Housing: What Crisis?

Alex Marsh
School for Policy Studies
University of Bristol

November 2015

Housing: What Crisis?

Introduction1
We meet at a time of great uncertainty for housing policy. Not only is the Housing and Planning
Bill making its way through the Houses of Parliament at the moment but there are rumours that
the imminent CSR may present us with further challenges. In particular, it has been suggested
that the Chancellor may further cut Housing Benefit as a means of dealing with the political
obstacles he faces in delivering his promised cuts in tax credits. There have also been suggestions
in the housing policy community that the Chancellor may be considering increasing the enforced
reduction in social rents from 1% to 2% per annum. That way lies carnage.
We meet at a time when the Liberal Democrats' new party leader seems to be getting into his
stride. Tim Farron has made housing one of his central priorities. He has spoken eloquently of
the importance of stable and affordable housing as the foundation upon which to build a life.
Good quality housing offers the platform for realizing potential. Housing impacts positively or
negatively - upon almost all aspects of our economy and society.
We meet at a time when it appears that sentiment is shifting. We are seeing clear signs not only
that the significance of the housing problem is being more widely accepted, but also acceptance
that action will need to be taken. At least some of those who are themselves wealthy and well
housed are recognising that their children and grandchildren are struggling. There is, I think, a
growing acknowledgement that those situations are related.
There is no single UK housing market. London is different, we know. But it casts a long shadow
over the rest of the country. Prices rises there radiate and ripple across the country, affecting us
all directly or indirectly. There is no single housing market but many interrelated local markets.
And there is no single housing problem. We face many interconnected issues. That is why we
need to think systemically about housing. And we need to think beyond symptoms to causes.
Some of those causes are local: things we can do something about at our level. But some of them
are most definitely not local: solutions lie a long way out of our reach. So for us, and for now,
some of what we are about is attempting to ameliorate symptoms, while continuing to press
those who can act on a broader scale and a bigger stage to address the causes.
I want to discuss our current housing problems under six headings.
1.

Access and affordability

The issue that dominates housing debate is the inadequate supply of new housing. In the owner
occupied sector high prices relative to income are taken as a key indicator of a housing market
out of equilibrium. Housing supply consistently falls short of the level estimated as necessary to
This paper is a modified and amplified version of a presentation given to South Gloucestershire Liberal Democrats
on 20th November 2015.
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meet the housing needs of a growing population. This is seen as at the root of our housing
problems. Constrained supply in the face of growing demand can only lead in one direction
increasing competition for scarce resources which pushes up prices. Increasing supply is
identified as the route to dealing with access and affordability problems.
We see, for example, that the recent West of England SHMA is proposing that we should plan
for 85,000 new dwellings in the sub-region between 2016-2036. This includes a chunk of
properties aimed at remedying the shortfall in provision over the last four years.
In policy circles the principal culprit in this story of inadequate supply is the planning system
overly tight constraints on land designated for development, including treating the Green Belt as
sacrosanct, and a planning system that capitulates too easily to the NIMBY tendency.
Planning is surely part of the story. We certainly need to look more critically at the Green Belt.
We must accept that while some of Green Belt land is absolutely worth preserving some of it
could be more productively used for housing. Society overall would benefit as a result. One key
challenge in tackling the Green Belt issue is doing so in a way that instills confidence: confidence
that it is genuinely motivated by seeking societal benefit, rather than rampant profiteering.
But planning is only part of the story. We need to look at the whole of the housing supply
system, as I've said many times on my blog. It is noticeable that the nature and operation of the
house building industry is starting to attract more attention. The profit maximising strategies of
players in an increasingly concentrated industry are being questioned: how much do they
contribute to the shortfall in new supply? Claims that the industry is highly competitive, and
hence this can't be an issue, are, I think, being treated with greater scepticism.
The issue of the quality of newly built properties has received less attention than it merits. Poor
quality building arguably does less than it might to address the shortfall in supply. We also need
to think about housing supply as a question of stewardship. Everything that is built now needs to
have a useful life of decades. There is little point pursuing numbers via deregulation at the
expense of adequate quality. The all-out pursuit of numbers was the mistake that governments
made in the 1960s social housing boom. We are still dealing with the consequences.
The debate over housing supply is yet to expand to encompass the functioning of the land
market. Land reform is a big issue in Scotland, for specific reasons. You get the sense things are
slowly edging in a similar direction south of the border. Or perhaps that is wishful thinking.
One of the positive moves on housing supply since 2010 is the attempt to boost smaller-scale
builders and aid the identification of land parcels suitable for residential development. One of
the less positive things the current government is doing is expanding the definition of affordable
housing under s106 to include discounted starter homes for those under 40 years old. That gives
developers the discretion they need to avoid building any social rented housing at all.

