Category Archives: Housing

10 challenges for tomorrow’s housing associations

By Paul Hackett, director of the Smith Institute

“the only difference between saints and sinners is that every saint has a past and every sinner has a future” (Oscar Wilde)

In twenty years time we may look back on today’s housing associations as saints battling against all the odds to protect their tenants and provide homes for the most vulnerable. But will tomorrow’s housing associations be remembered in the same way?  As the pressure builds to become bigger, more commercial, and more market-orientated will associations be seen in 2033 as essentially private landlords, with a small minority of vulnerable and low income tenants?  Or will they succeed as independent organisations still focused on their charitable core values and continuing to provide mainly homes and services for the less well off?

The only thing we know about the future is that it will be different.  But how different will in part depend on housing associations themselves.  Associations will have to adjust to a rapidly changing world, but what are the main challenges that that lie ahead?  It’s a long list but here are my top ten to think about.

1. There’s a BIG world out there?

Whether you’re a housing association or a company manufacturing widgets, you can’t escape the global economy.  As we all saw with the financial crash in 2008, when things go badly wrong in one place it’s impossible to contain the fallout.  And it’s not just economic shocks that spread around the planet super-fast. Computer viruses, epidemics, energy problems, conflicts. They will connect us all in ways we probably can’t imagine.  Similarly, the next phase of the digital age may arrive in no time and completely change the way we live and work.

So, don’t forget the big things when you are planning the little things.  You can’t predict mega events, but don’t forget they’re out there.

2. It’s the economy stupid?

By 2033 the UK will certainly no longer be the sixth largest economy in the world. We might struggle to stay in the top ten. But we will still be relatively  prosperous.

Most economists expect the economy to get back to trend growth of between 2.4% pa by 2020. There will of course be ups and downs, but by 2033 we will be richer.  Enough growth to justify an increase housing grant?

But will the wealth be shared out, with more skilled employment and resources for those who need it?  The rich could get even richer and the poor even poorer.  If that happens we stay with a low wage economy, more under-employment and more in-work poverty.  And that means large numbers of tenants in sub-market housing on benefits.

Economic geography is also important. Unless there is some real policy change, the gap between London and the South East, and the rest of the country will get worse – and possible unbridgeable.  Lots of opportunities to cross-subsidise and grow in prosperous places, but few options to be “commercially minded and socially hearted” where values are low and there’s no growth and no surplus.

Is scaling up (and mergers) the only way forward?  Can you blend your localism with commercialism in an ever more fragmented economy? And, in the future will associations only want to compete in the high demand areas?

3. Can you increase supply, and, if so, what’s the magic number?

The housing market is dysfunctional, and that doesn’t look like changing soon. We are building about the same number of social unit as we did 20 years ago, and ten times less than 40 years ago. Private build has been roughly the same (given the economic cycles) for decades.

Even ignoring the backlog, we need 230,000 new homes a year to stand still (whether they are for rent or sale).  We all know the barriers: planning, land values, mortgage finance, public attitudes.  Also, new build is a small part of the market and house prices won’t fall until we build big (Kate Barker said over 300K a year).  But, what should the sector be aiming for – what is the magic number?

Councils can add to the mix – maybe 5-10K a year.  Housebuilders can supply more homes to let. But, should the sector contribute 60K a year, or 90K a year, which is three times the current rate. How is that even worth considering without big subsidies for sub-market housing?  Will the ‘Robin Hood’ model of cross-subsidy eventually mean less not more?

4. Who are homes for in 2033?

Today’s baby boomers are tomorrow’s tenants, and there will be a lot more of them. A lot more single people, a lot more lone parents, more older people, a lot more very old, and a lot more of Eastern European origin.

Also, there will be fewer home owners, fewer people with good pensions.  That will mean some people will have to work longer, which will change the profile of who you house.

Are housing associations prepared for an ageing and more diverse society?  Are you part of the adult social care solution and can you offer the range of services people will need at the cost they can afford?  Does it matter if you stay small and stick to the knitting?

5. When will housing become ‘affordable’?

I don’t know what will be affordable in 2033, but it has to be better than today. In one part of the country you have places where social and private rents are the same, in London the gap is so wide people can’t afford to live in anything but social housing.

