SHAPING FUTURE HOUSING POLICY: A NEW POLITICAL ECONOMY.

DUNCAN MACLENNAN, CHAIR OF PUBLIC POLICY, UNIVERSITY OF GLASGOW; CHAIR OF STRATEGIC URBAN MANAGEMENT UNIVERSITY OF ST ANDREWS.

dm103@st-andrews.ac.uk

Source: vnhs.ca 2015

OUTLINE

1. Rethinking Housing, Systems and Outcomes

2. Changing Context and Consequences3. The New Context4. Principles for Policies

1. Housing Policies, Big Outcomes

POLICIES FOR HOUSING ACROSS THE OECD NOW • Expenditures cut• Taxation unreformed• Planning critiqued• Downloading to provinces, states and national withdrawal• Cut down scope to homelessness and the poorestAT A TIME WHEN• Housing needs estimates rising, affordability fallingAND EXACERBATING POOR BIG ’OUTCOMES’• Environmental footprints rising• Inequality increasing• Productivity flat/ Falling and instability IssuesWE NEED A NEW PERSPECTIVE, NEW EMPHASIS, THAT IS MORE THAN

POVERTY, SHELTER AND POVERTY

PRODUCTIVITY, WELLBEING FLAT

1. Housing: a Key Economic System

• A geographically fixed, durable asset with multiple attributes that shape different ‘housing services’.

• These includes shelter and space to live• Shapes access to employment and sites the family uses• Neighbourhood, locus for services, amenities, social

contact• The home is an asset and a source of debt• Homes connect us to our past and shape paths to future• The home becoming a wired hub for household activities

well beyond the neighbourhood into the global.ECONOMIC, SOCIAL AND ENVIRONMENTAL

INFRASTRUCTURE

1. Housing Outcomes

Understanding housing system significance: housing outcomes• Comprise significant share of household budgets (macro)• Housing loan/asset, finance (macro) roles• Housing (size, quality) impacts human/business capital • Location choices have spillover effects (metro, emergent)• neighbourhood choices impact human/business capital• Prices/rents ( net wealth) impact mobility, wealth,

savings, investment, welfare and social mobility.AND HOUSING PROCESSES MATTER TOO

• Planning and Design, Construction, Financing, Selling etc

1. Nature of Housing Leads to Policy Neglect

1. Capital intensive, often wish to postpone support 2. Multiple small joint effects 3. Extensive spillovers.4. Micro, metro, macro impacts and interests: multi-

perspective5. Multiple levels of Government as well as multiple portfolios:

Local, metropolitan becoming critical level.

SHAPES A COMPLEX POLITICAL ECONOMY OF BUREAUCRACIES, LOBBIES, MULTIPLE INTERESTS NOW FAILING TO GET

TRACTION. HOW DIS WE GET HERE? HOW, WHY SHOULD WE CHANGE THIS

After 1995, two different decades, Long boom (until 2007)• Rising real middle/ upper incomes, grows ownership• Facilitated by mortgage market deregulation; overall rate boosted by ageing

population (important e.g Canada, UK)• Wage inequality increases rental pressure for poor and young: origins of

Generation Rent (housing, pensions, education and environment)

Housing Policy communalities (Washington consensus)• Public housing hits the wall: Selling,Transferring, reduced investing • Promotion of different approaches to affordable (owning, non-profit)• Emphasis on ownership growth but age specific rates already falling• Public capital on housing, and sometimes supporting infrastructure reduced• Switch from dwelling to person subsidies,new concerns about welfare budgets• Value of implicit tax subsidies rises:Inattention to supply side policies

HOUSING POLICIES LOST TRACTION (EXCEPTIONS)

2. POLICY CONTEXT: OECD AFTER 1995

Broad (Housing Policy) Shifts of Long Boom• Increased domestic cyclical instabilities• Underpinned, directly, the GFC and• The immediate downturn• The subsequent recessions• New austerity anti-public debt culture

• Increase income and wealth inequality (Generation Austerity)• Facilitated rentier economies (Generation Rentier)

Created a political economy dominated by home owners, elderly, suburbs rather than city cores,

renters and the poor.

2. HOUSING POLICY, GLOBAL CONSEQUENCES

2. Wider Policy Outcomes

POLICY AIMED AT MAXIMISING OWNERSHIP RATHER THAN EFFICIENCY. OUTCOMES? AN ARGUMENT:• Financial deregulation, unreconstructed planning ystems• Demand not supply emphasis raises real house prices, taxes

capitalised• Increased cyclical instability (boom and bust)• Subsidy inequality raises housing wealth inequalities and

disposable income inequality: intergenerational issues• Has arguably lowered productivity and facilitated a rentier

economy (Piketty)

