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Second homes for students August 10, 2006

Posted by Brickonomist in Housing economics, Housing inequality, Housing markets.
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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.

Link-dump: energy efficiency, regeneration, densities, buy-to-let and more August 1, 2006

Posted by Brickonomist in Housebuilding, Housing economics, Housing investment, Housing markets, Housing need, Linkage, London, Planning, Regeneration.
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Apologies for the light posting of late, which was due to more work demands and some very pleasant weekends away. There’s a lot to catch up on so here’s a quick link-dump – I’ll try to come back to one or two of these items in more detail later.

  • The Sustainable Development Commission has published ‘Stock take: delivering improvements in existing housing‘, which details “the technical options available for minimising the energy and water consumed and waste produced by residents of the existing housing stock”. The big question for me is what can be done to improve the efficiency of privately owned homes, with a particular question mark over privately rented housing, which the report rightly identifies as suffering from a ’split incentive’ problem – the tenant doesn’t have the incentive to invest in upgrading the home when she’s not going to be living there long, and the landlord doesn’t have the incentive to do so because she doesn’t pay the bills. Personally I think the landlord should pay some of the bill, but then I would say that because I’m a tenant. See also “Reducing the Carbon Impact of Private Rented Housing
  • England’s Housing Timebomb, from the National Housing Federation, features a prediction from Oxford Economic Forecasting that “the average house price in England will increase by around 50% by 2011, from just under GBP195,000 at the beginning of 2006 to GBP286,000, equivalent to 9.2 times the projected average salary for 2011″. The study concludes that housing associations should therefore be building or refurbishing 80,000 affordable homes each year instead of the current 40,000, which would obviously require much more funding from the state. They might well be right, but this one might get filed under “They would say that, wouldn’t they?”.
  • The Town and Country Planning Association has published a commentary by Julie Cowans with the ungainly title of “Cities and regions of sustainable communities – New strategies”, but the potentially radical message that traditional approaches to addressing poverty (focusing on the “worst” estates first) should be abandoned in favour of proactive policies aimed at creating mixed income communities, i.e. enticing middle-income households into poor areas and trying to capture the resulting increases in land or property values. This has already excited some comment in the housing blogosphere (such as it is): Hannah is sceptical, Kevin pretty enthusiastic. I think Cowans may be drawing on the findings of this work, which I’ve started reading but have yet to finish. Anyway, hope to say more on this in due course.
  • According to CB Richard Ellis, there has been an extraordinary increase in the density of new residential developments in London, no less than a quadrupling (in terms of habitable rooms per hectare) in just four years. They seem to mostly put this down to policy changes, but surely the huge rise in land costs (which obviously isn’t entirely unrelated to policy) is the main driver? Interesting quote: “We found schemes within regeneration and other special policy areas are frequently gaining planning permission for greater density than is recommended in the London Plan”.
  • Labour-run London boroughs are building a lot more affordable housing than their Conservative counterparts, according to Inside Housing: “The 11 Tory authorities in power before the election were due to deliver just 18 per cent of grant funded homes in the capital.” Word on the grapevine is that some incoming Tory administrations have effectively vetoed large numbers of affordable housing developments that were going through the planning stage. Certainly, I don’t expect Hammersmith & Fulham council will be delivering 65% affordable housing in the next few years, as it has in the past.
  • And finally, the Financial Times celebrates ten years of buy-to-let in the UK

Superstar cities July 19, 2006

Posted by Brickonomist in America, Housing economics, Housing inequality, Housing markets, NIMBYs, Planning.
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According to Joseph Gyourko, Christopher Mayer and Todd Sinai, ‘Superstar Cities’ arise when high income households are sorted (or sort themselves) into areas that are (a) desirable, (b) unique and (c) feature low rates of housing construction. Their very restrictiveness makes them desirable, and perhaps their desirability makes them more restrictive. A similar dynamic certainly appears to be happening in some parts of the UK, but will it ever go so far as to make London, for example, the exclusive domain of the rich?