The problem is real wages haven’t kept pace. We’ve had 30 years of worsening income inequality and house price inflation. The average earnings to house prices ratio was roughly 1:3 in the 1990s – it is now 6:1 and in London 9:1. That sort of ratio is unsustainable.

And, housing association rents have consistently been rising above incomes – which hardly help.

Maybe it’s time to end rent controls and embrace price discrimination and differential rents?  Will the private rented sector become more affordable and more competitive, if so how should you respond?  And, will the future finally see strong growth in the intermediate market?

 6. Will grant come back?

Subsidised housing needs subsidy, but how much?  Less grant means more private finance, which is likely to be more expensive in the future (it can’t get much cheaper!).  There is also a worry that the ‘gold rush’ in the bond markets could fall away if an association gets into financial problems.  The Dutch housing association crash proved very expensive and raises concerns about deregulation and privatisation of the sector.

The elephant in the room is Housing Benefit, which is underpinning much of the sectors’ borrowing. Can associations survive without HB?

A world without grant offers new freedoms but new risks, but how will it affect sub-market housing?  Can the sector navigate a new sustainable funding path using pension funds and the capital markets?

7. An end to the welfare reforms?

When will there be an end to the regressive welfare reforms that are doing more harm than good?  Part of the problem is that public attitudes have hardened against social transfers and the welfare state. Will the country’s social conscious and unwritten social contract inevitably dissolve, which will surely be to the detriment of the sector?

Despite all the demand management and cost savings we can dream of, welfare costs will continue to rise (especially healthcare). Can associations do more to help, and become part of the solution?  Should the sector be advocating more radical ideas, such as switching Housing Benefit revenue to capital investment in new homes – easy to say, but hard to do?

8. Who will be your friends?

The sector has arguably struggled to be loved, not least by local and national politicians.  It’s been making new friends recently and has shown that it can do much more than social housing.  But expectations of what associations can do (and afford) are rising.  As we (hopefully) move from austerity to posterity, will  relationships change? Where do associations belong regarding the brave new world of localism and city regions?  Are you connected enough in the right places?

The direction of flight is towards more local, private services, with the councils providing the safety net – perhaps more often on a cross-border basis.  Where do associations fit into this, and is the future about more collaboration. But how easy is it to really pool resources?

Self-financing of council housing under the new HRA regime could offer exciting opportunities, as could the NHS Trusts who are looking for alternative ways of coping with demand. But does the sector have the capacity and capability to do things differently and forge new partnerships, not least with the private sector?

9. Less will be more?

Will there be 1,500 or so housing associations in 2033? Few people believe it. Some say under 100, others under a 1,000.  Can the sector grow as it is without more mergers, and what support should government and the Natfed be giving?  There is of course a concern that big may not be best and that if associations lose their charitable status (perhaps in order to merge with a private business) then they could go the way of the Co-op – and be sold to hedge funds!

What is a fit for purpose association, and how big and how professional should it be?  And, in a world of localism and bespoke personalised services will less  really be more?

10. Can we have some political certainty, please?

Why is housing (and social housing in particular) so marked down in Whitehall? Is it because the policy is divided up between so many departments, with HMT and DWP focused on the benefit bill and CLG and BiS on supply?  No.10 are only interested in the popular politics of housing, which means pandering to the housing have’s– after all what Prime Minister wants to pledge lower house prices or tax home owners (much better to tax the poor). However, the growth of ‘generation rent’ and price volatility throws a big spanner in the works.

The intransigence towards housing policy probably explains why we have had 15 housing ministers in 15 years.  Will we get another 20 before 2033!

Surely it is time for a more adult conversation with the public on housing and housing subsidy, and (god forbid!) a cross-party consensus on more affordable homes of all types.  Alas, I fear common sense will be sacrificed on the voting alter.  If so, be prepared.  Tomorrow’s housing policies may include a new right to buy for the sector; new incentives/regulations to force associations to sweat their assets; new forms of subsidy (perhaps through a dedicated housing bank); and rent reforms. The next election may decide whether we have more support for the sector, or a lot less.


