberal housing project, not a housing crisis, but something that works for key elites (though he claimed to remain optimistic about the future); Brian Lund discussed housing politics in UK elections and argued that housing tenure and age, among others, have become key signifiers of voting patterns; Marissa Gerstein Pineau presented a socio-psychological analysis of different social policies including attitudes to homelessness in order to make a case for the importance of how we frame our arguments and communications.

Three things struck me in the plenary. First, I think it is undeniably interesting that housing cleavages have electoral significance but I could not help but want to see more granular spatial analysis, especially of high versus low pressure housing market regions (and also the Brexit remain versus vote leave areas). Second, I completely agree with Keith that it is not really helpful to talk continuously about a housing crisis. He argued this in part because the outcomes created by our housing system evidently work well for important stakeholders at the expense of others (including future generations). I would stress more that we are talking about overlapping chronic problems that periodically blow up into crises.

Third, I think the framing idea is clearly relevant and important in the world of knowledge exchange and policy influencing.  Marissa made the point that when fact finders, etc. seek to bust myths it is often found in follow up surveying that it still the myth rather than the reality that many people retain and hold to as nearer to the truth. This has obvious currency for those trying to evidence the social housing sector as different from many of the ‘legends’ it is saddled with. I also think the perpetrator of the ‘death tax’ concept for inheritance tax (and now also dusted down when discussing the funding of social care or deferring council tax payment) has produced a politically fireproof argument that is extremely resilient to counter-argument – despite evidence or sound logic to the contrary.

The final plenary about professionalism and practice involved Gavin Smart and Mary Taylor: two very good speakers both able to cross the boundaries between academia, policy and practice.  Mary provided three provocations about leadership in housing. First, leaders often focus more on policy than management. Second, unprecedented pressure to change exists in the system and  management needs to do more to embrace performance and  be more willing to change culturally. Third, the task of social housing is getting harder and resources fewer (and will be made more unpredictable by Brexit) – where are the future housing leaders  going to come from?

Gavin sketched out some of the main challenges as he sees them. First, what do we mean by a housing profession? Second,  what are the main challenges for the professions? Third, what is the  relation between professions and the academy? Like Mary, he stressed the massive opportunity (and need) to innovate, especially through new technology. The policy and practice challenge was thirty years in the making and will probably be thirty years in the fixing (and expectations to therefore manage). Too often the profession does not use evidence to support what it says. There are fertile areas where academic work informs policy and practice but there are many cases not so much. How do we change the conversation?

My own paper was about housing systems. It was really a form of thought experiment – is there a case for using housing systems ideas (interdependency, emergent properties and complexity, homeostasis, recursive processes, path dependency, non-linearity, etc.) systematically across housing research and evidence work within CaCHE? What might such a checklist look like? It would need above all to speak to different disciplines undertaking housing research across plural methodologies.  A tall order but surely not beyond us and something that might help us avoid some errors and reduce over reliance on partial analysis that does not consider the whole system.

I heard many other good papers by Rebecca Tunstall, Adriana Soaita, Yoric Irving-Clarke, David Clapham, Peter Matthews and Chris Foye, to name just six but I think my favourite paper was on children, play and spatial theory by Jenny Wood – which was just excellent, thought-provoking and well-presented. To what extent should place-making and planning take account of children’s wishes and how do we reconcile different adult and child requirements?

The conference dinner was held in the municipal splendour of the town hall. There is a regular pre-dinner talk, this year co-hosted by the Cannon & Ball of HSA, Tony Manzi and Joe Crawford. Kind words were said about CaCHE and of course a few people were the target of some harmless ribbing. I think I got away with it, though to be honest I may have missed a barb or two when lulled to sleep at one point by Joe’s mellifluous tones. I was reminded of that story about the Glasgow Empire when Mike Winters went on stage before Bernie popped his head out the curtain and someone in the audience shouted ‘Aw naw, there’s two of them!’. Eric Morecambe was once asked what he and Ernie would have been if they had not been comedians and Eric said ‘Mike and Bernie Winters’.

Roll on next year and thanks to all of the committee (especially Beth and indeed Joe and Tony) and HSA staff for their efforts to make the new home the base for such a successful conference.

 

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.