2.

Distribution

A radically different perspective on the shortage of supply is gaining ground, in academic circles
at least. The starting point is not the poor performance of the housing supply system but the
utilisation of the existing housing stock. The argument was first and most prominently advanced
by Danny Dorling of Oxford University. Danny makes the point that there are enough rooms in
our housing stock to accommodate the number of people in the population. The issue is the way
in which these rooms are distributed. There has been a significant increase in the inequality of
the distribution of rooms, as a recent paper by Rebecca Tunstall of York University illustrates.
The most generously housed 10% of the population now occupy or rather underoccupy properties at a rate of five rooms per person. The bottom 10% have access to, at best, one room
per person.
If we think the housing stock is underutilised, how do we improve its distribution? If
underoccupancy were mostly concentrated in the social housing sector then the government has
proved ready and willing to intervene with the aim of 'improving' the situation, in respect of nonpensioner households at least. But underoccupancy is more pervasive, and more extreme, in the
owner occupied sector. No policy that compels households to leave their homes is likely to be
seen as politically feasible or desirable. So the issue becomes how households might be induced
to move in order to align their housing consumption with their current housing needs.
The use of an extended range of council tax bands is one possibility: higher rate bands which
have some significant steps up for high value properties could encourage underoccupiers to
reflect on whether they wish to continue to consume so much space. Given that we are often
talking about mature households and empty nesters there is also a case for looking locally at the
provision of age appropriate housing or lifetime homes and at mechanisms for assisting mobility
in older age. Some people are concerned about moving because they worry about both the hassle
and the possibility of being ripped off. There would also be a case for looking at transaction
taxes, to ensure that trading down in retirement released sufficient resources to make it
financially worthwhile.
These sorts of mechanisms are likely to make a positive difference to the allocation of property,
but are unlikely to deal fully with the distributional issues, if for no other reason that disparities
in housing consumption are in part simply a reflection of underlying disparities in income and
wealth.
A focus on distribution and redistribution does not deny the need for new house building,
because we know the population is continuing to grow. But it argues that building new housing
is not the only or necessarily the primary means by which housing need can be met. When
building occurs it needs to be of types and in locations that work with the grain of the housing
system and enhance geographical and social mobility.
3.

Credit

Our liberalised credit system significantly exacerbates house price volatility. While insiders might
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claim that the reforms to the global financial system over the last seven years have done enough
to stave off the type of crisis we experienced during 2007-2008, there is more than one type of
crisis. And critics would argue that reform has gone nowhere near far enough. Reform of the
financial system has barely touch some of the most problematic underlying incentive issues, for
example. And government responses to the economic downturn following the GFC in
particular the extensive use of QE have given house prices further momentum and encouraged
more reckless behaviour by investors in the search for yield. The Bank of England now has
greater powers to engage in macroprudential regulation. While embracing macroprudential tools
has become a popular policy response internationally since 2008 we are still in a phase of policy
experimentation: we are still discovering just how effective- or not - such powers and tools are.
We have a system in the UK where a large majority of bank lending goes on property rather than
productive activity, and something like 80% of the value of all the UK's tangible assets is tied up
in inflated property values (both residential and commercial). This is in no way a sensible basis
for an entire economy. Yet meaningful strategies to move the economy on to a more sustainable
basis are lacking. Indeed, many of the tentative steps taken by the Coalition government of 20102015 to try to build more areas of genuine economic strength in the real economy are being
erased by Conservative budget cuts since May 2015.
It seems inevitable that there will be a house price downturn some time soon. The current
situation is unsustainable. To my mind there follow at least two questions.
The first question is whether the downturn will be a soft landing or a crash. Few pundits foretell
a crash. They mostly weren't doing so in 2005 and 2006 either. Then they were talking about a
softening of house prices and a soft landing for the market. Yet such a view of the way our
housing system operates rather ignores previous experience. A market sustained largely by
unrealistic expectations and ultra-lax monetary policy is eventually going to fall off the edge of a
cliff when positive sentiment evaporates.
When we ask Housing: What Crisis? one part of the answer is that we face a crisis delayed.
There are many hundreds of thousands of households relying in near-zero interest rates and/or
interest-only mortgages to keep the roof over their heads. They are being protected by this
extraordinary policy environment. As and when interest rates finally move north and prices
move south it will generate considerable distress.
The second question is how much further the process of rapid tenure transformation that we
have witnessed over the last decade will have proceeded before the downturn arrives.
4.

