By: David A. Smith
The shorter the election cycle, the dumber the political vaporware, and as the United Kingdom barrels down toward the most confusing and hard-to-predict election for many decades, the buffoonery is rising to a silly crescendo.
“The truth is he [Miliband] is weak and despicable.”
“When did he [Cameron] lose his nerve? These are pathetic, feeble excuses.”
The parties all agree that Britain has a huge housing problem, it’s the other parties’ fault, and it’s too late to do anything with their suddenly-discovered brilliant ideas until after they are elected. To illustrate three divergent perspective, here are three equally opinionated (“we’ll report the right opinions, then give you the facts to support them”) stories:
Opinionated sources used in this post
(font colored in rough approximation of party affiliation)
Financial Times (February 12, 2015; by Jim Pickard and Kate Allen, tory blue)
BBC (April 14, 2015; by Robert Peston, Lib Dem orange)
Financial Times (April 26, 2015; by Judith Evans and James Pickford, Labour red)
Spoiler alert: None of these proposals show any awareness of the UK’s housing ecosystem.
There may be a big swing one way or another
The UK ecosystem, in brief
Urban housing is an economic ecosystem where homes and loans are outputs of two complicated value chains that are enabled or disabled by government. In the UK:
1. For cultural/ historical reasons, (a) nearly all the economic growth is place-specific, radiating from London, and (b) the labor force is remarkably immobile; so there is a huge spatial mismatch between job creation and available workers.
2. In the UK, the supply side is disabled by land-reservation requirements (roughly two-thirds of the country is permanently dedicated conservation) and a massively dysfunctional NIMBY enthronement system called ‘planning permission.’
3. The demand side is enabled by easy-credit options including buy-to-let (B2L) and high-leverage homeownership.
With economic growth spatially separated from available workers, housing demand enabled and housing supply disabled, the result is spatial divergence as the South gains while the North slides.
On the political outside, looking in
As none of the parties shows any awareness of practical housing policy in the UK ecosystem, nor any willingness to shoot the sacred cows (confronting the NIMBYist system), we will follow the political dialectic (dumb proposal, dumber counterproposal, dumberer counter-counter proposal) by reviewing the proposals in chronological order by date of publication.
“I don’t want you to get the impression it’s just a question of the number of words… um… I mean, getting them in the right order is just as important. Old Peter Hall used to say to me, ‘They’re all there Eddie, now we’ve got to get them in the right order.’”
1. “People who should be owners are stuck renting”
The Conservatives, who as the dominant party in the incumbent coalition are under pressure to justify their record, have fallen back on a pair of tried-and-true strategies:
1. Keep reforming something dating back to when the opposition was in power, and
2. Offer an easy-to-understand bargain:
All have won, and all must have prizes!
More than 2m people living in social housing could be given the chance to buy their homes under a Conservative party plan to extend discounts offered under the “Right to Buy” programme to housing association properties.
In the UK, affordable housing is delivered in two ways:
- Directly from local housing authorities, known as ‘council housing’ (equivalent to US public housing).
- Via non-profit mission entrepreneurial entities (Mee’s), known as housing associations, either via direct development themselves or acquired via stock transfer.
As a group, the Housing Associations are a tremendous national resource:
These private not-for-profit companies which in some cases date back to the 19th century, have gradually replaced councils as the main provider
Of these two modes, Right-To-Buy is available only to council housing, not to Housing Association properties, and so successful was the Thatcher stock-transfer program that the council housing is now a minority:
At present the “Right to Buy” applies only to Britain’s dwindling numbers of council house tenants, plus [only a few properties owned by housing associations, namely those] bought by the association since 1997.
The original Right to Buy scheme, introduced by Margaret Thatcher in the 1980s, was hugely popular but has been widely blamed for reducing the availability of social housing. It led to more than 1.5m homes being sold at discounted rates.
There’s an example of emotive phrasing where the description contains the value judgment. Of course social housing went down, but social housing didn’t go down, because the 1.5 million homes weren’t lost. Instead, the families in them were turned from renters of the state into homeowners. It would be equally fair to trumpet that under Right To Buy, 1.5 million Britons were able to become first-time homeowners.
