Inequality kills? November 20, 2006
Posted by Brickonomist in Housing inequality.add a comment
There’s currently a good deal of support here in the UK and in other countries for ‘mixed communities’ – mixed in terms of income and/or tenure, that is (though in practice governments seem a lot more willing to try and break up concentrations of poverty than concentrations of wealth). In the UK this is part of the justification for requiring affordable housing to be included in private developments, while it has been taken further in the US with policies such as Moving to Opportunity that focus on transplanting low-income households into ‘better’ areas.
Apart from the perceived benefits of reducing the concentration of poverty itself, socioeconomic mixing is argued to improve the ‘life chances’ of poor people through neighbourhood effects (basically, being around richer people is good for your job prospects your child’s education). Here’s a bit of research suggesting that “exposure to more economically successful neighbors” accounts for much of the gap in educational attainment between black and white households in the US.
But are poor people actually better off in affluent neighbourhoods? According to one rather significant measure, perhaps not: death rates appear to be higher for poor people who live in rich areas than for those who don’t:
(here’s the chart source – thanks to Truck and Barter for the link)
The researchers suggest two reasons for their new findings:
The first is purely economic, as the cost of living in an affluent neighborhood could leave poor people with little disposable income to spend on essential goods and services, such as health care and healthy food, and less time to take advantage of the benefits of living in a high-income neighborhood.
“Economically this group may be worse off,” said Winkleby. Access to free social services and health care could also be a factor because these services are often concentrated in low-income neighborhoods, she said.
Another possibility is that poorer people in higher-income neighborhoods fare worse for psychological and social reasons.
A discrepancy in a person’s social position relative to others may have an effect on a person’s health, said Winkleby. “You look out every day and you’re at the bottom of the social ladder,” she explained.
The researchers caution that their study does not mean poor people are necessarily better off living in low-income neighborhoods. There could be other benefits to living in a wealthier neighborhood, said Cubbin. “We don’t want to imply that poor people should move to poor neighborhoods, where there continues to be great need.”
I’m surprised by how strong the relationship seems to be – and not having read the full research report (abstract here) I’m curious about how the results relate to the seemingly contradictory earlier findings of the same researchers.
Moved house August 31, 2006
Posted by Brickonomist in Uncategorized.add a comment
This blog has now moved to a new home at www.brickonomist.net, where I’ve settled on the marvellous k2 theme (though I was tempted to go with qwilm! instead). Please update any links accordingly.
The buy-to-let bubble? August 21, 2006
Posted by Brickonomist in Housing markets.1 comment so far
Is there a buy-to-let bubble? We already know what these guys think, and now here’s Ashley Seager of the Guardian joining in:
If something looks like a bubble and smells like a bubble, there’s a good chance it may be a bubble. Figures out last week showed a renewed frenzy of buying in the buy-to-let market, an area of the economy that is flashing warning signs as never before.
The new figures from the Council of Mortgage Lenders were a shock. In the first half of the year, they showed that buy-to-let mortgages jumped by a fifth in value, or a record £17.5bn, a figure that almost matches the amounts paid in City bonuses in the same period. Buy-to-let mortgages now account for 8% of the total, having grown from zero just a few years ago. Were it to go pop, that is a big enough chunk to drag down the whole housing market.
The surge in borrowing, along with the Bank of England’s interest rate cut in August last year, helps to explain why the housing market has been robust so far this year in spite of relatively low numbers of first-time buyers, who are at the limits of affordability and are being squeezed out by prospective landlords.
Buy-to-let investors have apparently responded to rising rents, in turn caused by large-scale migration from eastern European countries. Poles and the like are the new tenant class, especially in London and the south-east.
