So the entirety of our housing policy is wrong is it?

For decades now we've been told that we should all live in mixed neighbourhoods. Mixed in terms of socio-economic class that is. That there should be council houses in the middle of Westminster, that to have the poor living in cheap areas, the rich in rich ones, would be a terrible betrayal of something or other. It now seems that this is entirely wrong:

Britain has prized the ideal of economically mixed neighbourhoods since the 19th century. Poverty and disadvantage are intensified when poor people cluster, runs the argument; conversely, the rich are unfairly helped when they are surrounded by other rich people. Social mixing ought to help the poor. It sounds self-evident—and colours planning regulations that ensure much social and affordable housing is dotted among more expensive private homes. Yet “there is absolutely no serious evidence to support this,” says Paul Cheshire, a professor of economic geography at the London School of Economics (LSE).

And there is new evidence to suggest it is wrong. Researchers at Duke University in America followed over 1,600 children from age five to age 12 in England and Wales. They found that poor boys living in largely well-to-do neighbourhoods were the most likely to engage in anti-social behaviour, from lying and swearing to such petty misdemeanours as fighting, shoplifting and vandalism, according to a commonly used measure of problem behaviour. Misbehaviour starts very young (see chart 1) and intensifies as they grow older. Poor boys in the poorest neighbourhoods were the least likely to run into trouble. For rich kids, the opposite is true: those living in poor areas are more likely to misbehave.

This entirely makes sense. Imagine that it really is inequality that causes so many problems. Inequality is going to be felt most keenly about those one lives cheek by jowl with. Forcing the poor to live in "affordable housing" among the mansions of the rich is therefore going to exacerbate problems, isn't it?

Not that these facts are going to make a blind bit of difference. Facts never do when ideology is involved.

A Labour Party policy we look forward to

In the interests of being fair handed, for recall that we are not a party political organisation, here is a Labour Party policy just announced that we thoroughly look forward to:

He added: “David Cameron’s ideological selloff has ended a public sector service which has delivered over £1bn to the Treasury, kept fares down, had record passenger satisfaction and engaged the workforce with unparalleled success. “It is clear that when it comes to transport, people have a straight choice – the status quo or Labour’s better plan. Labour will start the process of legislating in the first 100 days of a new parliament to allow a public sector operator to be able to take on lines and challenge the private sector on a genuinely level playing field.”

We have no problem with public sector organisations applying to run anything at all. Nor with capitalists, cooperatives or Uncle Tom Cobbleigh. Our desire is that there should be that level playing field so that the best people for the job do the providing. And we're just overjoyed at the idea that there might be competition between forms of organisation just as much as there might be between individual examples of the same type of organisation.

So, yes, we fully support this.

However, in the same story:

Stagecoach has pledged to invest about £140m to deliver what it calls “an improved service and a more personalised travel experience for customers”, and is scheduled to pay £3.3bn in premiums to the government.

That capitalists are pledging to give the government £3.3 billion over 8 years, the public sector organisation gave the government £1 billion over 5. So this is actually going to be a level playing field is it? That the privatisation would have gone ahead anyway as the capitalists are quite obviously offering the better deal?

Good, excellent, glad we've got that sorted then.

The housing question isn't just how many, but where

I usually like Policy Exchange’s work but its new paper on solving the housing crisis is a little disappointing. Its main argument is that “Over one million new homes could be built over the next decade if each of the 353 councils in England built just one garden village of 3,000 new houses”. The arithmetic checks out, but that still wouldn’t do much to solve the housing crisis. The problem with England’s housing market is not simply that not enough houses are being built. It’s that they’re being built in the wrong places. According to Paul Cheshire, twice as many homes were built in Doncaster and Barnsley (where there isn’t much demand for housing) as in Oxford and Cambridge (where there is) in the five years to 2013. In 2002/03, it was three times as many!

This is why national house construction numbers can often be misleading. The crisis of unaffordable houses is mostly centred on places like London, Oxford, Cambridge and the rest of the South East. People want to live where the jobs are. (As it happens, an older Policy Exchange paper recognised this, suggesting policies designed to make it easier for people to move from North to South.)

Spreading housing development around the country will hence end up doing much less than we might hope. If your problem is a housing shortage in London, building more in Hull won't help much.

