Safe as Houses?

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ANALYSIS SAFE AS HOUSES?

TRANSCRIPT OF A RECORDED DOCUMENTARY

Presenter: David Walker

Producer: Simon Coates

Editor: Nicola Meyrick

Broadcast Date: 04.09.03

Repeat Date: 07.09.03

CD Number: PLN335/03VT1035

Duration: 27’28”

Taking part in order of appearance:
Dr. John Muellbauer, F.B.A.
Official Fellow in Economics, Nuffield College & Professor of Economics, University of Oxford
Charmaine Young
Regeneration Director, St. George plc
The Rt. Hon. David Curry, M.P.
Conservative Member of Parliament for Skipton & Ripon Chairman, House of Commons Select Committee on Environment, Food & Rural Affairs & Minister for Housing, 1993-7
Professor Duncan Maclennan, C.B.E., F.R.S.A.,
McTaggart Professor of Land Economics & Finance, University of Glasgow & Director, Cities Programme, Economics & Social Research Council.
Sir Peter Hall, Kt., F.B.A.
Bartlett Professor of Planning, University College London
Chris Holmes, C.B.E.
Visiting Research Fellow, Institute for Public Policy Research Director of Shelter, 1995-2002 & Director of Housing, London Borough of Camden, 1990-95

WALKER: It’s a simple question and it’s not a new question, but it suddenly seems to demand an answer. House prices tend to rise, not everywhere and not always, but steeply enough. So, supply and demand, why aren’t great numbers of new dwellings being built or converted? John Muellbauer, professor of economics at Nuffield College, Oxford.

MUELLBAUER: Land prices and house prices in the UK are not very firmly anchored and so they can’t do their job of allocating resources efficiently.

YOUNG: We are very happy to gear up, as an industry, to deliver the output, but we have to have planning consent to do so and they have to be viable and implementable planning consents.

CURRY: We’ve got a planning process which tends to put the initiative on the opponents for developments. I mean, I know as a constituency MP planning is a big issue. People rarely come in order to ask me to get something done; they usually come and ask me to get something stopped!

WALKER: David Curry, former housing minister, Tory MP for Skipton and Ripon, and before him Chairmaine Young of property developers, St. George. Players from radically different backgrounds fingering planning as part of the reason house building doesn’t boom as prices shoot up. Will Kate agree? Chancellor, Gordon Brown, has set up a high-powered review of housing supply by business economist, Kate Barker. Let’s anticipate her and wonder what he’ll do with some tricky conflicts of household and collective interest.

David Curry’s a Conservative, but he’s not the only MP whose constituents may have a financial interest in stopping new houses getting built. Seven out of ten of us in modern Britain are owner-occupiers. We love rising house prices and, in spending the proceeds, give the economy a lot of its recent oomph – and Gordon Brown much of his credibility. Duncan Maclennan, the Glasgow University housing economist and adviser to the Scottish Executive, says we’ve recently had a lot to love.

MACLENNAN: For the last four or five years, we’ve been at the top of one OECD league and that has been the league table of annual increases in real housing prices. This is a big issue if you’ve been running what has otherwise been a pretty successful macro- economic policy for a six, seven-year period. Co-existing with that is a long recorded pattern that the UK housing system is sluggish in response to price changes. I’ve done some work contrasting the United States and the UK where, for any given increase in prices, you’ll get three or four times greater proportional response and output in the US than you would in our case. So that what we’re talking about is not just a one-off change in housing supply that would be solved by suddenly unleashing more land or spending more on social housing, but it’s about changing the system so that, over periods of time, as there are shocks, as there are developments in housing demand, the UK housing system is well configured to respond to it. In a sense, the Treasury, the Barker Review are now having to address first of all the fact that land, housing issues have been rather de-emphasised in economic thinking for a long time; but also within housing thinking, economic competitiveness was not generally an issue.

WALKER: Housing, in other words, is the British predicament, helping explain our relatively low productivity, relatively high interest rates; it’s got to be sorted out, says Gordon Brown, before possible euro entry. With the Treasury on the case, inflexibilities in housing have risen up the political agenda. Largely absent during Labour’s first term, housebuilding is now seen as a drag on growth. Shortfalls in supply are cramping areas where the economic action is: in the South. Planning and urban dynamics, in eclipse for decades, are back, along with our few world-class thinkers in the area, among them Sir Peter Hall, Bartlett professor of planning at University College London.