The sector has a fantastic survival instinct, and although life is going to get harder and a lot more complex housing associations aren’t going away anytime soon.  They will be here in 2033, but in what form? Certainly, tomorrow’s housing association will have to be more resilient and adapt to a more pressured market economy. But hopefully they will hold true to their values and continue to offer what others can’t.

This article first appeared on Hot House



Will Labour invest big time in council housing?

By Paul Hunter, head of research at the Smith Institute

Back in 2009 John Healey, the then Housing Minister, consulted on reforming the way council housing was funded under the housing revenue account (HRA). This technical sounding reform was not on the party’s pledge card and never likely to get people marching in the streets. However it has since heralded a rebirth of municipal housing. The extent of this renaissance is at present small but has enormous potential.

Under a future Labour government councils all over the country could be building again at scale.

Until the end of the last Labour government council housing was seen as part of the problem. The Tories decimated the social housing sector with the introduction of Right to Buy (with few funds available to replace lost stock). New Labour’s preferred providers were housing associations who had freedoms to leverage in private finance while the policy focus was on ‘decent homes’ rather than new build.

The HRA reforms have started to reverse this trend, allowing council’s greater autonomy over their housing stock and freedoms to borrow to build. In our new survey (with Housing Voice) of councillors leading on housing, the HRA reforms have gained strong support (only 9% of those surveyed were dissatisfied). Moreover, the appetite for building is impressive with 93% stating that they were planning to build new council housing. Given the chronic undersupply of housing this should be a good news story, especially given that many of the most ambitious building plans have emanated from Labour controlled councils, such as Southwark and Manchester.

However whilst most councillors in the survey viewed building new social housing as the top priority, the numbers of homes local authorities plan to deliver still remains small compared with housing associations. The majority of councillors envisaged building less than 500 homes over the next ten years, and 40% thought that new build would not compensate for loss of stock through Right to Buy, void sales and estate regeneration.

The challenge then for Labour’s shadow team is how best to support councils to supply more homes at sub-market rent. Under the reformed HRA councils can only borrow up to a certain limit (far lower than housing associations, who can borrow billions off the public books through the bond markets). Maybe it is time to level the playing field?

Although much of the talk since the financial crash has been about deleveraging, for council housing the opposite is true. The problem is that a future Labour government will have to keep an eye on the deficit. Allowing councils to borrow more could provide much needed homes (78% of councillors said they would build additional new homes if the debt cap over council housing was to double) but equally by doing so it will push (as things stand) up public sector borrowing. This is, of course, a matter of political will and priorities, but movement on the cap would undoubtedly help increase supply. Moreover, it could potentially help reduce the Housing Benefit bill in the expensive private rented sector, provide new jobs and help dampen market rent increases. The extent of the gains is unknown, not least because a consequence of undersupply is overcrowding. Reducing overcrowding would come at a cost of increased Housing Benefit claimants and higher rents (i.e. moving from a two bed to three bed property). Nevertheless the economic and social gains seem compelling.

Increasing the ability to borrow clearly follows the line of reasoning of greater localism which was behind the reforms. But subsidised council housing will still need subsidy! If councils could borrow more those debts would still need to be serviced and paid down over the medium term. At present, sub-market rent levels fail to cover the build costs, with many social landlords turning to ‘affordable’ rent (up to 80% of market rent) and councils using planning gain (levies on private development) to cross subsidised new housing at social rents. There is a limit to the latter (and the former remains highly controversial) meaning new build housing requires grant funding to cover the shortfall.

Despite the Coalition’s talk of investing in infrastructure, grant for social housing (as opposed to ‘affordable’ housing) has been cut dramatically. Labour has pledged to invest more on housing, but how much more is unclear.

Labour councils are leading the way in delivering new council housing. However, the levels are unlikely ever to match the heyday of municipal housing, not least because of the mistakes that were made with system built tower blocks. However, councils have the potential to do much more if they have additional freedoms over borrowing. To expand still further, and to deliver genuinely affordable homes, will also require further public investment. The evidence shows many (Labour) councillors have a strong appetite to build subsidised council housing, but the extent to which this happens will depend largely on how much of a priority it is for central government.

Click here to read the survey

This article first appeared on LabourList

Housing philanthropists: where are they today?