A second problem is that building entirely new villages is expensive, because of the new infrastructure that needs to be built. The report suggests paying for this with levies on the new builds, which just reduces the downward pressure on prices these houses would have. Building all that extra infrastructure is needless when there is already so much empty land around existing train stations to be built on in the South East (enough for one million homes!), where there really is demand for new housing.

I also wonder how much people want to live in villages which really would be very small. At the UK average household size of 2.4, we’re talking about villages of 7,200 people, far enough from existing towns that those residents won’t object to them. As someone who grew up outside an Irish town with a population of 6,666 (seriously), take it from me – these places can be a little dull.

There are 138 authorities in London and the home counties. Building new homes there – even if they had to be in new villages – would be better than nothing, although I don’t know how you’d go about building new villages in central London. Building new homes in places like Scunthorpe and rural Cornwall would be a lot less good, and policies that do not recognise that will distract us from what we really need to do.

Maybe there’s no such thing as a bad policy that results in more housing, but is it too much to ask that they also be houses that people want to live in, in places they want to live?

Oh well done, well done here!

One of the little problemettes that we have with government is this left hand, right hand, thing. The entire beast is so complex, intervenes in so many different ways, that that left hand can be doing something entirely at odds with what the right hand is tyrying to achieve. And so it is here:

Landlords will be banned from renting out England and Wales’ draughtiest homes from 2018 in a bid to cut energy bills and carbon emissions. The new regulations are expected to help around a million tenants who are paying as much as £1,000 a year more than the average annual bill of £1,265 because of poorly insulated homes.

Campaigners hailed the move as potentially the most significant piece of legislation in a generation aimed at improving building stock in England and Wales, which is some of the oldest and leakiest in Europe.

We're told, in increasingly screeching tones, that the major problem facing the country is the lack of homes available for people to live in. In response to which the government decides to take 1 million homes off the market. Or, in an alternative formulation, insist that large investments be made in extant housing to the detriment of investment in the more housing needed.

Oh, well done there, well done indeed!

Housing in London

In The Green Noose, Tom Papworth has argued persuasively for loosening the green belt. Another way to goose up the supply of housing in London would to deregulate the construction aspect of provision. We welcome competition in local government, so let HMG pass legislation encouraging London Boroughs to bid for time-limited privileges. The idea would be that the first (as it might be) eight out of thirty-two London Boroughs would obtain the full extent of incremental rates on new housing arising, if they bid for temporary relief from taxes and regulatory restrictions.

New construction is already exempt from VAT, so the targets would be to suspend officious HMRC registration of subcontractors, so as to reduce labour costs; taxes on capital gains, profits and dividends arising out of qualifying developments, so as to incentivise developers and investors; and suspending stamp duty on associated property transactions, so as to cheapen costs to purchasers.

This is however likely to be less effective than deregulation of land-use and construction practices. As to land-use, we would advocate suspending

• Height restrictions, protected sight-lines, listings, change-of-use consent and the whole paraphernalia of JNCC restrictions;
• The rights of occupants of collectively owned properties to form blocking minorities refusing market compensation (this is with a view to easing the consolidation of building lots); and
• Judicial review of compulsory purchase and planning decisions.

To conclude on this score, we would argue for a presumption of planning approval unless a reasoned refusal is delivered within fourteen days; developers’ access to an appeals tribunal with a presumption of summary reversal; and stricter tests for reasonability and timeliness in the exercise of neighbours’ rights, including local impact, party-walls and natural light.

Finally we turn to construction practices. These are hamstrung by obsolescent and intrusive restrictions by way of building and fire regulations. It’s an open secret that the latter are honoured in the breach, with new residents removing smoke-detectors and door-closers and demolishing corridor and lobby walls as soon as they can. As to building regulations, these are largely a cloak to defend time-expired practises and uncompetitive suppliers. Instead, let developers show that their proposals comply with best practice in the form of building codes elsewhere (eg. Vancouver, Melbourne or Chicago).

To those who argue that this encourages builders to resort to regulatory arbitrage, our answer is “why not?” More competition in local government!

