Strong Foundations?

The conservatives published their thinking on housing policy yesterday.

The biggest issue that housing policy needs to address is housing supply. They propose to do this by scrapping regional plans and replacing them with increased incentives to develop. The latter part of this is certainly a step in the right direction. But the incentives seem small (central government will provide matched funding of council tax on new properties for 6 years and as this is part funded by scrapping HDPG it is not all additional). It also doesn't address the crucial question of how one could convince local authorities in, say, South Manchester to build more housing that might have large benefits for the city-region as a whole. Some kind of higher level body is needed in these circumstances to internalise the (potentially large) cross boundary externalities and provide the right incentives.

At the same time, the proposal is that back gardens will cease to be brownfield while local communities will get to redefine their own green belt. I imagine the overall effect of these two changes will be to reduce the supply of land and it is not clear whether the incentives would be sufficient to overcome this.

There are proposals involve Local Housing Trusts building houses for local people. Community size can be increased by 1% per year if 90% of the local population is in favour. I assume this is aimed at rural communities. Theoretically this could help with very localised problems, although there will be strong disincentives for existing home owners that border the new development to object, so the 90% criteria could be pretty tough. I also think that local houses for local people is a very unappealing principle.

Piloting "right to move" for existing social tenants sounds interesting. Proposals for more complex intermediate shared ownership schemes are less convincing.

Finally, they will scrap HIPS but retain energy performance certificates. These will now only need to be produced once the sale is agreed but somehow it is claimed that this will still change behaviour. I would suggest more that is needed on that particular line of reasoning.

Overall, then, a mixed bag. Some interesting ideas, some marginal and a few odd ones.

Manchester: top of the league?

I was in Manchester yesterday for the launch of the Manchester Independent Economic Review (MIER).

The review argues that Manchester is the city in the North most likely to be able to raise its growth rate and, by doing so, drive growth in the North. To achieve this, it needs to make difficult policy decisions (some of which are not devolved at the moment)

I agree that there's a case for thinking that a few resurgent cities might help achieve regional growth objectives. The work on productivity differences that we did for the MIER is certainly consistent with Manchester being one of those cities (although, note, not THE city - but that's cautious academics for you).

So, to those hard policy decisions. The review identifies skills as a priority. I'm sure that's true but it is difficult to know what role local authorities might play. I think those in Manchester assume devolution here would mean control over the existing skills budget. I don't have a strong position on this (as yet), although at a minimum they could take some local expenditure which is wasted (e.g. on too many shiny new buildings) and spend more of it on skills.

Talk of shiny new buildings brings us to land use planning (for housing, commercial and transport). On housing, in particular, the local authorities have decision making power but need to come up with some credible method of collaborating. They then, within reason, need to build the kind of houses people want to live in, in the places where people want to live. (Ditto for office space). This means less brownfield and more building in South Manchester. This will be politically difficult (and also raises questions about the extent to which national planning guidelines would prevent this anyhow).

On transport, they need some strong political leadership on congestion charging. I also think that they, probably, want to convince the government that their £2.5bn of TIF projects represent much better value for money than £25bn on high speed rail (more on this in the near future). Again, both politically difficult decisions.

Do they, as the report suggests, need increased powers at city region level to achieve this? I'm not sure that the MIER makes the case for this one way or the other. Collaborative agreements, the new regional plans, and less binding national guidelines might be enough on many of the policy areas. Others would strongly disagree. I am increasingly convinced that the available evidence does not answer this question either way so expect to hear lots of people claiming the opposite.

Overall, the MIER highlights the ambitions of (some) in the city. I understand there will now be some kind of response as well as a strategic plan to take things forward. It will be interesting to see how things develop from here.

Housing Lists

More gloomy reading from the housing market from the National Housing Federation who are predicting that waiting lists for social housing are set to soar by 2011.

They (along with others in the 2020 group) are calling for a "house building fiscal stimulus package [of] £6.35bn to fund the building of 100,000 social homes over the next two years". If you are going to spend large amounts of money on a fiscal stimulus it seems sensible for at least some of it to go towards buying things that you are pretty certain to want in the long term. And we will want more housing long term (regardless of what is currently happening to the housing market).

Two caveats, however. First, something odd seems to be happening with the construction sector where the number of people employed has not fallen as fast as people where expecting. This might weaken the case for the fiscal stimulus side of the argument. (Although, if the explanation is that they are all building the Olympics - rather than reducing hours - it does make you wonder what will happen to house building as 2012 approaches). Second the NHF is predicting 2 million people on housing waiting lists and a £6.35bn stimulus builds 100,000 homes. Given the public sector fiscal position, the long term housing supply response will have to come from the private sector and this means sorting out the planning system so that private developers can build more.