But a small rise in rents does not alter the fact that the economics of buy-to-let are now very unfavourable, as they have been for some time…
Basically speaking, your monthly rent is now very unlikely to cover your mortgage, even on an interest-only basis. What worries me, though, is that people are not doing these basic sums. You hear people saying: “I am getting a buy-to-let because everyone else is and property always goes up in value.” What the average yields show is that many investors are making no income from their property investment, and are relying exclusively on capital growth to provide a return. It is the same as a gamble on a share in a dotcom company that is not making any money but which investors hope will nevertheless rise in price. And this at the end of a 10-year period in which property prices in this country have tripled. Betting on further large capital gains to compensate for low yields is brave as well as risky…
Other figures released last week illustrate a key reason why property prices are high in Britain: supply is limited.
The government said 165,000 houses were completed in the year to June – up 28% from the post-war trough of five years ago but still far below the 210,000 that it is estimated will be needed each year over the next 15 years to keep up with growth in the number of households.
Yeah, supply is limited, but there is a lot in the pipeline: there were 90,000 permissions in the last two years in London, of which about 80% will have been 1 and 2 bed flats, many if not most for the buy-to-let market. How big can this bubble get?
Brooklyn Re-development Deathmatch August 19, 2006
Posted by Brickonomist in America, Design, Planning, Regeneration.add a comment
Over at Environmental and Urban Economics, Matthew E. Kahn links to a New York magazine article describing the controversy over the proposed ‘Atlantic Yards‘ development in Brooklyn. While the scale of the proposed development is vast, the politics are not so dissimilar to arguments over countless much smaller schemes. For example, the article author Chris Smith notes how the development’s promoter “manages to use the phrase “affordable housing” five times in two minutes. Not once does he mention the 4,610 market-rate (unaffordable?) apartments and condos to be built”. And the concerns are about massing, blocked views, “intersections choked with traffic [and] More kids than the local schools can possibly handle”.
Matthew seems a little sceptical about the concerns being expressed:
This looks like a classic case of public choice and heterogeneity. People will disagree over whether this project is good or bad. Mancur Olson would say that a small cohesive pressure group that loses the most from doing the project (i.e white upper middle class hipsters who already live in the community) have the greatest incentive to lobby against it. It will be interesting if the “silent majority” can launch a counter-attack. This Ratner looks quite well politically connected .
The last point is important, because a small cohesive group that has the most to win from doing the project can be very persuasive too while being no more representative of the greater good. In my view, there will always be enormous disagreements over a development like this, because once it’s built there will be no going back for decades at least, and if it goes wrong it could spoil a huge swathe of Brooklyn. The temptation is always to avoid the risk by saying no, but done well a large-scale redevelopment of this kind can transform a whole city for the better. All of which is a long-winded way of saying that it comes down to whether the details are right. And from first glance I’m not sure they are: why must the proposed buildings be so massively out of scale with their surroundings? Why does a development involving several thousand luxury flats and vast office space require over a billion dollars in public subsidy? And what makes the Ratner proposal better than this one? Both may have their qualities, but only one (if that) will be built.
Housepricecrash.co.uk August 18, 2006
Posted by Brickonomist in Housing markets.4 comments
I’ve just discovered the prolific and enjoyably lurid Housepricecrash.co.uk, which bombards its readers with breathless retellings of any news that can possibly be construed as heralding the said crash. I liked the headline they attached to this news from the Council of Mortage Lenders of further strong growth in the buy-to-let market: “BTL lemmings go bonkers“! I don’t know whether or not they started out hoping for a crash, but at this point I’d be looking for one just to avoid looking stupid. Certainly everyone who has called the current years-long house price boom ‘unsustainable’ has so far been wrong, but eventually they’ll be right – but when? And will it end with a bang and a whimper? And would either really be so bad?
Poverty and overcrowding in large families August 13, 2006
Posted by Brickonomist in Overcrowding.add a comment
Larger families are much more likely to live in poverty, according to this research from the Department for Work and Pensions: “Families with four or more children account for less than 5 per cent of all families, but more than 20 per cent of poor children”. The Child Poverty Action Group points out that solution would be to remove the child benefit taper, which currently means that “child benefit is worth £17.45 per week for the first child, but just £11.70 per week for second and subsequent children”. Further work by the Joseph Rowntree Foundation estimates that equalising CB rates at an overall higher level at a cost of around £3.4bn would bring the child poverty rate for large families down to the level for small ones.