And Right-To-Borrow customers
So – did affordability go down? Or did it go up? The question has no definitive answer – it depends entirely on how one defines affordability, and for whom affordability is to be delivered.
None of the parties actually want to discuss that, they want their chosen voter demographics to perceive it positively.
Do you perceive this mess as more Conservative, Liberal, or Labour?
However one views Right-To-Buy in a policy context, in Britain it is seen entirely as partisan politics: invented in the late 1980s by Margaret Thatcher as both policy (promoting an ownership society) and politics (breaking the Labour stranglehold on local-government pocket boroughs via council housing), it had a great wave of conversions; then was entirely mothballed by the Labour governments (Blair and Brown), only to be revived with the Conservatives’ return to power (albeit in a coalition with the now-waning Lib Dems):
The coalition has already tried to revive Right to Buy on council houses by extending the discounts for tenants buying their home: to £77,000 in England and up to £102,700 in London.
If there are to be discounts, these should be indexed to inflation (of either costs or housing costs, depending on your views).
You do if you’re going to collect in the future, but not if you’re going to pay
Further, the discounts referenced, one should note, are not against an original cash or financed development cost, but against current value (in effect, giving the occupant a portion of the capital gains/ appreciation that arose during that household’s tenancy); when that happens, as we saw in New York City with the Mitchell-Lama privatization of Southbridge Towers, profiled exhaustively in One man’s windfall is another man’s score (December 2, 2014: 11 parts, Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11). Everyone fully understands that, if given the opportunity to buy their apartment at a discount from market value, nearly everybody will jump at the chance:
“If you have an opportunity to have ownership of a piece of Manhattan real estate in one of the fastest growing areas, does that outweigh any of these negatives?” Mr. Dimson said. “I think most people will tell you yes.”
The same personal decision-making continues to work in Britain:
More than 27,000 homes have been sold under the programme since the coalition came to power in 2010.
As the proposal would likely result in housing associations losing many of their best properties (and highest rents), the sector’s negative reaction is not exactly surprising:
I am not surprised at that
A series of housing sector figures have cast doubt on the latest Conservative party proposal.
David Orr, chief executive of the National Housing Federation, said that because they were charities many housing associations were legally barred from selling homes at below market value.
NHF wonders if selling at a discount is mandated Orr prohibited
Doubtless that is true, but inherent in the Conservatives’ proposal is intention to change the law:
The government would need to introduce legislation to allow housing associations to sell houses to tenants at a discount, according to Piers Williamson, chief executive of the Housing Finance Corporation (Sober brown font):
Making a business of lending to his Piers
Mr. Williamson has a particular reason for noting this complicating factor – he is the government-sponsored lender to the entire housing association industry:
THFC is an independent, specialist, not-for-profit organisation that makes loans to regulated Housing Associations that provide affordable housing throughout the United Kingdom. THFC funds itself through the issue of bonds to private investors and by borrowing from banks.
THFC, through its subsidiary, Affordable Housing Finance is the delivery partner for the Affordable Housing Guarantee Scheme. AHF makes loans to RP borrowers and funds itself through the issue of bonds and by borrowing from the European Investment Bank.
In effect, THFC is the UK’s Fannie/ Freddie, exclusively for affordable multifamily rental and with explicit credit-subsidy limitations. It is, in short, a model for a post-conservatorship Fannie/ Freddie (not that anybody in America would even think of looking to the UK for a paradigm, but still, perhaps someone can point it out to us.)
AHF’s obligations under the terms of its financings and the obligations of its RP borrowers are guaranteed by the Government. The scheme has been designed to allow RPs to access cost effective funding so as to act as a stimulus in the building of affordable housing.
Definitely a Fannie/ Freddie countercyclical liquidity model – and an entity that the government would have to hold harmless. Nor is that the end of the technical challenges,
That’s why we’ll post Part 2 on Monday!
[Continued Monday in Part 2.]