Latest Housing Figures

The latest housing figures issued yesterday make for very depressing reading:

A few "highlights":
- Annual housing completions in England totalled 141,900 in 2008, down by 19 per cent compared with 2007
- Private enterprise housing completions (non-seasonally adjusted) were 32 per cent lower in the December quarter 2008 than the December quarter 2007. In contrast, housing completions by Registered Social Landlords (non-seasonally adjusted) rose 10 per cent.
- Private enterprise housing starts (non-seasonally adjusted) were 64 per cent lower than the December quarter 2007. Housing starts by Registered Social Landlords (non-seasonally adjusted) fell 5 per cent.

It is very unclear what the government can do about this. Michael Parkinson makes some suggestions in his recent report on the credit crunch.

The only short term thing I would add is that it makes sense to go back and reassess the costs and benefits of projects and downgrade any that claim large benefits from "transformational" impacts on the back of leveraged private sector development. Actually, a bit more scepticism on that front would not hurt with the long term evaluation of projects either.

It's also clear that the current model of partly financing regeneration through constraining land supply, increasing property prices and then using section 106 (to fund regeneration projects partly aimed at sorting out house price affordability caused by constraining land supply!) is not going to work in the short run. As it's not necessarily a great long run model either, perhaps it's a good moment to revisit that thorny issue?

Local Authorities and the Downturn

After my post on the geography of recession, I have been trying to clarify my thinking on the role of Local Authorities.

It is certainly the case that the recession will impact different places in different ways. Some of these differences are predictable, some not. However, it is a big leap from this observation to the conclusion that we need to further devolve economic decision making.

There are at least three separate issues here. The first concerns the role of local government spending as a complement to national monetary and fiscal policy. Here, local authorities face problems of timeliness, displacement and leakage that surely limit the extent to which policy variation makes sense. I am particularly unconvinced by suggestions that buying locally where-ever possible will (a) do much to stimulate local economies; (b) help cash strapped local council tax payers.

A second issue concerns local authorities role in helping mitigate social effects. Local authorities play a vital delivery role here. Ideally, policy should also vary with local conditions. Case study evidence from IDeA and LGA show that this is the case. Of course, this is one of the well known benefits of devolution, but it doesn't actually make the case for more devolution.

Another benefit of devolution is that it allows for experimentation. That seems to be the case in response to the recession. But it is important that this experimentation draws from past experience and from an understanding of current conditions (it's also important that lessons are learnt for next time). For example, my colleague Christine Whitehead suggests that in the last crisis advice and small scale assistance worked better to help maintain people in their homes and limit costs to the public purse than did either addressing the consequences of repossession through homelessness policies or transfer of stock to the social housing sector. It is hard to see this reflected in current policy experimentation in this area.

This brings us to the third issue regarding housing and planning. But this is already a long post and that is a big issue best left to another day.

The Geography of Recession (part II)

Back in October, I took issue with the way people were talking about the likely geographic impact of the recession. In short, it seemed to me that reports of the economic death of the "south" were greatly exaggerated. Past experience suggests that the gap between north and south might narrow, but is highly unlikely to be reversed. But I noted that even the first "prediction" - that the south was particularly hard hit in the last recession- is still the subject of some dispute.

Which brings us to some recent reports and figures. First, Centre for Cities City Outlook received wide coverage yesterday of its finding that cities in the north are seeing the highest increases in JSA claimants [NB: they also point out that the north-south divide language I am using here hides some important details - sorry for that]. Second, the ONS tells us that manufacturing made the largest contribution to the slowdown with a 4.6% fall last quarter, as opposed to a 0.5% fall for business services. This will clearly be bad news for those cities that rely on manufacturing more than services, and as we know those cities tend to be located in the north.

One final thing, the comment in my October post about "two quarters" now looks optimistic, but doesn't change my conclusion on the geographic impact. In short, it's grim everywhere.

Golden Handcuffs: Teacher Recruitment and Retention

One of the key problems for poor neighbourhoods is the bad educational outcomes for children that live there. As I have argued before, the evidence suggests that traditional regeneration programmes (with a strong focus on the built environment) don't do much to address this problem. So will the government's proposal to pay teachers more for working in the most disadvantaged schools (themselves generally in the most disadvantaged areas) fair much better?

The answer is that we don't really know. There isn't much strong evidence of a link between teacher pay and student outcomes. But these "golden handcuffs" are targetting recruitment and retention rather than pay per se. Unfortunately, we know even less about the extent to which this might affect educational outcomes. Intutively, it feels like it should matter, but there is little, if any, evidence to back up this intuition.

Even if the policy does work, it will not do much to affect the spatial concentration of poor educational outcomes. This is because about 60-70% of the variation in educational outcomes is down to pupil background, with only about 10% attributable to the school and even less, if any, to the neighbourhood. The fact that we have evidence that school matters more than neighbourhood at least argues that this is a move in the right direction. But the overwhelming importance of family characteristics and the spatial concentration of poor families, means that the targetting of disadvantaged schools can only ever do so much to improve poor education outcomes in disadvantaged neighbourhoods.