By Paul Hackett, director of the Smith Institute

Wealthy individuals in Victorian Britain gave generously to improving housing for the working poor. Indeed, thousands of people still live in homes endowed by those charitable investments. But who is today’s George Peabody, the builder of extensive housing developments for London’s poor, and why are modern philanthropists not sponsoring model communities in the way that Joseph Rowntree, Edward Cecil Guinness and Octavia Hill did more than a century ago?

The world has of course fundamentally changed since the days of the poor laws, and few people today would countenance the paternalism and enlightened self-interest of George Cadbury or Lord Leverhulme. The state became the housing provider of last resort and home ownership became a realisable tenure of choice. Philanthropists meanwhile looked elsewhere, towards medical research and education. Today about £800m of charitable donations (8% of the total) goes to the homeless each year, compared with £1.6bn (16% of the total) to helping animals.

Although housing and philanthropy still retain similar social purposes (both aim to invest for a social return) and housing associations have become significant charitable givers themselves, the two sectors have steadily grown apart. The separation seems, however, to be more by default than design. According to Theresa Lloyd, a leading philanthropy expert, “the lessons of success in generating major donations and philanthropic investment in other sectors such as higher education and the arts have not been learned and transferred to housing”.

The Smith Institute’s latest report – Rebuilding the relationship between affordable housing and philanthropy – argues that “there is a pressing rationale for closer collaboration and learning from each other”. Although the report makes clear that philanthropy on its own can’t hope to solve the crisis in affordable housing, it calls for the two sectors to work together on new ways of funding social housing and community investment.

One initiative might be for the National Housing Federation (with the support of Peabody and other housing associations) and New Philanthropy Capital to set up working groups on new approaches to social investment, perhaps learning from the experience in the United States where charitable lending and grant giving is more advanced. Such co-operation could include opportunities for cheap loans, equity stakes, equity housing trusts, donations of land, and other innovations, such as “crowd funding”, to support housing-related programmes that boost local employment, enterprise and skills.

The report suggests that the philanthropy model can work for affordable housing (and the case has been proven by organisations such as the Dolphin Square Foundation in central London), but the business model has to be watertight.

There may also be opportunities for philanthropy investment in smaller scale projects, such as providing equipment and buildings to community groups, resources to enable wraparound provision in children’s centres or funding to facilitate work to tackle isolation among older people.

Any new partnership has to be a two-way street, and housing associations will need to go the extra mile to develop an attractive offer to philanthropists who demand a clear social return on their investment. This will take time and real commitment. The government may want to foster such collaboration by extra tax breaks or matched funding.

The relationship between philanthropy and housing needs to be nurtured and supported. As Vicki Prout from New Philanthropy Capital comments in the report, “even if philanthropic money can only nibble around the edges of this huge and deeply entrenched housing problem, surely this work is worth doing”.

A PDF version of the report is available here

This article was first published by the Guardian’s Housing Network 


Where next for council housing?

By Paul Hunter, Head of Research

Last week we published our survey of council housing directors one year on from the radical reform of their housing revenue accounts. The policy started under Labour and enacted by the Coalition devolved budgets to council’s and enables them to borrow and build. Against the backdrop of austerity, it is a rare good news story for local government.

Unsurprisingly, perhaps, most of those surveyed viewed self-financed council housing as a good thing. The evidence from the survey shows that most councils are investing in new or existing homes rather than paying off their debts. However, the changes are not without criticism. Many councils were unhappy with the original debt allocation which (added to the debt cap) left little room for borrowing to build or invest on a large scale. And the debt cap itself came in for criticism – not only does it go against the principle of self-financing but puts them councils a disadvantage to housing associations and private housing providers.

As council’s become more confident about managing housing finance the pressure will mount for a loosening of the borrowing caps. At present council housing is grossly underleveraged. As our previous report on HRA reform in 2011 showed, councils could access billions if the rules changed. However, reducing the overall level of national debt is the overarching aim of the Coalition, and such a reform pushes in the opposite direction.