As well as reducing income poverty, such a change should also help with the housing problems faced by many larger families. According to these tables, households with five or more members are eight times more likely to be overcrowded than the national average. The increase in their income with equalised child benefit may be modest, but could be enough to enable some to afford more suitable accommodation. It could also reduce their reliance on the means-tested Housing Benefit and reduce its work disincentive effect.
Signs of the home-owner’s apocalypse, number 17: Planning Delivery Grant August 10, 2006
Posted by Brickonomist in Media, NIMBYs, Planning.add a comment
Here’s a wonderfully hysterical story from Monday’s Telegraph about how
The Government intends to reward councils with cash if they give planning permission for hundreds of thousands of new homes to be built in attractive parts of England where property prices are high.
(Funny how the Telegraph only cares about areas with high house prices, isn’t it?)
Let’s see how many things they managed to mislead their readers about in a single story, shall we?
No environmental conditions are placed on the scheme
There doesn’t need to be. The housing targets are set as a result of a regional planning process which takes great account of environmental impacts.
There is no apparent ceiling on the money that councils could make if they exceed the targets for new homes set by Ruth Kelly, the Communities and Local Government Secretary.
Well, the total pot of money available for the Planning Delivery Grant in 2007/08 will be only £120m, equivalent to a whopping 0.6% of the total Council Tax take. Currently ‘Housing Delivery Grant’ accounts for only 20% of that (see page 4 here), with the remainder rewarding perceived good performance in adminstering planning decisions and policy-making. In a separate consultation paper, the government seems keen to tilt the balance more in favour of incentivising housing delivery, but there is no indication that the total pot available is going to increase.
Councils not reaching a threshold would be starved of cash.
If you call not receiving a very small bonus on top of a huge income from council tax, business rates, etc being ’starved’, yes. If not, then that’s just nonsense.
Government figures show that five million new homes are needed in England over 20 years, 1.5 million of them because of record levels of immigration.
Now, as it happens, I think the proposed Housing and Planning Delivery Grant is a pretty crude and bureacratic way to incentivise housing supply at the local level. But I also think it’s too insignificant to make much of a difference. Of course it was not in the interests of Charles Clover or the Telegraph’s editors to inform their readers of the amount of money involved, since that would have got in the way of their primary objective of stirring up paranoid visions of class warfare.
Second homes for students August 10, 2006
Posted by Brickonomist in Housing economics, Housing inequality, Housing markets.add a comment
A couple of years ago, Shelter released some research by Bethan Thomas and Danny Dorling which argued that the housing market was becoming one of if not the main driver of inequality in the UK. “If current trends continue”, they said, “in 30 years time the ten per cent of children in the wealthiest areas will have access to more than 100 times the housing wealth of those ten per cent of children growing up in the poorest parts of the country”. This matters because
Housing wealth gives families access to greater security and opportunity.
- Parents can access housing wealth (through downsizing or remortgaging) and help their children financially. Housing wealth gives families greater borrowing power. Children receive a windfall on their parents’ death.
- Children born into families with no housing wealth inherit nothing and have little financial help throughout their lives.
A child will not be able to earn their way out of this disadvantage – a social position determined by who their parents are and, mainly, by where they happen to live – very easily. For children born into families with low housing wealth or none at all, there will be large parts of the country to which they cannot consider moving in the future. This geographical immobility will affect children’s life chances and will impact on Britain’s economic well-being.
And now here’s some fresh evidence:
Second homes for students boost housing market
Published: 08/08/2006 – 10:39:26 AM
House sales have been boosted by parents buying properties for their children while they were at university, new research shows today.
Around 83,000 homes were bought on behalf of students last year, a 26% increase since 2000, according to the study by finance firm Direct Line.
The number of houses occupied by students was predicted to reach 100,000 by the year 2010.
