La Belle France

The unrelentingly grim tone of political and economic announcements recently led me to read about the French Revolution to cheer myself up. I've always had a fascination with the upheavals of 1789-94. In just five years (the usual gap between elections now) the whole country was turned upside down, torn apart, and built back up by war, terror, and astoundingly prescient ideas. Paris must have been a simultaneously horrifying and astonishing place to be during those years of upheaval.

The tenuous link that this has to UK housing policy is found in the demographic layout of Paris, focal point of the revolution centuries ago. Unlike London, which has pockets of social deprivation in close proximity to the richest areas of the central business district, Paris has a donut of deprived suburbs around a wealthy centre. With housing benefit cuts and changes to social housing, this structure will be rapidly replicated in London. Although given the scale of benefit cuts, those reliant on them in central London may need to move much further afield than the still-costly outskirts, and/or resort to deliberate overcrowding.

Minister of Decentralisation (surely one of the most oxymoronic titles ever) Greg Clark mentioned this in his recent speech to launch the government's White Paper on 'local growth'. He said:

'...even in the wealthiest areas, there remain significant pockets of unemployment and deprivation. Whatever the differences in economic performance between broadly defined parts of the country, the differences between different towns and neighbourhoods are also often great. Tower Hamlets, in the shadow of Canary Wharf, has three quarters of children growing up in low-income families.'

Mr Clark has successfully identified the problem of inequality, which has many complex economic & social causes, and without sustained and significant intervention perpetuates itself. However, he then veers into a character-assassination of Regional Development Agencies followed by a massive plug for their successors, the Local Enterprise Partnerships. Both RDAs and emerging LEPs focus on economic development, and I very much doubt that reducing poverty within areas the size of Tower Hamlets falls within their remit. Which is not to say that the government is doing nothing to tackle poverty in the shadow of Canary Wharf. The changes to benefits and social housing will move this poverty outside central London so that those working in the City won't have to look at it anymore.

You might wonder why London shouldn't become more like Paris. Unfortunately, confining poverty to the outskirts of the city hasn't always worked out well. The 2005 riots were centred on the poor suburbs of Paris, expressing frustration at high levels of unemployment, entrenched poverty, and racial tensions. That unrest had been simmering for decades before violence erupted. In London there will be huge internal migration of those in poverty over the next three years; the low-paid, unemployed, elderly, disabled and carers forced to uproot and resettle elsewhere. This will inevitably cause some tension, although historical comparison suggests that we have a much more sanguine approach to displeasure with the government on this side of the channel.

More seriously, the reason that housing benefit cuts will bite hardest in London is that it's disproportionately economically successful and lacking in housing supply, resulting in extremely high housing costs. The government's rhetoric is entirely focused on reducing the deficit, brushing aside the ideological questions at stake. Should the public sector subsidise people so that they can live in London, or let the market lock all except the highly paid out? What are the social benefits to communities with mixed levels of wealth; economic dynamism due to ease of recruiting for lower paid jobs, less wasted time and energy commuting, improved social cohesion as different groups mix? What are the disadvantages of London as it is; dissatisfaction stemming from the proximity of poverty and wealth, perceived unfairness of housing benefit, potential driving up of rents? Although replicating Paris' donut model would reduce housing benefit costs, would it increase public expenditure in other ways by moving people away from jobs, requiring greater spending on Job Seeker's Allowance and transport?

Have the government silently dropped their responsibility to try and alleviate poverty, or at least not make it worse? It really concerns me that they don't seem to be acknowledging any of these questions, let alone trying to answer them.

Strangely enough, given the choice I'd prefer to live in Paris than London. Not for any rational, statistically-supported reason - I just like it more.

Youthful high spirits

As a distraction from the scary labour market, I've been considering the housing market prospects for me and the rest of today's youth. This is akin to distracting yourself from an earthquake by setting off a small nuclear bomb.

I recently came across an article in the Independent's money section about a young woman called Eloise wanting to buy her own home. Eloise earns £22,350 and has savings of £1,000. She would like to buy a two bedroom flat in London, or maybe Bristol, and wants her financial decisions to be ethical, although I'm not quite sure what that means in this context.

I'm sorry Eloise, but I read this article and burst out laughing. SERIOUSLY? You really think that on those wages and with such paltry savings that you can afford to buy so much as a shed? Wake up and smell the coffee. In Cambridge, which is cheaper than London, I would need to earn £40,000 and have a £50,000 deposit in order to buy a two bedroom flat.

My generation, the twentisomethings renting at the moment and thinking it might be nice to buy one day - we are screwed.

We rent poor quality homes at at high cost, and are treated badly by rental agents and landlords because they can. They will continue to do so, and rents will rise with demand.