Tenure transformation

The most striking change in our housing system over the last decade among a range of striking
changes is the revival of the private rented sector. The sector has effectively doubled as a
proportion of the housing stock in Great Britain since the turn of the millennium. It has not
simply increased in size but changed its role in the housing system. It now houses a wider range
of households, including a significant number of families with children. A million children now
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live in households that rent privately. These are people who would previously have been housed
in the owner occupied sector but who are unable to access home ownership.
Some are people who may well be able to service a mortgage at prevailing interest rates. But they
struggle to assemble an adequate deposit and/or are being outbid by cash buyers of second
homes and investment properties to let. The underlying change in the distribution of wealth is
allowing those who already have to acquire more. This is self-reinforcing process. As prices are
pushed up by those seeking to use housing as an investment rents are pushed up further. This
means that renters face a reduction in post-housing cost income and an even bigger struggle to
assemble a deposit. Changes in the supply of private rented housing are creating their own
demand.
A key point here is that this move to greater reliance on private renting has not been
accompanied by significant changes in tenancy terms, in England at least. More households are
living with the minimal security offered by a six month assured shorthold tenancy. Households
who would like to settle and put down roots are unable to. Regular relocation can disrupt
schooling and mean that children are unable to realize their full potential. We know that ending
an assured shorthold tenancy is a growing cause statutory homelessness in England. As and
when there is a housing market downturn there is a risk that distress among private landlords will
very rapidly be transmitted to distress among private (ex)tenants, given their relatively limited
security of tenure.
A second key point is the need to understand developments in the private rented sector in
context. The attractions of housing as an investment have to be seen in the context of the poor
returns on other classes of asset. If policy makers want to do something about diverting
investment away from housing then it isn't just about reducing the attractions of housing it is
also about thinking hard about alternative, credible, trustworthy investment vehicles that deliver
comparable - or at least plausible - returns. Without that, housing will continue to dominate
thinking. The other contextual point is the relation to social care funding. The safety net
provided by the welfare state is increasingly threadbare, if not totally shredded. It is perfectly
understandable for people to invest in housing and seek to maintain the value of their assets if
they believe they are going to be needed to pay for care in older age. The uncertainties in this
area are huge, particularly following the postponement of the Dilnot reforms to cap individual
contributions to social care funding. And that uncertainty is almost entirely policy-generated.
A third key point is that the private rented sector is the most flexible part of the housing system
and can absorb increases in demand in a number of ways. It can lead to rents being pushed up.
But it can also lead to increased subdivision of properties, increased sharing and increased
overcrowding. These trends are all evident in high pressure housing markets at the moment.
At the tail end of the Coalition Government two potentially important housing-related moves
occurred.
First, legislation was passed to make retaliatory eviction unlawful under particular circumstances.
Retaliatory eviction has been a campaigning issue in the private rented sector for many years.
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Tenants have been unwilling to complain to their landlords for fear of losing their home. The
legislation is a positive move. If a tenant complains to their landlord about disrepair, for
example, as long as the complaint takes a particular form loosely, that it can be demonstrated
that the complaint was submitted in writing/via email then that gives the tenant some
protection against the landlord serving notice to quit instead of dealing with the complaint. But
this legislative move is perhaps less widely known than it should be. This is a new resource for
tenants to draw on in asserting their rights.
Second, DCLG issued new national minimum room standards in an attempt to ensure that
dwellings remain livable. This is the first time we've had national standards since 1980 when the
Thatcher government abolished the Parker Morris standards for social housing. This is again a
positive move, but two issues follow. The first is whether local government has the resources to
enforce these standards in the new and existing stock. The second is the perennial concern that
enforcing minimum standards will, in high pressure housing markets, force some households out
of the market entirely because they don't have sufficient resources to secure even the regulated
minimum. This takes us back to the question of incomes.
5.