The so-called university effect helped increase the number of “second properties” to 2.6 million, up from 2.3 million five years ago.
Around 1.6 million of the second properties were buy-to-let, while others included holiday homes and work bases.
Andrew Lowe, head of home insurance at Direct Line said: “The continued boom in house prices, the rise in parents buying properties for their children and the growth in tele-working are among the key drivers of the UK’s buoyant second properties market.”
There’s a double effect here: in buying second homes for their student children, wealthy parents are not only giving them an educational advantage but, because housing supply is quite inelastic, they’re creating further price pressures and pushing housing further out of the reach of poorer families, further reinforcing inequality.
The Great Urbanization August 9, 2006
Posted by Brickonomist in Housing need, International.add a comment
The excellent Mark Thoma reproduces two fine Financial Times articles for our delectation. Here are some selected quotes.
Engine of enterprise in push and pull of rural desertion, by Alan Beattie
Today, about 180,000 people around the world will leave the countryside and move to a city. Humans are becoming urban creatures at an accelerating speed. … Cities are the future. Whether they turn out to resemble the gleaming perfection promised by the Emerald City in the Land of Oz or the dystopian chaos of Blade Runner will depend on the technology and governance of future economic development…
The lessons of history are clear: cities do better if they prepare for migrants. And it is easier to deal with people “pulled” towards cities by the prospect of jobs and better lives than those “pushed” by eviction from the countryside.
The British Isles contain three models… As in England, it can be gradual and relatively painless: the “enclosure” by landowners of small tenant farms and publicly held land into bigger enterprises took centuries and monarchs in the 16th and 17th centuries tried to slow the process down to placate protesting villagers. Later, country-dwellers often voluntarily moved to towns when industrialisation created better jobs, in textile mills and the like. As in Scotland, the move can be brutal and abrupt, such as the Lowland and Highland Clearances – the forced removal of tenant farmers to make way for bigger and more productive farms – that began in the 18th century. Glasgow and Edinburgh were inundated with indigent refugees. And as in Ireland, the change can be achieved in a way that in practice if not intent resembled genocide – the famine and land evictions of the mid-19th century that helped to populate Liverpool, Boston and New York.
Thus cities such as Shanghai, to which millions of rural Chinese are desperate to move but are regulated by internal migration controls, do rather better than Mumbai, where refugees fleeing drought and crop failure in the villages of India mean that more than half the city’s population live in shanty towns or slums.
Important though government is, it operates in a landscape shaped by technology and globalisation. Just as the growth of cities was driven by one technological revolution, so others can change or reverse it. Edward Glaeser, a Harvard specialist in the economics of cities, points out that the original reasons for the existence of cities are disappearing. The cost of transporting manufactured goods dropped by 90 per cent in real terms in the 20th century, removing the need for regions to have their own manufacturing and distribution hub.
“The great force that reshaped the city in the 20th century is the engine,” Prof Glaeser says. “People have increasingly been able to propel themselves and their goods over long distances.”
Cheap transport pushed Americans away from Cleveland and Detroit and towards the cheap land and warm weather in sprawling low-density sunbelt cities such as Phoenix, Arizona. Liverpool, the port in north-west England that handled much of Britain’s transatlantic trade, was once the country’s richest city. The decline of its port almost halved its population from 867,000 in 1937 to 442,000 in 2001.
The revolution of information technology and digitisation ought, perhaps, to have completed the job, removing the need for a physical workplace. Yet several of the cities that seemed to be dying in the 1970s – New York, Chicago, Boston and London – have since had remarkable revivals. …
The success of the modern city appears to have two features: one, that digitisation has created a very specialised elite who benefit even more from clustering together and, two, that people are moving to cities not just to work but to play. The industries that are most digitised and computerised – software and financial services – are those that huddle in small, expensive areas … where their top-level staff still need the edge of face-to-face contact with clients and with each other…
Meanwhile, Prof Glaeser notes that the ratio of housing costs to real wages in cities has risen sharply, suggesting that people are choosing to live in cities for reasons other than income. With falling crime rates, the attractions of some cities – bars, restaurants, theatre, not to mention the city as a marriage market – have launched their renaissance as a place of consumption.