Regardless of the cap, councils also face two other major challenges. First, even with the new freedoms there are considerable issues with social housing funding. Capital subsidy in real terms has been reduced in the 2013 spending review and has been cut by over half compared to pre-2010 levels. So even if the cap was scrapped councils would face similar predicament as housing associations regarding tenure mix – which indeed councils do when granting planning consent.

Second, many councils properties do not meet the decent homes standard. For some councils, without further grant meeting the decent homes standard will eat up any investment that could go into new build. Moreover, some councils might face the unenviable position of having to sell off and demolish estates to reduce the costs of major repairs – hardly a way to reduce pressures on affordable housing in high demand areas.

If government however sees councils as part of the solution to the housing crisis, then it must surely extend authorities further financial freedoms. Putting councils on a more equal footing with social landlords and allowing them to sweat their assets more need not necessarily have to happen in one big bang. Debt caps could be slowly lifted. Although not popular with uber localists, government could adopt an earned autonomy approach, whereby those authorities which have proved their ability to take prudent decisions and manage their housing stock efficiently could be given more autonomy. Another way might be to allow local authorities to trade their headroom, so those that have opportunities to invest using investment from those in areas of lower demand. All are not without their pros and cons and would be boosted by grant funding. However, such reforms would keep a lid on borrowing and do more to enable those councils eager to build and invest.  Any increase in council housing most be a plus in the current climate.

The Future of Housing Associations

Denise Chevin, Research Fellow

The underlying message from my recent report for the Smith Institute, Social hearted, commercially minded: tomorrow’s housing associations, is that change in the housing association world is set to accelerate. The sector which houses two and half million people, has been diversifying for years, and building up a mixed portfolio of housing for different types of tenure. But the cuts to grant and reform of benefits on the one hand combined with less regulation on the other, are creating more freedoms and opportunities and driving change.

Combining a social heart with a commercial mind

One of the key themes, and it’s a tension point that is only going to get more pressing, is the conflicted position the sector is. How do HAs combine their traditional social ethos with a new harder commercial approach – which all agree is necessary?

But, what does the sector mean by commercial? What came across very clearly from my interviews with 50 housing association chief executives and experts is that the modern housing association would see itself running very much on private sector lines – being efficient, focussed and jettisoning activities that don’t bring a clear demonstrable benefit. The social hearted comes when the association ploughs profits back into social housing rather than taking a dividend like the private sector.

Alongside this, associations still see themselves as a force for community good – providing housing services for their tenants.

As the welfare reforms and cuts in housing subsidy begin to bite, there will be increasing conflict of interest between the two different obligations.

The social conscience in the housing association boardrooms is already being pricked by charging the full 80% of market rent and the prospect of more evictions because of increased rent and the bedroom tax. It’s a real conundrum which could damage their reputation.

Certainly, increasing eviction rates by housing associations is concerning councils – and we might see increased tensions there also.

We all know there are things housing associations do for their communities that landlords in the private sector would never contemplate – coffee mornings, after school clubs, training for work, translation services.

They might say, we’ll stop doing those things and donate to local charities – but then do they risk becoming just like any commercial business that just ticks the CSR box?

An overarching question is who they house and what now is their social purpose. The problem is that without social housing grant it becomes impossible to develop low cost homes. Incidentally, that’s a state of affairs that is still yet to dawn on some MPs and local politicians. As my report makes clear, some new tenants in London will see large rent hikes as housing associations increase levels in line with the affordable rent model or market rented housing.  So, unless grant returns to build genuinely affordable homes – and at the launch of the report, shadow housing minister Jack Dromey pledged that it would – many of those on low incomes will be priced out of new housing association accommodation.

And what about the bedroom tax and eviction? Edinburgh Council is pledging not to evict any tenant because they can’t pay it. Will housing associations happily submit to being (bedroom) tax collectors and bailiffs for the sake of £15 a week?

Do housing associations want to stay special? Or do they want to be so commercial they are a private company in anything but name? Tough choices really do lie ahead.

Skilling up the board

Allied to this commercial dimension is the question of just how business savvy are associations? That’s not an easy one to judge. Interestingly, Genesis are working  with others on a new index to measure how effective housing associations are at managing return on investment – which should provide more of an objective answer to that question.

