A comment by Tim Williams on my previous post, I thought worth putting up here in full. More from me shortly on the need for the political space needed to allow for change:
I’m the ‘colleague’ Tony referred to who wrote about housing in Sydney on my blog. I was a special advisor to David Miliband on housing, regen and local government and advised all subsequent housing ministers on some aspect of housing or other. So my fingers are all over this. Essentially, the housing department had no control over Treasury and we confused housing need (real enough but not scientifically quantified) with housing demand(which was being stoked up by over-lax policies by Treasury and under-regulation by its agencies such as the FSA). So housing need was growing because housing demand was being whipped on by too low interest rates, rising house prices preventing lower income and younger folk from accessing homes! Then the house-builders’ business model kicked in as they effectively constrained supply in order to keep their margins up. Oh and then planning and environmental policies inhibited the supply of land to said builders which further limited housing numbers and raised prices.
Not all of this applies in Australia. The demography is real enough with population growing. I think management of the financial institutions has been better in Oz though I suspect the federal treasurer is about to raise interest rates (already 4 points ahead of the UK’s flatlining level) to choke off demand. House prices are already stabilising it seems to me. Despite the scary graphs I think they might just have enough policy and brain to fend off a drop of about 15% which the UK has seen in prices. Maybe we are about to see that most mystical of beasts in housing: the soft landing.
Having said that, what goes up must come down and soft landings rarely happen. The deeper point is of course what did governments think they were doing by enabling the market to flood society with such cheap money. Centre left governments thought they were helping poor people access equity – as well as wanting to be as pro the aspirational or as they say in Australia, the ‘battlers’. There was a politics to home-ownership on the centre left as well as the right, in the UK, the US and Australia.
A space should have opened up after the Global Financial Crisis to provide alternative tenures and justify them politically. Tony and Toby (now of Shelter) will know I pushed this as an advisor, as did Tony. More tangibly I don’t think the silly, easy money of the noughties is ever coming back to housing finance. That is the view of many in the game and look at the moribund state of the house-builders three and a half years on from the start of the crisis. Zombies.
So new models (rented, shared ownership, cooperatives) have to be found anyway to deliver supply. So where’s the Labor/Labour Party with a narrative about this?
In Australia the Labor government gave a huge stimulus to the social housing and private rented market by their economic package to fend off recession. That worked economically amazingly well though they get no political credit because dumped the prime minister who did that (without explaining very well why). It has had the perverse(?) incentive of persuading mums and dads to get further into property speculation (via owning a few private rented units) though it has not created the conditions for a high quality, big, private rented sector, attracting institutional money of the kind we need, I think. It has however transformed community housing providers and some of them are on their way to being big UK style RSLs.
Advice? Raise interest rates sooner rather than later. Incentivise private rented. Syphon off economic demand from the capital cities. Lower entry level costs for housebuilders so that small guys can get in to shake up the market. Think through the brown-field-greenfield issue and be more flexible about building on the latter. Develop a narrative about the benefits of alternatives to ownership, helped by the fact easy money is not coming back. Read my blog!