How the lure of the city is rapidly swelling the world’s slums, by Fiona Harvey
“A dirtier or more wretched place he had never seen. The street was very narrow and muddy, and the air was impregnated with filthy odours … Covered ways and yards, which here and there diverged from the main street, disclosed little knots of houses, where drunken men and women were positively wallowing in filth.”
The well-heeled residents of 21st-century Clerkenwell would not recognise the description of their chic streets in Charles Dickens’ Oliver Twist. By locating Fagin’s thieves’ kitchen in Saffron Hill, he was choosing one of Victorian London’s most notorious slums; today, even a small flat on the same street can cost more than £500,000 ($954,000, €741,000).
But the sort of urban squalor Londoners associate with the 19th century is growing “at an unprecedented rate”, according to the United Nations. Next year, the UN estimates, more than 1bn people – one out of every three city residents – will live in slums. … In 2007, … the balance of the world’s population will change, perhaps forever. For the first time, more people will live in cities than rural areas…
Overcrowding and poor housing are the most obvious issues for slumdwellers, but these are compounded by poor sanitation and a lack of clean water. There is often little provision for the disposal of solid waste. … Slums also often suffer badly from pollution, because they are built on contaminated land or undesirable areas near large industrial installations…
For these reasons, slumdwellers suffer what Anna Tibaijuka, executive director at UN-Habitat, the human settlements programme, calls the “urban penalty”. She explains: “They have worse health [because of poor sanitation] and they are affected by the worst effects of industrial pollution. If there is a flood or a disaster, it’s the poor who always suffer.”
So far, there seems little prospect of solving these problems in most cities. … The scale of the problem is daunting. More than one-quarter of the developing world’s urban population – more than 560m people – lack access to clean water and sanitation, and about 1.6m people a year die as a direct result. The World Health Organisation estimates that as much as one-quarter of global disease is caused by environmental problems that, if tackled, could save up to 13m lives a year…
Few developing country governments could hope to afford the vast sums needed to clean up their slums. … Annual spending on slums, from both public and private funds, amounts to between 5 and 10 per cent of the sums needed.
What lessons does history teach about tackling the scourges urbanisation brings in its wake? London’s Dickensian misery was alleviated only through a massive programme of public works in the second half of the 19th century. The sewage system built in the wake of the Great Stink of 1858 [from effluent in the Thames] took advantage of existing waterways and serves the city to this day.
Himanshu Parikh, … director of Buro Happold Engineers, … adds that the most successful developments she has seen involve local people, businesses and government working together on slum improvement projects. These have tended to be on a small scale, involving between 800 and 1,200 houses at a time. Projects on a larger scale can become bogged down in bureaucracy and the need to co-ordinate a greater number of interested parties.
The UN-Habitat report on the world’s cities identified strong central government as another essential ingredient in effective slum improvement…
Land reform can be an important weapon in the battle against urban poverty. Slumdwellers suffer from an inherent insecurity because they rarely own title to their land. This leaves them vulnerable to government interference and the whims of developers and reduces their incentive to improve their areas.
None of these issues are easily addressed but, as the UN’s report makes clear, the problems incubating in the world’s slums can no longer be ignored. Moving from Dickensian squalor to the fashionable restaurants and penthouses of today’s Clerkenwell took well over 100 years. Given the speed at which slums are spreading today, urban dwellers must hope the 21st century will yield a more rapid solution than the 19th.
Housing and environmental problems which continue to be a significant driver of inequality in the rich countries seem to pale into insignificance alongside the problems faced by slum dwellers in the places like Nairobi and Mumbai. Which is not to say they’re not important, but that the same arguments for intervention, redistribution and empowerment that hold in the UK must do so at the global level, but perhaps with more urgency and certainly on a far greater scale.