 

 

 

Starting Again

This week, I have begun a new job. I am still at the University but the UK Collaborative Centre for Housing Evidence (CaCHE) opens its doors for business. We are still recruiting and setting up systems, policies and procedures but it is finally underway.

CaCHE has been the best part of two years in the making and reflects a long gestation period as ESRC wrestled with how to deliver on its decision to prioritise housing alongside the increased focus on evidence and what works in policy terms more broadly. Eventually, the decision was taken to go for a broad-based multidisciplinary approach, one that should encompass a consortium of universities and non HEI partners. It was also clear (to us) that it needed to encompass the whole housing system and all that features within it, and that the new centre should be genuinely-UK wide and embrace the devolved UK and the different types of markets and housing contexts found across the UK.

Our consortium building process was premised on early sign–up of partners, seeking to do justice to the scope of what we thought would emerge. We embraced the housing system approach and also a pluralist basis by which to assess and review evidence about housing. Importantly, we also decided to fully commit to a co-produced mode of priority-setting. We will set our evidencing and research priorities according to what representative knowledge exchange groups up and down the country tell us are the key priorities.  More so than ever I am convinced this is the right way to go, not just to get buy-in from the wider housing policy and practice world but because it confers legitimacy and a sense of genuine collaboration. It also shapes the way we have to write, report and communicate.

Last May, the ESRC and other funding partners, Joseph Rowntree Foundation and the AHRC, published their call specification incorporating six research themes (housing and the economy; understanding the housing market; choice and aspirations; housing and health education, employment, etc.; place, design and neighbourhoods; and, multi-level governance). Each theme had a lengthy shopping list of possible research projects. We decided to ‘announce’ a dozen exemplar/learning projects either evidence reviews or secondary data analyses which would help us refine our approach to evidence reviews, alongside up to ten PhDs co-funded by the partner Universities. Beyond that our collaborative knowledge exchange model would generate our priorities.

We constructed a large team based around contributions from the universities of Glasgow, Sheffield, Reading, Heriot-Watt, Cardiff, Sheffield Hallam, Ulster, Bristol and St Andrews, plus non-HEIs: the Chartered Institute of Housing, the Royal Town Planning Institute and the Royal Institution of Chartered Surveyors. The National Institute of Economic and Social Research also made a major input into our bid. Subsequently, the University of Adelaide has also come on board. More than 200 individual collaborators supported out bid with an interest in working with us, as did more than 20 other partners. The submission date was in October, interviews in January 2017 and we were publically announced as the successful consortium in April and due to start at the beginning of August 2017.

And it is a large team – 30 co-investigators spread across 6 themes and 5 sub-national geographies, plus a data navigator hub, secondment programmes, early career researchers, as well  as research, knowledge exchange and administrative staff. The centre is a distributed across the UK but administered form Glasgow. Even our leadership team is spread far and wide based in Glasgow, Sheffield, London and Cardiff. As many have said, directing and leading this new initiative will be challenging but I am sure also very rewarding. I am very fortunate to have been able to work closely with Craig Watkins from the very beginning of this project and we are doubly fortunate to have so many other excellent positive colleagues to work with and to that end I would include the international advisory board we have assembled, chaired by Lord Kerslake. As is often the way with new collaborative ventures, it is great to work with new people and to see them and our practices in a different and new light.

I decided that the new centre should be a break with the past in a different way too. We are locating off the Gilmorehill campus and shifting eastward to the social sciences research hub in the east end of Glasgow at the Olympia building in Bridgeton. We will share our space with the Glasgow Centre for Population Health and other Glasgow University social scientists. I think this will bring both focus to our work and allow us to contribute to the city civically and in partnership with those we share the research hub with, as the University intends.

I will be nearly full-time in the new role so I am giving up directing Policy Scotland, something I have done since 2013. I am also standing back from What Works Scotland which I helped develop and then co-directed for three years. Both roles have been tremendously rewarding and have re-energised me. Lessons from these two entities made important contributions to what became the CaCHE model. Policy Scotland allowed me to work with policymakers, Parliament and practice and to hopefully learn a little about how to do so more effectively.  What Works Scotland has taken me into new academic areas, forced me to think much harder about collaboration, co-production and evidence. Ideas about pluralism, dialogical approaches, multi-disciplinarity and a much more open attitude to evidence has been a great tonic for someone hitherto steeped in economics methodologies (admittedly a bit more plural and heterodox than some). I am therefore very grateful to colleagues in both institutes and wish them both well in the future. Both will be working with the new housing evidence centre.

