Raj Patel is Acting Director of the Policy Unit at Understanding Society. His career has included roles at the Learning and Skills Network, and in the Office of the Deputy Prime Minister (now the Department of Communities and Local Government). An economist and policy analyst, he has worked extensively on national public campaigns, policy research, local and regional development and designing new ways to tackle social issues.
Ahead of an Understanding Society policy debate tomorrow (10 December) in London Raj discusses the future of UK housing.
Kick-starting the housing revolution – but who will benefit?
The housing crisis has been many years in the making but what’s different about the crisis and ‘affordability’ today is that it is no longer an issue just for those on low income. It is affecting many different groups in society and its affects are reverberating across different housing tenures, with spill-overs effects on the economy. Media attention tends to focus on popular themes such as those who want to get onto the housing ladder and house price inflation but the crisis is also pushing up private sector rents. At £24.6 billion in 2013-2014, and expected to rise, housing benefit costs have increased to a dizzying level. The dysfunctional housing market is also contributing to growing wealth inequality which appears to be benefitting home owning baby boomers particularly in hotspots such as London.
Critical link between housing and living standards
Of course, many home owners who have outstanding mortgages are benefitting from very low interest rates, and it looks like they will continue to do so for a while, but since the recession renters have seen the proportion of their income spent on housing costs rise from 25 per cent to 27 per cent between 2007/08-2012/13. There is a very critical link between housing and living standards. With the numbers of private renters in England increasing from 2.2 million to 4.4 million (one in every five households) in a decade, the tenure has now overtaken social housing. Rising market rents (combined with caps or cuts in benefit), will affect significant numbers of people in places where rents are increasing year on year rather than falling or stable.
The impacts of housing on quality of life, its role in creating places where people want to live and its potential contribution to tackling inequalities across the population makes it critical to get policies right. New evidence using Understanding Society data, exploiting its unique longitudinal design, provides evidence of a trend towards lower exits from the private rented sector into home ownership and more instability. Importantly who is leaving and staying in the private rented sector is changing. The rate at which tenants leave the private rented sector to enter owner-occupation has declined from 17 per cent in 2000-01 to 7 per cent over the period 2011-14, whilst the average age of those exiting has risen over this period. Private rented sector tenants on average are now older, and more likely to have children living with them, with evidence of financial stress amongst some tenants. Involuntary housing moves are also a significant feature of the housing market, affecting 16 per cent of those who moved house over the last two decades.
Home ownership is the government’s top priority
In the Spending Review and Autumn Statement 2015, the Chancellor sought to take the political sting out of the crisis by making home ownership the government’s top priority. Housing in general is a devolved responsibility, although some aspects of the market are still regulated centrally. Greater devolution provides an opportunity for England, Scotland, Wales and Northern Ireland to pursue different strategies reflecting local circumstances and policy priorities – with Understanding Society providing an opportunity for comparative research and policy evaluation given its large sample.
In England, the Government plans to build 400,000 new homes, with a doubling the housing budget from 2018-2019. Two hundred thousand Starter Homes will be sold at a 20 per cent discount compared to market value to first time buyers under 40 years old, with a £2.3 billion fund for private developers.
With Help to Buy Shared Ownership homes, Right to Buy extended to housing association tenants, a cap on the amount of housing benefit paid, supply-side reforms and higher Stamp Duty Land Tax (SDLT) on buy to let properties and second homes, the government hopes that it is at last coming to grips with the crisis. The Spending Review, though, has nothing to say about addressing barriers to trading down for an ageing population, which could have a role to play in encouraging downsizing.
Notwithstanding the projected housing building programme, the Office for Budget Responsibility expects house prices to continue growing by an average of 5 per cent a year between 2015 and 2020. With average pay rises unlikely to match property price rises, the affordability gap for home ownership will continue to increase if the OBR projection proves reasonably accurate.
From land supply, local planning and shirking developers to growing migration, buy-to-let landlords and baby-boomers, there is no shortage of (conflicting) ‘culprits’ for the housing crisis. Evidence of capacity constraints in the construction industry mean that the crisis wouldn’t be easy to solve in the short-term, especially if physical infrastructure projects start to take-off – and what about the unintended consequences of recent announcements? For example, by requiring developers to provide Starter Homes at a discount instead of contributing to infrastructure and affordable rental homes, how will this impact on improving local neighbourhoods and helping low-income earners?
Housing is a long-term game not a sprint, and solving the crisis will require keeping policy development and implementation under critical review, a great deal of partnership working and investment in research to better join up the evidence and encourage interdisciplinary research.
Need for a new housing research centre
The Economic and Social Research Council has been looking into the feasibility of developing an evidence centre in the area of UK housing in partnership with a coalition of other funders, research users, policy makers in government and practitioners across all sectors.
Such a centre could fill a clear gap in providing robust evidence to inform housing policy and practice across the UK, at national, devolved and local/metropolitan levels. At its core, such an investment would be about connectivity, accessibility and integration of evidence and joining up different stakeholders and sectors in establishing recommendations for housing policy and practice. The centre would be independent from central government and other sector interests.
At the heart of the Spending Review announcement is the critical question of marrying up needs and demand with provision in different places. Who and which places will benefit from the housing revolution that the government wants to kick-start? Housing is not just about land and buildings, and whilst its role as an investment and asset class has fundamentally changed its nature, it is also critically about people and places.
To discuss how we can build better homes and neighbourhoods, you can join Understanding Society and a host of experts at a policy debate on 10 December 2015 in London. The event will also see the launch of Understanding Society Insights 2015 report and a Housing Topic Guide for researchers and policy analysts.