Nationalising the railways might be popular but perhaps not for the reason people think

Owen Jones tells us that Labour should, to beat the Greens, announce some really popular policy like re-nationalising the railways. And this might well be popular but perhaps not for the reason that people are assuming:

But there are three clear commitments Labour could offer to win over Green defectors. First, renationalise the railways. It would cut through like few other policies, and probably prompt some voters to break out in spontaneous applause. Polling demonstrates a publicly owned railway has near-universal appeal, winning over well-heeled Tory commuters and Ukip voters alike. But it also has a totemic quality about it: a clear demonstration that Labour has taken a decisive stance against the untrammelled market in the era of market failure.

The real complaint, we feel, about the railways is not over who owns and or runs them. It's over the price of them.

It's common enough to see people complaining that UK ticket prices are among the highest in Europe. And they are, as a result of a deliberate political decision. More of the revenue to keep them running comes from ticket prices and less from direct subsidy than in most other countries. And that's the correct decision too. There's Britons who don't use a train from one decade to another: difficult to see why they should be taxed to provide cheaper transport for others.

And that's why nationalisation won't make much difference. Because doing so isn't going to reverse that decision that, by and large, people who use trains are the people who should pay to keep trains running. The only way ticket prices will come down is if the taxpayer gets dunned for it. And why should we?

Uber: helping drivers, helping customers

The first comprehensive analysis of Uber 'partners' (i.e. drivers) has come out, written by Dr. Jonathan Hall, head of policy research at Uber, and Prof. Alan Krueger, of Princeton, and formerly Barack Obama's top economist. The results in short: Uber provides flexible employment at higher per-hour wages than traditional taxi driving, while building up reputational capital that traditional taxi systems cannot offer. It does not undermine traditional employment more general, or enhance inequality, but we all know how cheap the fares can be, and how useful the service is (this previously led me to believe that its stratospheric valuation might be justified).

This paper provides the first comprehensive analysis of Uber’s driver-partners, based on both survey data and anonymized, aggregated administrative data. Uber has grown at an exponential rate over the last few years, and drivers who partner with Uber appear to be attracted to the platform in large part because of the flexibility it offers, the level of compensation, and the fact that earnings per hour do not vary much with hours worked, which facilitates part-time and variable hours. Uber’s driver-partners are more similar in terms of their age and education to the general workforce than to taxi drivers and chauffeurs.

Uber may serve as a bridge for many seeking other employment opportunities, and it may attract well-qualified individuals because, with Uber’s star rating system, driver-partners’ reputations are explicitly shared with potential customers. Most of Uber’s driver-partners had full- or part-time employment prior to joining Uber, and many continued in those positions after starting to drive with the Uber platform, which makes the flexibility to set their own hours all the more valuable. Uber’s driver-partners also often cited the desire to smooth fluctuations in their income as a reason for partnering with Uber.

As we see above, Uber drivers really like their jobs, and that's probably why so many of them are still there a year later. I actually feel quite sympathetic towards existing taxi drivers both in the UK and US. They were forced by existing rules to invest heavily in getting their privileged spot in the market place, and Uber is effectively circumventing this process altogether.

This suggests we should compensate taxi drivers so that in the future people are not so worried that tech changes will force transformational rule changes that will ruin them. But this progress promises improvements on practically every margin of taxi driving; I can imagine a future where no traditional taxi driving exists—indeed with self-driving cars I can imagine a future where only an Uber-style rental-taxi system exists. So, compensation aside, it must go on.

Another strange idea to reform the housing market

It does continue to amuse us, watching the contortions that people twist themselves into in their attempts to reform the housing market. As opposed to, you know, just getting on with issuing more planning permissions so as to bring down the price of housing. The latest one is that self-builders should be treated as special little snowflakes with their own, special snowflake, planning permissions system:

But we also need to reform the land market, to make it dramatically easier for those without much capital to buy a plot of land and commission their own homes – either individually or as a group. All political parties pledge theoretical support for custom and self-build, and the government’s “Right to Build”, which allows people to buy council land on which to build their own houses, is a first step. But systemic change is needed to create a market providing land specifically for custom and self-build housing.

Let’s create a new land use class in the planning system “C5 Custom build”. In effect, that would create a parallel land market that differentiates between a house built as a speculative asset, and a house built as a place to live. Let’s create space for both, and see which works.