It will be a few months before we are fully operational; indeed, we are not formally launching till October. But from August 1, it will be live and I for one cannot wait to get started.  It is a new start (and feels like one) but it is also great to be forging ahead with an ESRC funded housing research centre – exactly the same type of organisation where I started my career in Glasgow in the 1980s.

Good for the Gander? Reflections on the 2017 Housing Studies Association Conference

goose 1 is a goose that for three days strongly defended its space on the main way into the conference on the York Campus at Heslington. It appeared to be protecting its partner and made the odd aggressive shift in direction if any delegate came too near its mate in the undergrowth. I am no David Attenborough but it reminded me of years jogging round Strathclyde Park and carefully avoiding the personal space of gangs of Canadian geese or the attention of fairly abrasive Lanarkshire swans.

The conference this year was themed around precariousness and financialisation and how the housing sector is becoming more unequal, insecure and unstable. Plenary speakers included Oliver Wainwright from the Guardian, Shelagh Grant, CEO of the Housing Forum, Dinah Roake ex of HCA , Paul Quinn from Clarion Housing Group and Bob Colenutt from Oxford Brookes. The final plenary involved David Madden from the LSE and Blase Lambert, CEO of the Confederation of Co-operative housing. The conference dinner also included a memorable talk by the ineffable Ian Cole.

Financialisation and the precariat are well-met topics and they worked well with many of the workshop papers and for once a conference theme seemed to retain purchase across the full event. Not that everyone agreed of course with very different views circulating and also some concern that perspectives were a little too metropolitan and London-focused (something conceded by David Madden co-author of In Defense of Housing). There were also debates about the proactive role of the state in facilitating speculative mega real estate projects and a degree of vagueness about the transmission mechanism that might export people out of unaffordable, overcrowded cities. A key theme throughout was what can be done about these processes – do we despair or are there ways to fight back? There was talk (Madden again) about housing movements but I quite liked Glen Bramley’s discussion point that in fact an important (albeit atomised) housing movement are those older equity-rich often suburban home owners (and sometimes BTL investors) who are such a break on progress with respect to increasing housing supply.

I heard some interesting conceptual papers by David Clapham, Keith Jacobs and Tony Manzi, as well as a good paper using Australian evidence on private landlords from Hal Pawson. Duncan Bowie reprised debates about housing tax reform. I did a paper (co-authored with Duncan Maclennan) on Brexit and housing, the fundamental premise of which can be summarised by we don’t know the rules of the game regarding the rapidly approaching negotiations so we cannot really scale or estimate the impacts. Many economists feel they will be negative depending on the scenarios for how Brexit plays out, but we cannot in turn say much specific about housing impacts other than some likely directions of broad consequences via lost trade and growth, out-migration, risks re European funds and EIB, but much more fundamentally, risks to housing policy arising from possible break-up of the UK itself as a consequence of leaving the EU. More to follow on this I am sure.

The conference has a nice informal and friendly feel to it. This was complemented unexpectedly in a city centre bar by a very impressive four piece jazz band playing standards via an excellent trumpeter. Well done to the organising committee. Roll on 2018.

I missed a fair bit of the conference, in part because unexpectedly, the ESRC decided bring forward  the announcement of the UK housing evidence centre which made Thursday a bit of a social media blur but it is great to finally have it in the public domain.  More on that subject in a later blog.

‘The geese are flying westward’ is a fine song by Bill Fay (check it out) – but I am now heading north on the east coast line, eventually back to base for what I hope will be a quiet weekend.

 

 

 

 

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

 

Accountable? Transparent? Budgets and Public Finance in Scotland

 

‘Exceptionally complex and opaque’ and ‘without precedent internationally’. Fraser of Allander Institute on the Fiscal Framework, quoted by the Finance Committee, Scottish Parliament in their 2017-18 draft budget report

I found myself reading the Scottish Parliament Finance Committee’s draft budget report  the other day in part to prepare for teaching on public finances in Scotland. I was struck just how non-transparent the fiscal framework is and how difficult it is to communicate the consequences of the rules of the game in terms of Scottish policy intentions and budgetary implications. It is as if the designers in Holyrood and Westminster were seeking to be rewarded for fiendish inventiveness rather than designing a set of financial rules that were clear, transparent and fostered accountability. In that respect, the Finance Committee’s report is remarkably helpful (along with the recent SPICe briefing on the budget).