Here’s the abstract from NBER (the full paper is here):

Differences in house price and income growth rates between 1950 and 2000 across metropolitan areas have led to an ever-widening gap in housing values and incomes between the typical and highest-priced locations. We show that the growing spatial skewness in house prices and incomes are related and can be explained, at least in part, by inelastic supply of land in some attractive locations combined with an increasing number of high-income households nationally. Scarce land leads to a bidding-up of land prices and a sorting of high-income families relatively more into those desirable, unique, low housing construction markets, which we label “superstar cities.” Continued growth in the number of high-income families in the U.S. provides support for ever-larger differences in house prices across inelastically supplied locations and income-based spatial sorting. Our empirical work confirms a number of equilibrium relationships implied by the superstar cities framework and shows that it occurs both at the metropolitan area level and at the sub-MSA level, controlling for MSA characteristics.

Income inequality and housing affordability July 15, 2006

Posted by Brickonomist in Housing economics, Housing inequality, Housing markets, Uncategorized.
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There’s evidence that relative low income can lower subjective well-being: people feel worse when those around them earn more. But can earning relatively less make you objectively worse off, even if your own income doesn’t fall?

Apparently so. In a great bit of research, Janna Matlick and Jacob Vigdor find evidence that the increasing incomes of others can raise the price we pay for housing, leading to more income spent on housing or overcrowding. Especially in tight housing markets, like we have in many parts of the UK, “the poor do worse when the rich get richer”:

Do rising tides lift all boats? If raising the income of the wealthy increases the prices that the poor must pay for certain necessities, then it becomes more difficult to argue in favor of policies that exacerbate inequality on the grounds that they at least do not lower the incomes of the poor …

In the end, the evidence on this question is mixed, and it seems relatively clear that the answer depends critically on the elasticity of housing supply. In this sense, the study of demandside determinants of housing affordability problems should not be conducted in isolation from study of the supply side. In the United States, tight housing markets tend to be those where incomes are rising rapidly at the high end of the distribution, while incomes at the low end trend upward only slowly if at all. In these areas, the poor have experienced greater crowding, and there is at least some evidence that their expenditures on housing increase as well, though not in all specifications …

Do price effects negate the impact of “trickle-down” effects? The answer appears to be “sometimes.” The key to making rising tides lift all boats appears to be ensuring that there are more than enough boats to go around.

What this paper doesn’t cover is the further effect of higher house prices on inequality: in a rising market, those who could afford to buy enjoy windfall gains which they can use to help their children buy when the time comes, distorting the market further and leaving those who couldn’t afford to buy in the first place (and their children) even further behind. This effect is already quite marked in Britain.

Reduced recycling restricts reinvestment July 1, 2006

Posted by Brickonomist in Housing economics, Housing investment, Housing markets.
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I’ve posted before on how little net state investment there is in social housing in the UK. In large part this is because of the Treasury’s long-standing recycling initiative: it takes from local authorities three-quarters of the capital receipts from sales of council homes through the Right to Buy and uses them to fund its Decent Homes and new supply programmes. So it’s interesting that Right to Buy receipts look like they’re about to drop sharply just as the government has been making noises about spending much more on new social housing. Inside Housing has the details:

Right to buy proceeds set to plunge

By Martin Hilditch

Published: 30 June 2006

Plummeting right to buy sales look set to cut the amount of money the government makes from the programme by a quarter of a billion pounds.

Official statistics on the number of people buying their homes through the scheme in England in 2005/06 are
expected to show that sales fell by almost 50 per cent, Inside Housing understands.

London is likely to see the biggest drop in sales although a decrease is expected in most regions. Yorkshire & Humberside is anticipating that the number of people exercising their right to buy will have fallen by a quarter.

In 2004/05, there were 49,983 homes sold through the right to buy. Figures for 2005/06 are due out next month.

Steve Partridge, director of Housing Quality Network, said the government, which takes 75 per cent of the capital receipts from right to buy sales, was likely to take the biggest financial hit.

A 50 per cent drop would see receipts fall by £250 million or more, he said.

‘It will certainly be a very interesting issue in the spending review because presumably they are going to have to downsize their forecast of right to buy receipts.

‘If that drops to £250 million then that is a big hole. It is now at the stage where even the increase in prices is not going to compensate for it.’

The fall in sales could also affect councils’ and arm’s-length management organisations’ ability to bring their homes up to a decent standard.

Many business plans have been based on the landlord having fewer homes to improve and more right to buy receipts to spend on the work.