There is certainly consensus amongst the interviewees that the new opportunities available bring with them greater risks, demanding different skills in the boardroom – skills that some fear housing associations do not always possess. So, whether they can they manage risk, in what is becoming a more complex financial arena, is one of the big questions facing the sector.

There’s a lot of interest in the private rented sector for example, but it’s questionable whether it will really provide the means of cross subsidy opportunities many associations seem to be banking on.

Good leadership and clarity of thought will be absolutely crucial – and getting the right people on boards vital.

One person I interviewed asked why do boards need to be so big.  Is it essential or compulsory that there are tenant representatives?

It’s controversial. But his argument is that retailers don’t have customers on their boards. That doesn’t mean you don’t take into consideration their views, but wouldn’t it be better to have a smaller focussed group who can’t hide behind the sheer weight of numbers?

Relationships with tenants

The drive to be more commercial is also manifesting itself in a more business-like approach to tenants. Yes, associations appreciate the need to be more professional in their approach to things like repairs and maintenance. But the sector is also taking a step back and asking what do they get in return?

And are they promising things that we can’t actually afford to deliver, such as weekend repairs or or simple fixes that tenants could do themselves? Has a whole industry been created to deal with anti-social behaviour?

So we are seeing a reappraisal of some services and the emergence of carrots and sticks to encourage tenants to pay their rent and take care of the property. I see this as real notable shift in the outlook of the sector.

It was also interesting to see Family Mosaic’s approach, which is to keep rent levels low for new tenants to encourage them to train and get into work if they don’t already have a job.

Creative thinking

There is undoubtedly a wealth of innovation and creative solutions in the sector.

In the face of fiscal austerity, associations are increasingly looking to deliver social value through new types of partnerships and community services, which can also provide new development opportunities, or additional income streams.

One really exciting partnership for example is the One Housing Group and the North London Health Trust. One Housing Group is joining forces with the North London Health Trust to provide accommodation and care for people with mental health problems who otherwise would need hospital care.  It’s a real win win situation.

One Housing Group told me that it would cost the health authority £3,000 a week to house a patient on a ward whilst for a housing association is would cost just £700.If housing associations were able to house a third people with these health conditions it could save the NHS £1 billion a year.


It is a unique time in recent history of housing associations. The sector is resilient – it is after all sitting on billions of pounds worth of assets and rental income is stable, at least for now.

Fiscal austerity is nevertheless forcing associations to scrutinise the way they work, make efficiencies and adapt to change quicker than many would like.

There is certainly huge regret that providing traditional low cost housing will be rare unless grant returns. That’s not to say they won’t be building sub-market rents – buts that’s more likely to be between 60 and 80% of market rents.

As organisations become more entrepreneurial, so do the risks they run increase. As a consequence the leadership and capacity and capabilities of housing staff and board members will come under ever more pressure and scrutiny. And they will inevitably need to confront the increasing tension between their commercial minds and social hearts.

Homeownership and the 2013 Budget

Paul Hunter, Head of Research, The Smith Institute

The chancellor dedicated his budget to those who want to work hard but his headline grabbing announcements were less to do with work and more with homeownership. Property owning democracy has been a popular Conservative tune since it was coined by Noel Skelton and if the front of the Telegraph and Times are to go by it continues to be so. However, whether it will help boost the housing market, whether it will help ease the undersupply, and whether it is sustainable are all questionable.

The first of the announcements – previewed in the all knowing Evening Standard… – was the government’s continued push to reinvigorate the populist right to buy scheme. Take up over the last year (since the cap was increased to £75k) was minuscule compared with 1980s levels. This is a result of difficulties getting a mortgage (house prices have been unstable and falling in many place outside the south), the fact that many of the most desirable homes have already been sold, prices to earnings have widened and those in council housing mainly do not work (they are retired, carers, ill or unemployed). So will increasing the cap in London to 100k make a difference? Given the average right to buy price was £142k (with market value of £162k – so not many are bumping up against the £75k limit) in London the problem for many tenants who wish to buy is ability to meet the repayments, something which increasing the cap rather than percentage discount fails to address. On a 25 year mortgage the average tenant would be looking £900 a month in repayment bill – something which most tenants would struggle to meet. And the buyer would have to meet the often expensive costs of maintenance and  of course find the deposit.