I will get into the main points that struck me shortly but it also raised a second related question. In the year of the council elections in Scotland, there is a near equivalent lack of transparency regarding the local government settlement and the consequences for local decisions on tax and spend. This has, if anything, been exacerbated by both the implementation of the recent council tax reforms and the controversy over what the draft budget means for local spending by councils. We need more transparency here too and perhaps a local fiscal framework (something being pursued by the Scottish Greens) that makes explicable and straightforward how local tax and spend works, how it is impacted by Scottish ministers and what decisions mean for tax bills and spending choices.

What is it that makes the new national fiscal framework so difficult and why is it so significant? The devolution of new tax powers reduces the size of the Block grant. Critical to how this will operate is,  how the Block Grant adjusts, which comes down to a series of decisions, firstly, about the baseline reduction that is determined by revenue in the year prior to the devolution of the tax in question. Thereafter, the second critical question is how accurately tax revenues for the now devolved tax are forecast in terms of playing into public spending planning and control decisions and the risks of over-estimation. Third, there is the contentious question of how to uprate the block grant adjustment for the devolved taxes in subsequent years. This concerns the extent to which Scottish tax revenues grow relative to UK tax revenue growth and  (and this is where the controversy exists between the two governments) then how adjusting for relative population growth between Scotland and rUK operates.

These Byzantine and head-hurting rules are incredibly important. If Scotland can grow its tax revenue quicker than rUK, the block grant and the size of the fiscal cake expand. This fundamentally depends on relative tax policy changes, which currently benefit Scotland because we are not raising the threshold for the higher rate of income tax by as much as HM Treasury – and other things equal we should grow tax revenue per head more than rUK. But it is also driven by relative population change, relative economic and productivity growth (and these presently all look less favourable from a Scottish perspective). As the Finance Committee stress, the Scottish Government have taken on considerably more responsibility and the technical requirements for forecasting future tax, economic growth and in specific sectors too (e.g. land and buildings transactions tax depend on housing and commercial property markets) – and they have done so in a period of remarkable uncertainty, austerity and Brexit.

The Scottish Government is presently consulting over the Scotland Performs National Performance Framework. In the light of the above maybe they need to change the absolute or top line purpose of Government to maximising relative tax revenue growth?

One might conceivably say ‘well, these risks are what happens with more responsibility and that is what real devolution is all about’. My view however is that what we might be seeing is actually the outcome of bargaining over an inherently complex system and one that consequently is difficult to predict, manage and base fiscal plans on. I am sure the Scottish Government will step up to the plate – they have to get this right and must invest the necessary resources and capacity in doing so. Specific forecasting expertise by the Scottish Fiscal Commission will also become much more important in the future. Moreover, the plan is that in less than 5 years the whole basis of the fiscal framework will be reviewed and the indexing methods and other fundamentals may well be substantially revised. Let’s hope for less haste and that a simpler and more durable set of negotiated outcomes is the result.

Then there is the controversy over the local government settlement. There are several accounts of what is happening to local government spending, depending on what you compare it against (draft or final budget in 2016-17), how wide you draw local government activity, and, if you do include other elements, that you know what these extras are worth. SPICe estimates that local government spend in 2017-18 may either fall (compared to 2016-17) by 1.6% to 3.2% in real terms, or if you just look at the core grant (including non-domestic rates), it may fall by between 4.5% to 5.8%. However, speaking to the local government committee of the Scottish Parliament, the Cabinet Secretary argued (para 273, Finance Committee Report on the 2017-18 Draft Budget) that ‘when wider spend on local services, including funding for health and social care integration and from council tax reform is considered, there is an increase in expenditure on local services by local authorities of £240 million or 2.3 per cent.’

Clear as mud. And then there is the interaction between grant, non domestic rates and council tax – we (i.e. tax paying voting citizens of Scotland) surely need to clearly understand how all this works together so that we can make sense of the financial and service outcome implications of different political platforms? Can we not do better?

 

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.