Welfare reform

The welfare reforms introduced by the Coalition Government contained their own horrors. The
rebasing of local housing allowances, the constraints on uprating, localisation of council tax, the
so-called 'bedroom tax', the overall benefit cap at 26,000: they all substantially increased
financial strain for some of the poorest members of society. Under a rhetoric of fairness, policies
impacting negatively on some very large groups of poor people and policies impacting on some
very specific groups of vulnerable people were implemented. Claims to the right to assistance
were challenged and frequently denied.
But in the short term many people coped. It has been difficult. It has been painful. They've gone
without. But they kept their heads above water. Just about. Many social landlords have put a lot
of additional effort into money management and advice services in order to try to help their
tenants cope in more straitened times. For some it is the availability of discretionary housing
payments that has made the difference between sink or swim. But such assistance was always
intended to be temporary and transitional.
Of course, while many coped, others have already got into significant financial difficulty as a
result of the benefit cuts.
While people may have coped in the short term we need to recognise that some of the forces
already unleashed continue to do their work in the background. The reduced generosity of
benefit uprating slowly increases the gap between the cost of living and the assistance available.
Some had forecast mass internal migration as households who relied on housing benefit were no
longer able to afford to live in high cost housing markets. There is some evidence of this. But
equally people can be very attached to particular localities for all sort of perfectly understandable
reasons. So in order to stay in their area they compromise on their housing conditions giving
rise to the increased rates of sharing and overcrowding mentioned in the previous section.
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The equally important issue is that the future changes planned by the Conservative government,
particular the reduction in the overall benefit cap, the freezing of working age benefits, and the
restrictions on access to assistance to two children per family are all going to significantly
intensify pressure. Some of those who have been coping under the previous wave of cuts will be
submerged as the next wave crashes over them.
Back in 1982 the Environment Select Committee highlighted what they called the fundamental
dilemma of the private rented sector: that the amount of money that landlords are looking for
in rent is greater than the amount that tenants are able to pay. The next year the national system
of Housing Benefit was implemented.
It is clear that we are busily recreating this fundamental dilemma through welfare reform. More
households are being pushed into post-housing cost poverty. More households are being pushed
into inadequate accommodation because that is all they can afford. There is a risk that inadequate
housing situations of the sort that would have been viewed as utterly unacceptable a few years
ago become normalized.
6.