There's only one problem with this suggestion. Which is that we don't in fact want a special class of planning permission for self builders. What we actually want is simply the issuance of more planning permits. For as is entirely obvious to everyone the price of housing in the UK is determined by a shortage of said planning permissions. So, therefore, we don't want the creation of a special system for special snowflakes, we simply want the loosening of the planning permission system as a whole. And then indeed self builders can run alongside more commercially minded organisations and may the best man win.

Green Belts increase business rents too

If you’ve picked up a newspaper or turned on a radio or TV today then the chances are you’ve read or heard about the Adam Smith Institute's latest research paper – The Green Noose: An analysis of Green Belts and proposals for reform. A section of the paper considers the impact of Green Belts upon businesses. As author Tom Papworth explains, increasing the cost of business premises increases the costs of running businesses, which pushes up prices. This reduces the real disposable incomes of households, while putting UK businesses at a competitive disadvantage by shifting production overseas.

A few years ago, I interviewed the inventor of the iconic Brompton bicycle. While visiting their factory in Wandsworth a couple of television crews from the BBC and ITV turned up to record the conveyor belts and workers in action. It turned out this was a common occurrence, principally because it's the only manufacturing taking place on that scale in London (and the television crews didn't want to travel any further). According to Papworth, London’s Green Belt could be the reason Brompton is that last factory standing:

Evans and Hartwich suggest that land-intensive industries, such as manufacturing, have declined rapidly, because many have fled the country to locate themselves in a country with lower land prices. If correct, this would be a major challenge to the conventional view that deindustrialisation was the result of supply-side reforms and monetarist policies in the 1980s, instead suggesting that our land use planning laws bore a substantial amount of responsibility for the decline of UK manufacturing in the past half century.

This makes sense. LSE Geography Professor Henry Overman cites some concerning research in an useful blog looking at the case for building on Green Belts:

“Green Belts increase office rents. Cheshire and Hilber (2008) carefully document how planning restrictions in England impose a 'tax' on office developments that varies from around 250 per cent (of development costs) in Birmingham, to 400-800 per cent in London. In contrast, New York imposes a 'tax' of around 0-50 per cent, Amsterdam around 200 per cent and central Paris around 300 per cent.”

If enacted, the paper’s suggested reforms would provide affordable housing to Generation Rent, more competitive business rents, and the possibility for more manufacturing entrepreneurs to run their businesses out of this country. What’s not to like?

Philip Salter is director of The Entrepreneurs Network.

New ASI paper: the Green Noose

According to a new ASI paper, written by Tom Papworth, and entitled The Green Noose, we can blame the Green Belt for the UK's housing woes. It says:

• Despite academics, politicians, and international organisations recognising that the UK is facing a housing crisis, it is currently far less developed than many imagine, especially when compared to similar countries. Indeed, only two members of the EU 27 have less built environment per capita than the UK: the Netherlands and Cyprus. 90% of land in England remains undeveloped, and just 0.5% would be required to fulfil this decade’s housing needs.

• Green Belts are not the bucolic idylls some imagine them to be; indeed, more than a third of protected Green Belt land is devoted to intensive farming, which generates net environmental costs.

• The concept of ever-expanding urban sprawl is mistaken and pernicious. In addition, Green Belts can give rise to “leap-frog development”, where intermediate patches of land are left undeveloped due to restrictions, a phenomenon indistinguishable from what many understand urban sprawl to be.

• By encouraging urban densification, Green Belts take green space away from those places where it is most valued. Each hectare of city park is estimated to be of £54,000 benefit per year, compared to a mere £889 per hectare for Green Belt land on the fringe of an urban area.

• There are substantial welfare costs of Green Belts. They have made accomodation more expensive and smaller, increased costs for businesses (especially relative to other European cities), and have contributed to the volatility of house prices.

• The avenue of reform we favour is the complete abolition of the Green Belt, a step which could solve the housing crisis without the loss of any amenity or historical value – if only politicians and planners had the courage to take it.

• Failing this, we conclude that removing Green Belt designation from intensive agricultural land would also enable the building of all the housing required for the foreseeable future, and could help ameliorate the catastrophic undersupply of recent decades.

• In the short term, simply removing restrictions on land 10 minutes’ walk of a railway station would allow the development of 1 million more homes within the Green Belt surrounding London alone.

Click here to read the full press release.