‘I have seen in a number of councils it [the number of sales] just go through the floor,’ Partridge added. ‘One downside financially is that there might be more homes to make decent.’

A number of local authority sources told Inside Housing that right to buy sales had been hit by the growing affordability problem around the country. With a fixed discount and rising house prices tenants were thinking twice about buying, they said.

The amount of time a tenancy has had to run before residents could buy their homes was also increased from two to five years in January 2005.

One source said that government officials had warned them that the fall would have an impact.

‘What is coming through from government is that funding will be tight next year because of the drop,’ she said.

A London based source said the reduction in sales could be partly blamed on a reduction in the right to buy discount in the capital from April 2004.

Sensible comment on demolitions shocker June 24, 2006

Posted by Brickonomist in Housing economics, Housing markets, Media, Regeneration.
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Good to see someone commenting on this who has actually taken time to find out what’s happening. John Perry in Public Finance:

In the past few months alone, we have seen veteran journalist Sir Simon Jenkins in the Guardian and the programme Tonight with Trevor McDonald both attacking the notion of demolishing older houses. The Tonight programme, like several others, focused on what could be done by throwing money at one particular house, ignoring the problems of the wider area.

Meanwhile, Jenkins refers regularly to ‘Yvette Cooper’s proposal to demolish 150,000 Midlands and north country terrace houses’. Apart from the exaggeration, of which more later, there is the turn of phrase, which evokes stone-built cottages in Wensleydale rather than pokey two-up, two-down terraces in Liverpool or Stoke-on-Trent.

The prime mover against demolition has been the pressure group Save, whose assessment (on its website) is that as many as 400,000 houses will come down in the pathfinder areas. To those anxious to get on the housing ladder in the south of England, or who have invested their savings in modernising a terraced house, these figures must seem to be a travesty of housing policy. But put them under closer scrutiny, and the argument crumbles.

For a start, there are still something like 2.5 million Victorian terraced houses in England. The vast majority of these form excellent homes or can be modernised with some modest investment. But some are obsolete. That is, they are either too small, too badly designed or in too poor condition to be satisfactorily improved. Or – and this is often the case in the pathfinder areas – there are simply too many houses of the same type, age and size in the same place. For example, in Stoke-on-Trent, more than half of the housing stock is Victorian, consisting mainly of small, back-of-pavement terraces.

Sometimes, this kind of housing can be transformed and given a new niche in the housing market. As part of the local pathfinder programme, Urban Splash has converted 108 terraced houses in Salford into trendy ‘upside down’ units. There were long queues when they went on sale in April and they are now sold out. But this is redevelopment in all but name – the terraces were totally hollowed out and the yards and back alleys bulldozed. It is a tremendous example of regeneration but its effect depends in part on the scarcity value. Doing this to thousands of houses simply isn’t possible.

Opponents of demolition seem to forget that we do need to replace old houses at some point. The country currently replaces fewer than one in 1,000 houses each year – and most demolition is of tower blocks, not Victorian terraces. No-one – least of all the pathfinder agencies – is contemplating mass demolition. The aim must be selective renewal of the most difficult property, as part of the wider regeneration of poor neighbourhoods.

The other argument deployed by the critics is that local residents are up in arms against demolition plans. As Save says on its website: ‘Householders are being forced out of their beloved homes following minimal and often misinformed consultations.’ But the striking thing about many of the pathfinders is not the level of opposition, but the degree of support that they are obtaining for their renewal plans. Stoke and Hull provide two examples.

The Renew North Staffordshire pathfinder expects to replace just over 12,000 houses over 20 years. Although this might seem a lot, it also aims to refurbish or improve 63,000 houses and build 15,000 new ones. But there is no grand plan for demolition – the process is taking place at neighbourhood level, where master plans are being devised in conjunction with residents. One of the pathfinder’s innovations is the appointment of ‘residents’ friends’ in each area, answerable to the local Citizens Advice Bureau rather than to the council or the pathfinder. They help residents articulate their problems and give them independent advice. By putting unprecedented effort into involving residents, Renew is emerging with plans that have high proportions of local support – even from people whose houses might be demolished.