We struggle to save for the 25% deposits needed to buy a home. Low interest rates erode the value of our ISAs and our jobs look insecure, if we're lucky enough to find and keep one. Rates are expected to stay low for the next two years.

We attempt to repay our student loans, whilst glowering at our parents who got their degrees with no fees and generous grants. The interest rates of these loans are going up to 4.4% in September from the current 0%, and that's before the student loan company is privatised (as announced in the June budget).

We can't get social housing, because there isn't enough to go around and established families get precedence, reasonably enough. Funding for building more has been slashed and burned, and targets torn up.

We can't get mortgages, as we're seen as too much of a credit risk and don't have vast deposits. Introducing caps on mortgages has been suggested and returning to the era of easy mortgages would be highly unwise, given that unwise lending caused the downturn in the first place.

We can't find housing that fits our needs, because developers are building tiny rabbit hutch flats to store us in, and we're priced out of the few decent-sized houses that exist. UK new builds are the smallest Europe, reports the Commission for Achitecture and the Built Environment. Even the Daily Fail says so!

We simply can't afford to buy, as the gap between wages and property prices continues to gape wider and wider and youth unemployment rises inexorably.

I am not particularly happy about this, and doubt that anyone else in my demographic group is thrilled either. I certainly don't consider myself entitled to own a palace at the age of 25, but do think it reasonable to have a well-maintained home that I can feel secure in for more than six months.

The likely result of the coalition's so-called housing policy is this: the house price bubble will return in South, pushing up rents further. This is at a time when housing benefit has been capped and other benefits decoupled from housing cost inflation. Homelessness will increase. Mortgage availability, especially for first time buyers, is not about to get better. Employment prospects are poor and taxes rising. Last year, 75% of new housing starts had some form of government subsidy. Despite this, very low number of houses were actually delivered. With this support severely cut, the number of new houses built is already falling and will fall further. So prices will continue to rise, supply will continue to lag, ad nauseam, until the whole East of England falls into the sea in 2054.

Things aren't completely hopeless, though. Here are my suggestions for improving the state of the housing market.

1. If the coalition aren't going to have a housing policy, they should get rid of the post of Housing Minister. This accords with their drive to get rid of bureaucratic non-jobs.
   
   
2. Tenancy law needs to be reformed to make private rental more humane. Look how Germany and much of the rest of continental Europe manage it: longer tenancies, more rights for tenants to match their responsibilities, less of an assumption that home ownership must always take precedence. Implementing the recommendations of the Rugg Review would be a start.
   
   
3. Second homes & buy-to-let should be penalised through the tax system, rather than supported. This may seem unfair to those just trying to invest for their retirement and so forth, but I believe it is necessary. It surely isn't justifiable to have millions of homes standing empty, when so many people are homeless, overcrowded, or housed unsafely.
   
   
4. The planning system is in need of reform, as it cannot achieve what it needs to in the 21st century. However, reform needs to happen in a measured way with full consultation with actual planners, rather than abolishing bits at random and expecting Local Authorities to keep calm and bugger on somehow. (There will doubtless be a future post on planning and its current state of chaos.)
   
   
5. The government needs to investigate and regulate oligopolistic behaviour in big developers and house-builders, including land-banking, with the aim of introducing a bit more competition into this sector. Other countries manage to build more and quicker, in part thanks to a much more dynamic and competitive building sector.
   
   
6. It would be helpful to streamline compulsory purchase powers, which assist Local Authorities in building their own social housing by letting them grab unused land. The major cost of social development is the land, as the public sector is priced out by developers who can realistically expect 25%+ profit margins.
   
   
7. The UK needs a culture change from the tired old adversarial planning system. I'm sure that more competition in the building sector would help with this. We might then be able to follow the Netherlands' good example and try public & private sector joint ventures to build new homes.
   
   
8. Everyone needs to think differently about housing. A roof over your head is a right first and foremost, and an investment second. Likewise, we should stop thinking of a home as synonymous with ownership. If private rental was reformed and social housing more widely available, views should evolve accordingly.
   
   
9. The planning system should make room for different kinds of homes as well as different tenures - canal boats, caravans, yurts, treehouses, old train carriages, hobbit holes, etc. Not everyone wants to live in a brick box, and it certainly isn't positive for the environment to force everyone to do so.
   

My current preference is for a yurt, after staying in one for a weekend's holiday. It would certainly cost quite a bit less than that elusive two bedroom flat.

Age of Asperity

David Cameron says we are entering an Age of Austerity. Grant Shapps, our Housing Minister, says we are entering an Age of Aspiration.

Austerity + Aspiration = Asperity, defined by dictionary.com thus:

1. harshness or sharpness of tone, temper, or manner; severity; acrimony: The cause of her anger did not warrant such asperity.
2. hardship; difficulty; rigor: the asperities of polar weather.