HALL: I think there’s a great deal of merit in the argument that you should encourage growth where it’s happening. You shouldn’t do it in a kind of completely bovine way just following trends. But generally growth in this country over a very long time, certainly in the last forty years, has been very heavily concentrated – first of all, in central London, but also in what geographers and others have called the sun belt or golden belt, which is this great arc running around southern England from, roughly, Bournemouth, Poole, through Swindon, northern Oxfordshire – Banbury, that area – through Milton Keynes, Northampton, Peterborough, down through Cambridge and out towards Ipswich. That’s where the huge growth in population and economic activity is happening and it’s not easy to stop because it results from very different and quite complex causes and it includes a significant number of the real powerhouses of the British economy. There’s a case for encouraging rival centres of growth – for instance, in the so-called core cities, the big provincial city centres – because there are signs it’s happening there – and in selected areas in the Midlands and the North such as, for instance, north Cheshire or the area north of Leeds, but certainly not for suppressing growth deliberately by means of traffic congestion, by means of high and unaffordable housing prices in the growth regions, which seems to me a recipe for national economic disaster.

WALKER: That’s a weighty judgment. Failing to accommodate southern expansion would be a “national economic disaster”. Labour seems to be listening. Many of its new voters live inside that golden arc. The North – no one has actually said this, of course – is being written out of the political, as out of the economic script. Yorkshireman, John Prescott, has unveiled his great Communities Plan, for housing expansion on greenfields in Kent, Cambridgeshire and the south Midlands and on previously-used land in Essex. But are his numbers really a match for growth in households and population?

HOLMES: No, I don’t believe that those new proposals alone will be anywhere near sufficient to meet the shortfall of housing, particularly in southern England.

WALKER: Chris Holmes, former director of Shelter, who’s just published his pamphlet Housing: Equality and Choice, for the left-leaning Institute for Public Policy Research.

HOLMES: My estimate is that what we need now, including to tackle the existing backlog which has accrued, we should be looking to a programme of around two hundred-and-fifty thousand new homes a year – and most of them need to be in those areas of shortage not just in the South East but across the whole of eastern and southern England. Now that sounds a huge number – I mean, it’s a hundred thousand more than have been built over the last decade – but we need to remember it’s fewer than the three hundred thousand a year that were achieved when Harold Macmillan was Minister of Housing in the early Fifties, it’s much fewer than the three hundred-and-fifty thousand a year that was built when Harold Wilson was Prime Minister. So we have achieved it in the past. I do believe that the land is available. It’s an absolute myth that the whole of southern England is concretised over. That it needs to be well planned – it needs to be, I think, across most of the districts where there is a real problem of affordability amongst all the areas in southern England, and it needs to include an adequate amount of affordable housing for people on low incomes, it needs that intermediate housing for people on moderate incomes but who can’t afford to buy because prices have escalated upwards, and there needs to be good quality market housing of a range of different types as well.

WALKER: His argument is that people have a moral right to somewhere decent to live near enough where the jobs are: some to buy, some to buy in the “intermediate” market with assistance, others to rent. The Government prefers to talk economic rationality: growth depends on more people finding a home inside Peter Hall’s golden arc, and it wants the private market to do the building. Tenure balance aside, there’s no disagreement something has gone badly wrong. Here’s the arithmetic from housing economist, John Muellbauer.

MUELLBAUER: Ninety-nine percent of supply is the existing stock, so the new build every year is only about one percent of the total stock. That means that even if you doubled new building for a year, the effect on the price would only be of the order of one-and-a-half to two percent, so that’s a pretty small effect. And, of course, people can’t conceive of the notion of doubling new build from one year to the next!

WALKER: There’s nothing effectively that John Prescott or any other minister can do in the short to medium run, or perhaps even in the long run, to affect house prices on the supply side?

MUELLBAUER: Well, that’s to overstate it. I’m saying that there are effects, but the effects are relatively small. Unless, of course, you convince people that policy has changed fundamentally and, therefore, their expectations of house prices and land prices in the long run are affected. If you can do that, then you can make a difference.

WALKER: The Chancellor’s review surely has to address such “fundamentals”. We need more land for housing, that’s to say land with permission to build or renew on it. The English house supply problem is primarily caused by planning restrictions. Let’s turn to a Scottish observer to adjudicate, Duncan Maclennan.

