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Speaking on behalf of the NIMBY party: Part 3, The fundamental problem is one of supply

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[Continued from yesterday’s Part 2 and the preceding Part 1.]

By: David A. Smith

As Britain hurtles toward a more-than-usually-uncertain election this Thursday, instead of focusing on policy (such as housing) most of the pundit talk is over the short-term politicking and the final don’t-think-just-vote-for-me appeals all the candidates are making (complete with tweets congratulating the Duchess of Cambridge for giving birth:

royal_baby_girl

It’s a distraction – yay!

Opinionated sources used in this post

(font colored in rough approximation of party affiliation)

The Guardian (October 6, 2014; russet font)

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)

Previous AHI posts on issues relating to the UK’s housing policy

April 5, 2005: What price greenfield?

July 14, 2005: Struldbrug buildings

October 25, 2010: Homeownership, a road to wealth or to poverty? (5 parts)

February 6, 2012: Floggings will continue until supply improves (2 parts)

Meanwhile, though as I’ve said housing should be the top issue for Britain’s economic and social viability, the only housing talk is to rubbish the Conservatives’ proposal – to expand right-to-buy to housing association properties —

revived_power

– “but it is poor social policy,” said Brendan Sarsfield, leader of the G15 group of London housing associations.  “If those homes are sold off or given away what happens to the people currently in temporary accommodation or waiting in the queue for social housing, where are they going to live?”

Wherever they’re living now … they’re on the waiting list.  Vacancies are a function of two things:

1. Total households.  Not total people, but people per household.  And housing demand is elastic.

When housing is cheap, households expand (fewer people per household).  Young adults leave home.  Roommates pack fewer to a suite.  Homeowners trade up and get a family room, a media room, or a home office.  Some buy second (or even third!) homes.

mccartney_teeth_brushing

Some day I won’t have to share my toothbrush with three other blokes.

When housing is costly, households shrink.  Young adults move back with their parents.  Starving artists consume less space.  Parents put two children per bedroom instead of one.  People who were using an extra bedroom as a study move into a smaller apartment and work from the kitchen table.

2. Total housing units.  Measured by household-accommodating units.  As I’ve previously referenced – and remarkably, as almost everyone in Britain readily acknowledges, and has been for decades – the country is producing far less housing than it needs – of any kind.

housing_supply

Something structural here

The real problem, not addressed by either the proposal or its critics, is that Britain has too few housing units, especially in the South where the economy is growing. 

matt_hutchinson

Have you got a spare room to rent?

Matt Hutchinson, director of the flat-share site SpareRoom.co.uk, said the fundamental housing problem in the UK was one of supply.

“With rents having risen faster than salaries over recent years, the real damage has already been done. Until government gets to grips with the acute supply-and-demand crisis, housing will always be too expensive,” he said.

london_rentals

Annual rental increases (2010 period: It’s only worse since then

The right-to-buy proposal ignores that – though, as we’ll see in a bit, the Labour proposals will reduce supply even more.

Although the electoral politics are about whether it makes sense to turn renters into owners, the economics and social policy are largely about something different – what impact the policy would have on a nation chronically short of housing, especially affordable housing.

Shifting the form of tenure – from social rental to market rental, or from market rental to ownership – obviously does no more for supply that changing seats at the Mad Hatter’s Tea Party. 

hatter_tea_party

Contrariwise, it gives me access to your cake

It may be good or bad for the individuals who move but it does nothing for the overall relationship between seats and bums.

dormouse_into_tea_pot

Here’s an overlooked housing unit

Selling to an owner increases that owner’s affordability and, presumably, puts wealth/ liquidity into that household’s hands.  At some transfer price, it also liquefies the housing association and gives them money to build more – and asserts that the housing associations will in fact build.

Next up, the ‘reasoned center’ voice, which I’ve chosen to present in Lib-Dem orange:

2. “Britain needs more houses built”

lib_dem_yellow

Vote for us, the lukewarm water of this campaign!

As inevitably happens – and inevitably catches democratic political processes completely by surprise – when the economy is growing (more jobs, higher-paying jobs) and the supply is constrained (land, zoning, development approval obstacles), prices rise to the maximum pain point:

pain_point_jaw

You like that price increase?