Social housing

Many social landlords have been able to absorb the impact of the bedroom tax and through
better customer intelligence and advice have prevented bad debt spiralling. Some embraced the
Coalition Government's affordable rent regime, while others were more circumspect. Some who
embraced affordable rents have perhaps come to rue that decision. The arrival of the majority
Conservative government, unrestrained by the Liberal Democrats, has placed in question the
wisdom of making extensive use of affordable rents.
The policy changes that are now coming down the pipe the imposed 1% rent reduction for
four years, Pay to Stay, extending the Right to Buy to housing associations, selling off high value
local authority properties make the social landlords task considerably harder. The overall
benefit cap at 26,000 affected relatively small groups of tenants. This was manageable. If it is
reduced to 20,000 outside London then that is a whole different ball game the effect will be
felt far more widely. There are rumours that government-imposed rent reductions may be in
place for longer or be made more severe than those already confirmed. Business plans need to be
tested against such possibilities. Some will break under the stress.
There is little doubt that some landlords will not survive in this much harsher environment.
Which ones will not survive is an interesting and important question. It could be that the
organisations that have already done all they can to maximise efficiency are most at risk because
they have little fat left to trim. Yet these are the relatively good performers. On the other hand,
the inefficient may simply not have strong enough leadership to steer their way through the
troubled waters ahead.
It is inevitable that the social housing sector will concentrate. Fewer, bigger organisations will
emerge out the other side. That is, if the Government doesn't take the radical step of
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nationalising and privatising the whole sector in the light of the recent ONS reclassification of
housing associations as non-financial public bodies.
A key question is whether the period of merger and acquisition that we are going to experience
will be orderly or chaotic. Can it be managed to minimize the detriment to tenants' wellbeing?
One further policy on the horizon is fixed-term tenancies. Fixed-term tenancies were introduced
under the Coalition but take up by social landlords has been relatively modest. Only about one in
eight new tenancies in England is fixed term. The Conservative government is looking at the
possibility of making fixed-term tenancies the default.
The impact of this change would depend crucially on the detail. For example, it would depend
on whether tenancy renewal is allowed and under what circumstances. If renewal were not to be
allowed then we are moving towards a social housing system which some academics have
described as an 'ambulance service'. Social housing would only be there for those who are in
acute need for the period that they are in acute need. Households are expected to make way and
make their own way once the acute need has passed. Social housing would not be a tenure in
which to settle and live long term.
If the government decides to go down this route then it will have significant management
implications for landlords all the new tenants they house will have acute needs of some sort
and it will have significant implications for the tenure social housing will become increasingly
stigmatised and it will have significant implications for neighbourhoods social problems
could become more concentrated in particular locations.
Conclusion
In some senses characterising our situation as a housing crisis could be considered a little off the
mark. A crisis could be taken to imply an acute episode departing from the norm. Yet a number
of the factors creating our housing challenges are long-standing and deep-rooted. Overlaid upon
these are a number of shorter term policy-induced problems. The policy direction of travel is
unlikely to undergo a significant change of direction any time soon. It is tempting to think that
trying to cope with an increased range of more severe housing problems is not so much a crisis
as the new normal.
The problems of access and affordability are well-established concerns. With increasing numbers
of households living on assured shorthold tenancies; many families with mortgages only an
interest rate rise away from finding their tenuous grip on their home slipping; and the prospect
of fixed-term tenancies becoming more pervasive in the social rented sector we need to add
pervasive insecurity to the list.
And we need to return to the argument, eloquently articulated by Tim Farron, that secure good
quality housing is the foundation upon which to build a life, a life that allows each individuals
potential to be fully realized. The key to making progress in addressing our housing challenges is
to start by recognising the profound significance of secure housing for our economy and society.
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Only then are we likely to shift policy priorities away from the current obsession with home
ownership, which sees the Government persistently directing subsidy towards those who are
already relatively well off.
And most of all we need to keep hold of the idea that we don't face a swathe of discrete
problems that can be tackled independently. We need to adopt a systemic perspective that is
attuned to their diverse and intricate interconnections.

About the author

Alex Marsh is Professor of Public Policy at the University of Bristol. He was Head of the
School for Policy Studies between September 2007 and July 2015. Alexs research and
writing has encompassed a wide range of topics in the fields of housing studies, public
policy and regulation. He is currently on the Advisory Boards for the Joseph Rowntree
Foundation Housing and Poverty Programme and for What Works Scotland.
Between 2005 and 2009 Alex was Managing Editor of Housing Studies, the leading
international academic journal in the field. He continues as a member of the journals
Management Board. He chairs the Management Board for the journal Policy & Politics.
Alex was a Visiting Academic Consultant to the Public Law team at the Law Commission
between 2006 and 2010. His work with the Commission addressed compliance issues in the
private rented sector and systems of redress against public bodies.
Between 2004 and 2012 Alex was a trustee of Brunelcare, a Bristol-based charity providing
housing, care and support for older people. For six years he chaired Brunelcare's Audit and
Scrutiny Committee. In October 2013 he joined the board of Curo Group as a Non-Executive
Director.
All views expressed here are personal. They should not be attributed to any of the
organisations with which Alex is associated.

www.alex-marsh.net

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