MACLENNAN: There is little doubt that the tightness of planning has a significant effect. One can see this very much as a problem that affects the South East or indeed in the Scottish case Edinburgh where growth rates of economic activity and population have been significant. But the interesting thing is how it then washes around the other metropolitan areas of Britain. There are metropolitan areas of Britain that aren’t incurring the huge rates of expansion that we see in the South East, but yet still run up against tight supply constraints in availability of land. That has to do with planning rather than some engine of economic growth that’s running faster than is sustainable.

WALKER: “Planning” isn’t planners using their bureaucratic wiles to stop development. It’s a regulatory system embracing voters, councillors, professionals and possessors. A key word is “amenity”. Chris Holmes, once director of housing in highly restrictive Camden in north London, thinks that’s code: the planning system is about homeowners’ interests, and protecting property values.

HOLMES: Yes, that is my contention. And I think in looking, as I have, at the evidence over the post-war period, there are a lot of very strong arguments to justify that in terms of the urban containment policies which effectively trapped lower income, poorer people in the high density inner city estates, but also more recently the resistance to building the new homes that are required from people who are well-housed themselves, but don’t want to see more people coming into their areas and are cynical, in a sense, in believing that actually by doing that the shortage is pushing up the value of their own properties. Many people don’t do it consciously, but that’s part of the decision-making that we now face. And we will only counter that by very strong decisions, including political decisions. Let us say this is the target, this is the number of new homes that are built. We must include those in the regional planning guidance, we must approve them when plans are being contested and heard before the panels of enquiry and we will put pressure on the house builders not to build up their land banks but actually to be releasing those, especially as they have got planning permission, and actually get the homes built on those areas.

WALKER: Which raises questions about backyard democracy versus wider interests, such as those of the unhoused and other ghosts at the feast of house price inflation. In London, some trust the democratically-elected Mayor to be friendlier to housing than the local boroughs; elsewhere there are moves to wrest decisions upwards to new, not-yet-democratic regional bodies. They ought to be democratic because “planning” is about distribution, of wealth and life chances; it is ineluctably political.

If planning needs to be liberal and allow more building, it also has to be tougher, to force communities to accept growth. We talk about households and dwellings, but a key relationship is between space and people. What if there’s spare room inside houses? Over a third of owner-occupiers have significantly more space than they need. Existing stock could, if radically redistributed, accommodate thousands, even millions more. But that idea means the state peering in through our front windows. We talked, in a spacious upstairs room, to Peter Hall, who lives in a hundred-year old, double-fronted home in west London.

HALL: I think you get into extraordinarily murky and politically difficult issues here. First of all, with regard to what goes on in households, obviously there’s going to be a tremendous amount of resistance to government attempts to poke around inside people’s essentially private lives. On the other hand, we know a lot in a purely statistical sense, I think, about how people use their house space – e.g. it’s now commonplace that every teenager and even every child has to have a separate sort of bed-sitter in effect inside their homes, partly because they’re increasingly intensively involved in studying for these endless exams and their fond parents want them to do well, so they have to have a bed-sit which also is an office. That’s rather different from anything we knew fifty years ago. Secondly, if you look at this house, which appears to be seriously under-occupied – an Edwardian, basically four bedroomed house with two people living in it – two of the rooms and the whole of the upstairs space are entirely occupied as offices by me! And, increasingly, people are doing more and more work at home because fewer are having simple nine-to-five lifestyles.

WALKER: But isn’t that an argument for more radical policies to allocate – or zone – land, to align jobs and housing much more directly than has ever been attempted? That’s what the Government says it’s doing with the Communities Plan, except it’s not clear how extra houses in Thurrock and south Essex are going to affect high prices and labour shortages in Ealing in west London, especially since you can’t get from one to another. Still, it’s a necessary fix, says Duncan Maclennan, for there are urgent international pressures on the Government.

MACLENNAN: I do think there is a huge issue in all of this which is – if we’re in the context of the euro, if we no longer have exchange rate variations to wash away the effects of higher housing and land costs – then if we don’t zone enough land or can’t keep wage costs and housing costs in the South East competitive, we’ll be losing employment, we’ll be losing enterprises not to further north but to significantly further east or to further south – i.e. across the Channel and into the core of the euro area. This is a huge dilemma for government and I think that in addressing the issues about the South East in terms of expanding housing supply, they deserve some support for taking what I think is a courageous decision. I say this as a north Briton.

WALKER: North Britons, other than Scots, face a hard reality. Unannounced, we’re acquiring a new regional policy for England. Investment in schools and transport is going to have to head south. The Government’s been cagey about how much social spending there will be; it thinks private housebuilders are going to chip in. Charmaine Young, who as a developer is an active player in partnership schemes for the Thames Gateway area, has her doubts.