2. CORE ISSUE

PROPOSITIONWE ARE DEALING WITH REAL HOUSE PRICE INCREASES

UNRELATED TO PRODUCTIVITY GAINS. THIS IS A CENTRAL POLICY PROBLEM OF THE OECD ECONOMIES SIMILAR TO THE WAGE

INFLATION CRISES OF THE 1970’S. GOVERNMENTS FIDDLE WITH AFFORDABILITY AND HOMELESSNESS SYMPTOMS WHEN THIS

HOUSE PRICES ARE THE CRITICAL, DIFFICULT ISSUE OF THE TIMES. KEY HOUSING MARKET OUTCOME DISTORTS THE ECONOMY

REDUCING PRODUCTIVITY AND INCREASING INEQUALITY. HOUSING POLICIES SHOULD BE ABOUT REDUCING INEQUALITIES

AND RAISING PRODUCTIVITY, NOT VICE VERSA. LET US ASSESS, IN CANADIAN CONTEXT.

HOW SHOULD WE THINK ABOUT HOUSING CAPITAL?

3. Housing Capital in the 21st Century

Piketty (2014) a starting point• Empirical, rising income and wealth inequalities• Conceptual, returns to capital exceed productivity growth• Approach, Political Economy.• Policy: poorest part of work• Contrast Stiglitz, Atkinson (focus of labour markets, education)

• Recognises key role of housing wealth in raising inequality• Also raises income inequality by rising rents

• Drives a rentier rather than creative entrepreneurial economyPIKETTY NEEDS HOUSING IN HIS STORY, AND WE NEED HIS

INEQUALITY-GROWTH PERSPECTIVE IN OUR POLICY LOBBYING AND DESIGN

3.CHANGING HOUSING CAPITAL CANADA

3. CANADA AND HOUSING WEALTH

3. OWNERSHIP RATES, PRICES, INCOMES.

Average house prices in Halifax have increased, since 2007, at an average increase of 3.7% pa compared to the consumer price index which shows an average increase of 1.7% from. Average market rents have been steadily increasing from 2001 to 2014; increasing by 48.6% in 2001 to $936 in 2014. Vacancy rates have been increasing; increasing from 2.4% in 2011 to 3.8% .

3. Canadian Wealth Changes 1999-2012 (Statscan)• Average net worth of Canadian families increased by 73% in constant 2012 dollars. • 80% increase among families in the top income quintile, and by 38% among families in the

bottom quintile • In 2012, families in the top income quintile held 47% of the total wealth, compared with

45% in 1999.• Families in the bottom income quintile held 4% of the overall net worth in 2012, compared

with 5% in 1999. • Families in the top income quintile gained $2.02 trillion, largely because of increases in the

value of employer pension plans and other non-real estate assets. • Real estate assets as a proportion of total assets rose from 34% to 40% among families in

the top income quintile, and from 46% to 57% among families in the bottom income quintile.

• In both 2012 and 1999, between 3% and 4% of Canadian families had low income and no wealth. Younger families, the recently immigrated, lone-parent families and unattached individuals were more llkely to be in this situation

INCREASES INEQUALITIES OF WEALTH VERSUS RENTERS, AND INCRESES INCOME INEQUALITIES FOR RENTERS TOO

3. INCOME INEQUALITIES

3. RISING PRICES, FALLING AFFORDABILITY

In 2011, 25.3% of households in Halifax spending 30% or more of their household income on housing costs and 11.8% were spending 50% or more. A greater proportion of renters were facing housing affordability issues compared to owners (42.7% vs. 15.0%).

4.HOUSING AND ECONOMYAngel-Gurria, OECD Secretary-General, 2015.

• Nearly 40 per cent of Canadians now live in cities where house prices are “seriously or severely unaffordable,” based on international comparisons• 40 pc of renters and 20pc of owners spend over 30pc of pretax

income• Vancouver now more unaffordable than all except Hong Kong.• Toronto is pricier than New York and Tokyo, and just narrowly

behind London. • A shock to even one segment could have spill-over effects to

the broader economy if banks respond by tightening credit significantly, or if negative wealth effects depress consumption

• Taxpayer exposure to the costs of mortgage insurance are high

4. IMF ESTIMATES OF OVER-VALUATION PRICES

4. Housing and Economy

ECONOMIC EFFECTS MEAN Housing policy spending is not simply ‘displacement’• Short run multiplier effects• Instability and equity withdrawal (BTL)• bubbles (OECD, IMF) fear• need this at metro, Province and macro scales

Macro-monetary response becomes adverse for less pressured regions: BOC position problematic.

BUT THIS NOT THE END OF THE ECONOMIC STORY…..