The Gateway pathfinder is more advanced with its renewal plans for some neighbourhoods in Hull – but still has support from residents. Houses have already been demolished, and local people are demanding faster replacement of the remaining boarded-up properties. Again, the pathfinder has used a variety of methods to find out local opinion and has high levels of support for what it is doing. It has adopted a ‘charter’, which sets out the promises made to local people. Residents engaged in the process have made a video showing their ambitions for their community. The level of support has convinced the local press, which is also calling for faster demolition of the worst houses.

The latest documentation on the pathfinders nationally – available on their websites or that of the Audit Commission – suggests that on current plans they will replace some 60,000 properties. Some further clearance might be planned in later phases, for which the pathfinders have yet to produce detailed plans. But it seems most unlikely that they will reach the total of 150,000 cited by [Simon] Jenkins, much less the absurd maximum put forward by Save. And this is over a period of up to 15 years, including of course many thousands of unpopular postwar developments as well as the cherished ‘north country terraces’. To put the figures in perspective, the pathfinders cover in total more than three-quarters of a million homes.

Giving with one hand, taking with two June 19, 2006

Posted by Brickonomist in Housing economics, Housing inequality, Housing investment, Housing need, Party politics.
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24dash is a pretty good site for news on housing and other areas of social policy, and they’ve done well in recruiting Richard Best of the Joseph Rowntree Foundation as a columnist. His latest adds some good detail on a subject I posted about recently, namely the paucity of net government investment in housing:

what people may not appreciate is that a whole series of changes to housing policies have sent billions of pounds to the Treasury. More than enough money to boost the supply of decent, affordable homes …

… over the last 20 years:

* Receipts from the Right-to-Buy sales of Council housing have yielded around £45 billion – but only a quarter has been recycled into improving public housing.
* The abolition of Mortgage Interest Tax Relief (MITR) – which was the corner stone of the Duke of Edinburgh’s Inquiry into British Housing, which celebrated its 20th anniversary last week – has boosted tax receipts by £30 billion, plus a further £3 billion each year.
* Stamp Duty when anyone buys a property (plus a major part of the Inheritance tax) brought in £6.5 billion last year alone.
* The Treasury has not had to put up the money for loans to housing associations through the Housing Corporation because housing associations have been borrowing – more than £50 billion since 1990 – from banks and building societies instead.
* Because of the improved economic climate, with lower levels of unemployment, the government has been paying out less in Housing Benefit to help low-income tenants.

Not convinced about that last one, but housing is clearly generating a lot of revenue for the Treasury – the Right to Buy alone has been easily the most lucrative privatisation of all. Directing a bit more of this money back towards housing seems only fair, and it’s not like there’s nothing to spend it on: Best highlights the need for an extra £2-£3 billion a year for new affordable housing, a safety net for low-income home-owners, help for elderly or vulnerable homeowners to get repairs to their homes, and bringing council homes and estates up to a good condition. He concludes:

The contrast between large financial gains to the Treasury from changes in housing policy and the continued level of misery created by bad housing, is very striking.

If only a modest proportion of the government’s increased revenue was to be recycled, a vital contribution could be made to defusing the growing crisis in British Housing. Come on Gordon Brown, housing needs a better deal!

Quick links 30/05/06 May 30, 2006

Posted by Brickonomist in Environment, Housing economics, Housing inequality, Links, London, Planning.
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Not one but two Guardian opinion pieces related to housing today:

  • Philip Pullman: The Castle Mill Boatyard will be wiped out and “developed” into a cluster of identikit houses by British Waterways and their developers. This plan isn’t only ugly: it’s daft.
  • George Monbiot:Housing inspectors could make a huge impact on climate change – by enforcing the laws on energy efficiency.

Monbiot is scathing about the government’s new, voluntary “code for sustainable homes”, so I wonder what he thinks of this:

Climate change is top priority of London Plan review
Mayor of London Ken Livingstone announced that his London Plan Review will set radical new objectives for planners and developers that will require new developments to connect to “decentralised” local energy supplies and achieve the highest standards of sustainable building design. The Review also doubles the carbon emission reductions that developments must achieve through onsite renewable energy from 10% to 20%.

The London Plan Review also proposes to set carbon dioxide reduction targets – a 20 per cent reduction by 2015 and a long-term target of a 60 per cent reduction by 2050. This is the first time that statutory carbon reduction targets have been set for London.