YOUNG: Whilst the Thames Gateway provides a really good strategic way forward for London, there’s an awful lot of infrastructure that needs to go in if the Government’s objectives of sustainable communities are going to actually be achieved rather than it just become dormitory towns for commuters into London.

WALKER: And, as you read the Government’s plans, do you think enough money has been committed for that social infrastructure?

YOUNG: Over the timescale that it’s committed to at the moment, I think it can help in parallel. I think in the long term there’s probably going to be a greater need, and it depends on how the land’s going to be acquired and where the cost of the remediation of that land and the quality and value of the property that’s going to be created is apportioned. If the private sector have to pick up all of those costs and contribute – as they do towards normal development proposals for transport and social infrastructure that goes with development sites – then I think at the present time in the Gateway there could be some difficulties because the values and the costs could be out of kilter with each other.

WALKER: New communities are already springing up around the big Bluewater shopping centre in north Kent and Ebbsfleet station on the high-speed rail link to the Channel. But there’s a reminder that jobs and homes need joining up by roads and trains and, in the Thames Gateway, bridges. Charmaine Young demurred at being asked to pay. But why shouldn’t government anticipate the added value, buy land now and sell it decades on, just as the new town development corporations once did? It’s curious how little reference back there’s been to the new town experiment in making what are now called sustainable communities, begun under Labour but carried through by the Tories. Peter Hall reminisces.

HALL: Who could be against sustainable communities? Everyone loves them; everyone wants them. Not entirely clear on the face of it how these will happen. Two things. First of all, we’ve always had stories, going back as long as I can remember – and I can remember quite a long way back now! – about new town blues and soulless new communities. Once the place beds down and settles down, a lot of that ceases. But there is a bigger question here – whether you should seek to create totally new places or whether you should wrap new places around old places? The wisdom we learnt from the first generation of new towns and then applied to the second generation of new towns in the 1960s was, in general, to try to build new towns around old towns – places like Northampton and Peterborough. But you are now creating an extraordinary new urban form based on Europe’s largest out-of-town shopping centre, plus a very large business centre built around a totally new edge city, high speed train station and based on a very imaginative scheme for a lot of housing in a vast old chalk quarry.

WALKER: So balanced communities?

HALL: We can build balanced communities in Kent Thameside. There will be very intensive pressure, I think, around the new Ebbsfleet train station – seventeen minutes to St. Pancras – and you could put in really quite high quality stuff closer to that station, perhaps within park-and-ride, kiss-and-ride distance of the train station, combining it with more affordable housing in a way they did in Milton Keynes in the nineteen eighties.

WALKER: A new urban entity is being created along the Thames and Peter Hall thinks it will have all the attributes of community. But kissing-and-riding in Ebbsfleet won’t cut house prices in Esher. And meanwhile what about those places where house prices are falling and the Government, almost as an afterthought, has stuck in “market renewal” schemes? They begin as far south as Birmingham, but the problem’s concentrated in the North. David Curry, the former housing minister, represents affluent enough Skipton but thirty-five miles south, Bradford is badly wounded.

CURRY: The real problem in the north of England is that the great big industrial cities are simply haemorrhaging population and the latest census figures showed that in twenty years Manchester and Liverpool have shed fifteen percent of their population, Sheffield has shed population, Newcastle has shed population – mainly to the outlying areas. But that has got enormous implications for the capacity to deliver services and regeneration in the cities themselves because, of course, all government funding is based upon a formula of which the first item is the levels of population. Now the Government has put in what it calls pathfinder areas which are basically housing projects, but they only cover a tiny proportion of the areas under stress. What do you do when you reach the boundaries between the areas which are seriously awful and the ones which are only a tip away from being fairly seriously awful? And what are you doing to try and put in place the more structural elements of an improved economy – education or transport facilities – which means that you get to grips with some of the fundamental causes of that decline rather than dealing all the time with the manifestations of it?

WALKER: Regional decline will require demolition and selective renewal, which are expensive. Meanwhile, in the South, there’s infrastructure to put in, land to acquire, and subsidies for “affordable” rental accommodation, of which there’s less thanks to the success of right to buy. On support for “social” housing the Government’s thinking is fuzzy and interventions on behalf of so-called key workers may have made things worse, by pumping up demand for a select few without increasing supply. Is there never to be sufficient land made available for housing such that prices fall to a level at which low income households can afford to buy? Are they condemned to rely on subsidised construction by housing associations and a housing benefit system which is expensive and makes people less likely to move, wherever the jobs are? One way or another expanding housing will cost. Is extra spending to come from the same pot as schools and surgeries or, since owner-occupation has been generating so much extra wealth, from private housing? Chris Holmes is radical.