4…… And ProductivityLong term effects on growth and productivity• Housing quality: child learning adult health and absence• Housing space, connectivity: home business• Neighbourhood: small business, creativity, teenager peer groups• Wider structures: travel cost, labour market mismatch• Price and rent effects• Disposable incomes and other consumption• Investment in education and small business

WELL DESIGNED, LOCATED AND PRICED HOUSING IS ESSENTIAL ECONOMIC INFRASTRUCTURE

A short renaissance of housing investment as stability policy (2008-2011) followed by• Redefinitions of affordability; scrutiny of new

mortgages (LTV, LTP)• Tax and guarantee schemes for owners, silent

second mortgages: equity sharing• Drove rental market investment to smaller

investors, expanding, changing rental sectors• Reduced social investment, new roles NFP’s• Trimming of welfare payments• Policy neglect of growing market rental sectors

WHERE ARE THEY NOW HEADED. ?

5. NOW A NEW HOUSING CONTEXT

5. AGE SPECIFIC OWNERSHIP RATES FALL FOR UNDER 45’S FROM 1981 OWNWARDSFALL FOR ALL AFTER 2006, SHARPLY FOR UNDER 55’S

5. NOT JUST AUSTRALIA: USATD STUDY 2015

5. WELCOME HOME KIDS! USA (TD STUDY 2015)

6. NEW ZEALAND

5. Market rental; Who are Landlords

Majority landlords in Australia ( and UK, Norway), cf Canada, US• Small, 1 and 2 properties (some quite poor)• Buy-to-let, extension of house price booms (price rises important

in overall returns)• Savings and retirement strategies, alternatives• Need liquid investments: controls problematic

• Larger, Professional (compete with non profits)• Better management, lower cost of finance• Focus on rental income certainties (more stable)

• Growing non-profit subsidiaries interestA COMPLEX SERIES OF NICHES, SUBSIDY AND TAX ISSUES IMPORTANT

BUT AN EXTENSION OF SPECULATION PROCESSES RATHER THAN MARKET EFFICIENCIES (MAKING A PROFESSIONAL SECTOR?)

5. RENTAL MOSAICS: CONSUMERSTenure Choice Models (often cross-sectional) shows rental choice reflects• Mobility needs, transaction costs, uncertain jobs and relationships• Immigrants, and refugees• Lower disposable incomes (cannot afford capital repayment: credit-

worthiness; family deposit capacity; lower quality, filtered down)• Age-career stage (uncertainty job trajectories, relationships etc)• Equity extractors (elderly)• Short term expected price and interest rate changes (bears)• Policies (tax, tenure based income supports etc)

CONTEST DIFFERENT SUBMARKETS WITH TIGHTENING SUPPLIES TO 2014 THE BURDENS OF SHORTAGE FALL

DISPROPORTIONATELY ON THE POOREST HOUSEHOLDS

5. Supporting owners

Continuing commitments to ownmership growth. Question of balance; despite more ‘secure’ lending rules• Unreformed tax systems• Hidden second loans• UK loan garuntees for new buyers (and social)• Equity sharing products• Using land supports• Social security extended to homebuyers• Disposal of public housing at discounts (see JRF report)• Reform of planning, new ‘new towns’

5. Social Sectors• New management incentives, audits, contestability in

contracts• Getting investment off balance sheets• Redirecting new investment to non-profits• Selling to tenants• Selling to the market ( vacant possession, almost always)• Non-profits with wider housing and neighbourhood roles• Non-profits with for profit activitiesREALLY CHALLENGES THE ORGANISATIONAL STRUCTURES, SCALES AND ORGANISATIONAL CAPACITIES OF NON-PROFIT PROVIDERS.

• Strongly ideological, both support and opposition: conflates views on ’good thing’ and ‘good system’.

• Near absence of economic thinking in planning• Lack of evidence re renting, attention in housing and strategic land use

planning• Little real sense of what sector is, how it functions and how it is changing:

this remains the case in the ‘Generation Rent’ debate• Attention to distributional ‘social mobility consequences• Need informed, nuanced approach• Need to act fast as urgent pressures impact poorest

RECOGNISE LIMITATIONS of INTERVENING IN A DIVERSE, CHANGING SECTOR UNLESS WELL EVIDENCED, NUANCED

AND MULTIPLE INSTRUMENTS

6. WHAT PRINCIPLES FOR INTERVENTION

National Policy Requirements• Housing assets and regional perspectives in macro policy• Pre-eminent attention to an efficient housing system and

rental role within it (not simply more ownership)

• Housing as critical infrastructure ms

• Tax reforms

• Cross tenure income related supports

• Cross sectoral subsidy contestability

• Accelerate change in the public housing system (driven by state producer interests)

• Active , secure, mortgage market regulation

6. POLICY APPROACHES: NATIONAL OR FEDERAL ROLES

• Coalitions of consideration• Real, economic, housing, strategic plans• Appropriate owner-renter balance• Balance of social, mid-market and private market (allowances)

support; • Contestability of subsidy for non and for profit sectors • Positive role, inclusionary zoning and masterplan renewal • Metropolitan rental investment fund: REITS, SRS, Federal and

provincial• Policy linkage to exit routes to long term choices

6. A Metropolitan/State Housing Sector Strategy