The Mayor is proposing a series of new development, transport and energy policies all with the aim of making London an exemplary and sustainable world city, adapting to inevitable climate change and reducing future carbon emissions.

Looking at the detail of these policies in the text of the Mayor’s Further Alterations to the London Plan, it seems to be a similar story of lots of encouragement, ’should’-ing and good practice, but without real powers of enforcement. The new London Plan should give a boost to sustainable construction in the capital, but we’ll have to see whether it is ultimately too little, too late.

Last link today is to Housing wealth – First timers to old timers from the IPPR. Exec summary is here, key points are as follows:

combating the wealth inequalities produced by the growth in home ownership cannot be achieved with subsidies to help people onto the housing ladder. Nor can homeownership alone deliver the benefits associated with mixed communities, such as improved educational outcomes and increased levels of community participation. Rather than providing large subsidies, the government should support people at either end of the lifecycle with policies that encourage ownership of a wider range of assets.

500% Dynamite May 23, 2006

Posted by Brickonomist in Environment, Housing economics, Housing need.
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George Monbiot comes out swinging this morning: “Second-home owners are perhaps the most selfish people in the United Kingdom”. He rightly wonders why they should pay only 90% of the standard council tax, and suggests 500% instead. That all?

Okay, 500% is way over the top (and would inspire all sorts of wasteful avoidance tactics), but I would tend to agree that a discount for second homes doesn’t make much sense. I’m pretty sceptical that second home owners should really be getting all the blame for homelessness in rural areas, though – there’s the simple failure to build enough new social housing too. But at least George’s plan would have the welcome side-effect of making Simon Jenkins’s head explode.

Painful choice May 14, 2006

Posted by Brickonomist in Homelessness, Housing economics, London.
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A fairly recent innovation that is still spreading across the social housing scene in Britain is choice-based lettings (CBL). Under this system, homeless households or existing tenants looking for a transfer are not simply placed in a new home of the landlord’s choosing but given the opportunity to ‘bid’ for homes that become available. A bidder is given points according to their priority on waiting lists (e.g. more for being overcrowded or with health needs) and the bidder with the most points gets the property.

The idea is catching on because of the inherent desirability of people choosing their own homes, and because of the assumed knock-on effects of greater tenant satisfaction and lower turnover. But there may be unexpected drawbacks too, especially in areas (such as pretty much all of London), where the supply of lettings has not increased enough (or more accurately, has fallen too much) to make choice meaningful for all but a minority of bidders. Where before they simply waited on the housing register for as many months or years as it took to be allocated a suitable home, now thousands of tenants with relatively low priority regularly endure the heartbreak of bidding for a new home (and the fresh start in life it promises) only to see it go to a more ‘deserving’ case. Living in limbo hurts, but perhaps less so when escape is not dangled in front of you every week only to be snatched away each time.

Just how seriously should we take these feelings? Some London MPs take them very seriously indeed, as this debate last Wednesday in Parliament showed. Here’s Karen Buck, Labour MP for Regent’s Park & Kensington North:

Ironically, the choice-based lettings system, which is increasingly used to supply housing, and which I wholly support in principle, is making the intensity of the competition that I have described toxically transparent. For example, a rare three-bed property in my constituency was advertised through the choice-based lettings system two weeks ago and it attracted 244 bidders from the already heavily filtered top-priority category A list alone. Given that only six three-bedroom properties have been advertised in the current financial year, most desperate people, even on that list, face an almost endless round of unsuccessful bidding, which is an injection of pure poison into already deprived neighbourhoods.

And here’s Jeremy Corbyn, MP for Islington North:

As my Friend said in relation to the choice-based letting scheme, people on the housing waiting list go into a bidding frenzy every Thursday when the local paper comes out. Most of them are sadly disappointed. People come to my advice bureau in tears saying that in two years they have managed to visit one property with 20 other families and did not even manage to get an offer at the end of that process. Such a cruelty goes on week in, week out.

What’s the solution? Surely not to abandon CBL, but to make it meaningful. That has to mean – surprise surprise – building enough new housing to make moving into a nice new affordable family in London a bit more likely than winning the National Lottery.