This leads neatly on to the second announcement. Osborne’s homage to Thatcher came also in his Help to Buy scheme – a clever way of grabbing a headline whilst not hitting the government’s borrowing targets. The first part of the scheme for new build properties has boosted Barratt’s share price but it remains to be seen how many additional homes it will provide (is it providing discounts for people who could already buy?) and may take some time to deliver. As studies have shown on share ownership it is fast becoming a long term tenure with problems  due to the complexity of the schemes selling on the secondary market and not to mention negative equity. Too little, too late comes to mind.

The second part of the scheme (the mortgage guarantee) essentially reduces the amount someone needs to put down as a deposit in the secondary market and not just for first time buyers. In theory this could enable many potential buyers to step onto the housing ladder. However, again the problem like RTB may well be affordability of repayments and willingness of mortgage lenders to lend. If it is a success it could well inflate the housing market which many still feel should be going in the opposite direction – whilst doing little for low demand areas. And if the property market does deflate (or worse crash) we could well see homeowners losing their, albeit smaller, deposit and it would end up being a very expensive initiative for government with nothing to show for it. It is also worth remembering that it was the sub-prime lending in the US that led to our prolonged economic downturn, something which both policies seem to encourage.

These policies cost the government little now but (barring the first buy scheme which sees increased capital spend) don’t do much to enable house building something which is needed to make housing affordable for younger people and those on low to middle incomes. Whilst the budget may have been a paean to property owning democracy, it will do little to reverse the trend away from homeownership, which is lower now than it was under Labour. To achieve the goal of mass house building and bucking the trend towards the PRS would require a return to large scale grant. And that is something which the chancellor seems unwilling to consider with his eyes firmly fixed on deficit reduction through cuts rather than stimulus.

A place called home

Paul Hunter, Head of Research, The Smith Institute

The housing crisis continues to preoccupy the media and policymaking worlds. Whilst the focus has been on issues such as generation rent and chronic undersupply much of the analysis has been spatially blind. Analysis of the data, from a broad geographic perspective, shows that we are facing not so much one housing crisis but two.

The first is London based. The capital has seen house prices grossly inflated, making homeownership now beyond most people’s reach. Homeownership is almost certainly now a minority tenure in London. This is hardly surprising given the chronic shortage; in 2008 the latest figures showed that there were only 4,000 more homes than households in London. I doubt whether there is any surplus today. This (along with freely available mortgage finance prior to 2008 and high levels of foreign investment in housing as a asset class to be left empty for capital appreciation) has resulted in average house prices to earnings rising from 3 to 1 in 1997 to a staggering 9 to 1 today. This has knock-on effects for those who struggle to access social housing with the private rents eating up more and more of Londoner’s salaries. This chronic shortage has resulted in London’s house prices rising back to almost pre-crash levels.

Housing tenure, London (1991=100)

Social housing as one tenure

Source: DCLG, Live table 109

Meanwhile those outside London and the South East have seen house prices fall. A 1% fall nationally in 2012 disguises bigger drops in poorer regions. The economies in these areas have yet to pick up as they have in the South. The lack of growth added to and connected with less acute housing shortage means prices are lower and falling. This and lower wages to house prices does not in itself make homeownership difficult at the moment. With falling values banks are requiring higher deposits as collateral in these areas. For those who bought towards the end of the boom in (now) depressed regions today face negative equity which will constrain labour mobility and stifle life choices.

In short, what we have seen is housing shortages, rapidly falling homeownership, and rising prices in London. Outside the capital the picture is of struggling economies, falling prices and much higher levels of ownership. In a twenty year period London has seen a 7.5 point drop in homeownership while, barring the South East, other regions have only seen a 3 point drop.  Lower quartile house prices to lower quartile earnings in the North East are 4.5, 6 in the West Midlands and 9.5 in inner London – you would need a very redistributive (or predistributive) regime to make homeownership affordable through incomes alone in London.

What we are experiencing is not so much a housing crisis but housing crises. And, they will not be solved without accepting that the housing problem is as much about economic geography as it is about mortgage finance and ‘generation rent’.