First the demand-supply imbalance makes new homeownership unaffordable except for those who are already in the top five percent of new earners, and then it makes renting unaffordable for the bottom fifty percent of new earners:

The problem of “Generation Rent” — those who cannot afford to buy a house but do not qualify for social housing —

Nor should aspiring new earned qualify for social housing; to subsidize those who have good and rising jobs would be to enable the supply-constraining dysfunctional that makes housing expensive in the first place.  This is a market signal of launch-caller volume that Britain’s markets are blocked.

— has been highlighted by the Resolution Foundation think-tank, which found that 1.3m tenants of a total 4m in the private rented sector now spend more than 35% of their disposable income on rent.

Given the phrasing, Britain has evidently internalized a 35% rent-to-income ratio as the new normal, and that’s not a good thing for the British economy.

Although the ratio of occupancy cost (rent plus utilities or debt service plus real estate taxes plus maintenance/ utilities) is normally a constant through income ranges, the slope of that line will change over time.  Fifty years ago, it was 25% of income in US urban markets; ten years ago it was 30%; and I suspect (through spidey-sense, not evidence) that by now it’s 35%. 

spidey_sense

My huosing sense is tingling

Now, to say the obvious [You’re good at that – Ed.], as occupancy cost rises as a percentage of income, that takes money away from other family uses, and the other uses are more likely to lead to new job growth, because occupancy is the ultimate in static cash transfer – you pay for the privilege of simply existing in a particular place for a particular interval of time.  Letting the ratio rise, therefore, acts as an invisible hand brake on the economy; it’s bad for growth, bad for household formation, bad for economic competitiveness.

bad_thumb

It’s bad

Britain needs to do something about it, and six months ago, when the parties were staking out territories and preparing the battle space for potential future coalition politics, the Liberal Democrats put out a proposal to actually do something about it!

womens_guild

We’re planning to develop right in this field of muck

Nick Clegg is to move on Monday to differentiate the Liberal Democrats from the Tories on the highly contentious issue of garden cities by pledging to build five new towns along a train line linking Oxford and Cambridge.

oxford_cambridge

They should be economic Lagrange points … instead they’re 2 ½ hours apart

That … actually makes tremendous sense, on multiple grounds:

1. It deconcentrates job creation away from ever-expanding, ever-congested London.

2. It invites a natural ‘build-belt’ of the kind that has worked well elsewhere (Johannesburg-Pretoria, Dubai-Abu Dhabi, Washington-Baltimore come to mind.

They would offer the new towns, of 9,000-15,000 homes, the chance to have an “express station” where faster trains would make stops.

no_high_speed_train

Once we get the locals to stop objecting to it, that is

3. It invites R&D and technological collaboration, which always produces myriad new businesses, just as the Harvard-MIT proximity does so much to strengthen intellectual entrepreneurialism.

The journey time from Oxford to Cambridge, which takes two and a half hours [and involves going to London! – Ed.], would be cut to 60 minutes.

east_central_westThis doesn’t exist, but should

4. It’s Transit-Oriented Development ‘done right’ because it lays infrastructure first, into the path of growth, and not in the middle of nowhere.

Clegg will say that the Lib Dems would insist in any future coalition negotiations that 10 new garden cities should be built, with five along a new express railway line linking Oxford and Cambridge. This used to be dubbed the “varsity line” but Clegg is now calling it the “garden city line”.

clegg_pointing

Varisty, garden city – what’s in a name?

In a refreshing change of pace, Mr. Clegg (or his speechwriters) put the case plainly, and logically:

“Garden cities are a vital cornerstone of our plan to boost house building to 300,000 homes a year – enough to meet demand and keep prices in reach – while still protecting our precious green space and preventing urban sprawl. Our plan is to build a series of high quality new towns and cities where people want to live, with green space, sustainable transport and spacious homes.”

It makes perfect sense – history establishes the viability of well-chosen new towns work well, such as Dubai (begun 1995), Reston VA and Columbia MD (begun 1961), New Delhi (begun 1911), upper Manhattan (begun 1811), and Washington DC (begun 1791)

dubai_1995

Sheikh Zayed Road, 1995

columbia_plan

The original master plan

lutyens_delhi

New Delhi, as laid out by Lutyens: 1911

1811 Grid Plan

Gridding the undeveloped island: 1811

lenfant_plan_washington

L’Enfant’s master plan: 1792

As these cities demonstrate, master-planned communities with good infrastructure from the start become among the most functional, successful, and valuable places in the world.

Perhaps more relevantly, it’s the only platform proposal with any specifics about production. 

[Continued tomorrow in Part 4.]


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