HOLMES: I think there’s a very powerful argument why those who’ve benefited should be making that contribution and I would include myself, as a home owner, in that category. But I think that is a choice for government. Government can make that task in a way easier for itself financially by saying we will remove the exemption from inheritance tax of the first home; by increasing levels of council tax on the more expensive properties; by cutting much more still the discounts on the right to buy and, therefore, recycling that money that comes from those fiscal concessions into affordable housing. If the Government decides, “Well, no, that will be too controversial,” then I would argue, “Well, if you don’t do that, you must find other ways of doing it,” and general taxation is one way to achieve that. And that when they look and say, “Well, why so much more for housing?” My argument would be there’s a social justice argument, but also if we want to tackle those problems of affordable housing for people in public service jobs, if we need to tackle, you know, the absolute scandal of eighty thousand homeless families in temporary accommodation – ten times as many as there were in 1980 – then that is something that we must do.

MUELLBAUER: This is an area where all grounds seem to point in the same direction, whether you’re an egalitarian or whether you’re interested purely in the efficient functioning of the market economy or whether you’re interested in efficient allocation.

WALKER: John Muellbauer.

MUELLBAUER: All the signals point in the same direction. You can get improvements in terms of equality, in terms of efficiency and in terms of less macro-economic instability by going for tax reform in this area. If you had a tax that was based on market value, then there would be much greater incentives for people to locate, to make economic decisions that fitted in with scarcity, with the supply and demand.

WALKER: An existing owner-occupier in an affluent area ought to be paying, what, a proportion of any incremental value of the property in tax or a proportion of absolute value?

MUELLBAUER: A proportion of absolute value. There ought to be a national tax to reflect national benefits and national priorities. The fact is that, if you live in Kensington, the amenity values that are available to you are much higher than if you live in Bradford; and that is partly reflected in the price of land in those two places and it seems sensible that a small part of that should come back to the community in the form of tax.

WALKER: His proposal isn’t necessarily far- fetched. People paid income tax on their homes till the 1960s and businesses still pay a version of a national property tax. We’ve been talking about housing supply. Here’s a scheme to address demand, to try to stabilise those soaring but often very local housing markets by the Government taking a share of any annual increase in a house’s value. Equity sharing, you could call it – house values are siphoned off into collective rather than individual consumption. On this, egalitarians come together with economic liberals, who want to remove distortions in the way markets operate and what they see as excessive investment in non- productive property. Duncan Maclennan, who sometimes has the ear of the Chancellor, reminds him UK house price inflation is no innocent pastime.

MACLENNAN: Many people actually now annually make more money out of their house than they do out of their job. I think that that encourages the wrong kind of culture to develop a competitive and entrepreneurial economy. I think the house price gains that then arise from that – they complicate labour mobility and therefore further distort the performance of the economy, and they also at a stroke widen these gaps between the haves and have-nots probably even more than labour market processes do. So, if we want a fairer Britain and a Britain that’s based and rewarded on effort and competitiveness, leaving house prices to get out of control and to leave the returns to these house prices just simply lying with households, I think is the wrong economic strategy, and I think that we do have to think of ways of beginning to recoup some of the gains from that. This isn’t going to happen right now. We know that, in the case of removing mortgage interest relief – which would now have been costing the Treasury about ten billion pounds per annum – that took twenty years of debate and argument and discussion before finally all parties agreed that it was something that ought to go. Maybe it’s going to take ten years of discussion about housing prices and unearned gains, but I think that we will have to deal with it.

WALKER: Mortgage interest tax relief, that great prop of middle income existence, was eventually abolished, showing that the self-interest of owner occupiers isn’t always and forever a veto on change. Will the Chancellor’s Review turn up anything as controversial as the re-taxing of domestic property? Labour needs proposals for a third term manifesto. But how radical can Gordon Brown afford to be? If fairer taxation of owner-occupation is a step too far, the Review is still going to supply ideas. Like taking on the NIMBYs, who may, of course, also be marginal Labour voters. Inflation in house prices can’t go on at recent rates with all its distorting effects. Only in our backyards, greenfields and greenbelts can demand for housing be met.
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