That seems very appropriate. Mr. Shapps' speech deserves further comment, as it was the first that he made after being appointed, and offers a helpful insight into the government's attitude to home ownership.

Now, my predecessor famously said that falling levels of home ownership were 'not such a bad thing'. I've asked RICS to host this event to make clear from the outset that I believe that home ownership is a very good thing. In fact I will work every day to help people achieve their aspirations to own their home.

Of course I am not arguing that everyone should somehow aspire to home ownership. Renting a home can be a positive and flexible choice. And social housing provides a sense of security for millions of families. I am simply saying to those who aspire to own their own home -

This Government will support you
You will not be ignored
The age of aspiration is back!

Does this sound familiar to anyone? Say, from the last Conservative government? Is it really the case that homeowners have been 'ignored' by policy-makers recently? And, in the aftermath of a house price bubble that nearly brought down the world economy, is it really sensible to announce that the 'age of aspiration' is back?

But wait, there's more! An explanation of how the new minister will support these aspirants, perhaps....

The best thing we can do for the all-important First Time Buyer is to get the economy back onto a sound footing... [cuts, cuts, cuts]

Borrowers will need to demonstrate financial responsibility and show that they can sustain homeownership.

In return lenders will need to support creditworthy homeowners. I know the housing market is still fragile but we in Government will do all we can to help.

Here we hit a contradiction. At the moment, banks aren't providing many mortgages, because they lent too easily before and the resulting mayhem nearly brought them down. The levels of mortgage lending pre-September 2008 were unsustainable, and should not be repeated. Of course, this means that some people who might want to buy a house cannot borrow money in order to do so. Likewise, the comment about financial responsibility is all very well, but in an environment of rising taxes, job insecurity, and extremely low interest rates on savings, that's much easier said than done.

In case of worry that the government is doing nothing:

The Coalition Government has also agreed to promote shared ownership schemes and help social tenants and others to own or part-own their home.

Since the new government got in, hundreds of millions of pounds has been cut from the very budgets that pay for shared ownership and social housing, for this year alone. Indeed, after making this very speech, Grant Shapps ad-libbed 'the cash for affordable housing has run out'.

You can't square this circle. The government is saying that as many people as possible should aspire to buy a home, but it won't help them do so. Aspiration without any ability to realise your wishes just leads to frustration. I can scarcely think of a less appropriate time, except perhaps November 1929, to deliberately raise people's expectations in this way. This speech also supports my previous comment that the new regime is entirely indifferent to private renters.

Now, a quick tour of owner-occupation at the moment. About 70% of households own their home. This proportion had been rising for the past few decades, but now seems to have peaked and is starting to fall.

The world of house prices is a mysterious and murky one. Pre-credit crunch, commentators agreed that they were rising, and by roughly how much (a lot). When the crunch hit in September 2008, housing transactions fell by more than half and have yet to recover. This has shown up the previously not noticable differences between the way mortgage lenders, government and independent organisations measure price changes. I won't go into the details, because they're very dull, but there's wide confusion about whether prices are going up or down.

The easiest answer is both. As usual, the South of the country is recovering faster than the North. Overall, prices seem to be creeping up again slightly. My guess is that property is seen as a safe investment in risky economic times, with reason given the long-term structural undersupply of housing. Incidentally, the average age of a first time buyer is currently 37.

The affordability of buying a house is measured by taking the ratio of average earnings to average house prices. The benchmark for affordability is generally 3.5 or 4:1. It's still realistic to get a mortgage at that level now, provided you have a deposit of 20-25% of the purchase price of your new home and an impeccable credit record, of course.

Ratios are well above this throughout the South of the country, despite falling since September 2008. Take Cambridgeshire. The least expensive district in this county to buy a house is Fenland, with a ratio of 4.7: 1 (February 2010). Almost affordable. The most expensive, unsurprisingly, is Cambridge, with a ratio of 8.7:1. In the very centre of the city, where the most sought-after housing can be found, the ratio exceeds 12:1. Remember, average earnings in Cambridge are much higher than in Fenland, but the ratios show that house prices are an order of magnitude greater still.

The Cambridge News recently led with the following headline: City house prices soar £60,000 in just a year. The vastness of this increase, 26% up on 2009, conceals the fact that transactions have fallen by more than half. The people still shopping for houses are not first time buyers, and they're purchasing high-end. Whilst one-bed flat transactions are down by about two thirds in two years, four bed houses are showing only a quarter fall in the same period.

In short, if you live in the South of England, especially Cambridge, and don't already own a home, the chances are that you won't be able to afford to buy one. But don't forget to aspire.