Devolving public expenditure cuts

I see that my colleague Tony Travers, writing with Simon Jenkins, is calling for greater devolution to local authorities as a way of effectively implementing cuts to public expenditure.

They suggest two principles. The first concerns true delegation of responsibility which they argue leads to experimentation at the margin. What they don't point out is that it also leads to greater competition amongst local authorities, something which economists generally argue is a good thing.

The second principle is that devolution must not disadvantage poor areas. They argue that this can be achieved through redistribution of local revenue. Unfortunately, this is a very narrow interpretation of "must not disadvantage poor areas". If, however, you take a broader definition this leads down a long slippery slope to opposing any differences across places because "postcode lotteries" are unfair.

Focusing instead on poor people helps avoid this problem. My local authority might decide to increase local taxes rather than, say, cut funding to my local art gallery. My love of art and my vast disposable income (this is a hypothetical example) mean I can live with this. In the neighbouring authority poorer households decide they would rather forgo the art and prefer to see their taxes cut.

More generally, when expenditure is devolved the overall pattern more closely represents local preferences. In turn, this closer link between preferences and local expenditure increases the incentives of people to live with others who share their preferences. As these preferences are likely highly correlated with income or education we get more segregation. We end up with some local authorities housing mainly poorer households and providing the kind of local services that they want. Other communities are richer and provide more (or maybe less) local services. These differences make all individuals better off, but you might never guess this by looking at the effect on poor areas.

Community Cohesion

CLG has been talking about the economic benefits of community cohesion. It is suggested that new figures show that increasing cohesion by 1 per cent across the country can potentially save up to £530m in reduced crime.

This figure is arrived at by pulling together two numbers. One is on the costs of crime (I haven't looked at this in detail). The other is on the correlation between crime and some measures of cohesion. The correlation comes from data on 20 areas (effectively 40 wards out of England's approximately 8,000). Crucial assumption number one is therefore that these areas are representative. A 0.5% sample is unlikely to achieve this. That aside, the crucial thing is whether or not these numbers capture a causal relationship from cohesion to crime.

Concluding that the relationship was causal would require us to rule out the possibility that the correlation was not just picking up some other characteristics of neighbourhoods that are correlated with both crime and measured cohesion (say, for example, the income level of the neighbourhood). At the very least, we would want to rule out some of the more obvious possibilities. Unfortunately, the original research didn't do this so we have no way of knowing what causes this relationship. Research that is more careful suggests that it is very difficult to attribute any differences in outcomes that we care about to the causal impact of these kind of community variables.

Cohesion is a bit like motherhood and apple pie. What reasonable person could be against it? Spending public money to achieve it may well be a good thing. But, whatever the claim, this research doesn't help improve our understanding of the wider economic benefits of doing so.

Housing Numbers part 3

I see that CLG have announced the short listing for the first round of Kick Start.

At the end of June, the HCA press release around Building Britain's Future said: "Up to £500 million to kickstart stalled housing and regeneration schemes [...] In view of the new funding, and the high level of bids already received, the Agency anticipates taking forward more than £400 million worth of schemes from the initial bidding round"

They certainly seem to have managed to do that as they are now talking about spending £925m on the first round alone. The fact that this is more than the £900m allocated in June is explained by the fact that Kick Start accounts for £156m of the £0.6bn that will be spent in 2011/12 (CLG report the split as £572m / £332m / £156m in each of the next three years).

I think it is fair to say that how all of this is funded is still a little unclear.

Eco Towns

It appears the first eco towns will be announced later today. I have to confess that my reaction is mostly one of indifference (I don't live near one).

It is clear that the scheme as it stands will not make a huge difference to housing supply. Because it doesn't do a lot for housing supply it can't do much for the environment (only a small % of the population will live there). The direct differential benefits (i.e. due to the house itself) of "eco-town-new-build" over "standard-building-regs-new-build" will be positive but not huge. Overall, the new build will only make up a tiny proportion of existing stock. If you want to seriously tackle the carbon footprint of homes you need to tackle problems relating to the latter.

If the savings aren't large on housing, then most of the benefits need to come from transport via changing travel patterns (shorter journeys) and mode choices (fewer cars). At face value it seems like these might be easy to influence, but in practice the relationship between built environment and transport decisions is uncertain on many dimensions.

To get some perspective, new towns accommodate about 2 million people (4% of the population). Are they the "balanced self contained communities" they were planned to be? They are reasonably self-contained in the sense that a lot of people live and work in the town. Of course, this is true of most towns new or not. They may be less geographically self-contained than intended [1]. They also tend to be more auto-orientated [2]. More growth in new towns is likely to reinforce the dependency on auto leaving journey times unchanged [3].

So, overall, a small benefit from housing. Small populations mean any potential benefits from transport are small (and because there is lots of uncertainty there could end up being large costs). The brownfield/greenfield debate is the usual red-herring. Finally, they might act as examples, but for what? The huge number of new towns we are going to build next decade? They are an interesting experiment, but a marginal story compared to the major questions of housing supply and climate change.

[1]: R. Cervero, Urban Studies, 1994
[2]: Those numbers not peer-reviewed
[3]: Titheridge and Hall, Journal of Transport Geography, 2006.

Local homes for local people

The "local homes for local people" debate has reignited as a result of a report for the EHRC.

I can't see mention of this in Building Britain's Future, but here, from Hansard is what Gordon Brown said on 29th June: "[...] we can now also reform social housing allocation, enabling local authorities to give more priority to local people whose names have been on waiting lists for far too long. [...] We want to see a bigger role and responsibility for local authorities to meet housing needs of people in their areas."

John Healey (7th July) is pushing the increased Local Authority autonomy side of this: "In some areas, they may want to give people who have waited the longest preference. In some areas, they may want to give preference to people who have moved to take up work.They may want, in rural areas, to give preference to those with local connections or their preference may be to reduce overcrowding or attract skilled workers"

Personally, I don't like the politics of this. That aside, in terms of equity "local homes for local people" enshrines the right to live where you are born (residency criteria) or where you work (employment criteria). There is a debate to be had about whether these are sufficiently strong rights to weaken those around housing need (the current criteria). In terms of efficiency there is a strong argument that we need more mobility in the social housing sector not less. "In" quickly when people are in trouble and "out" when their long term situation improves. Further, from a spatial perspective, social housing acts as a very severe constraint on geographical mobility. As such mobility has an important role to play in adjusting to the changing economic geography of the UK economy "local homes for local people" is surely a step backwards.

Housing numbers part 2

I wrote yesterday that I found the housing numbers a little confusing. CLG have kindly provided clarification. So, here goes:

Existing commitments (i.e. before Monday 29/06)
Affordable housing provision (completions) for 09/10 & 10/11: 90,000
Cost 09/10&10/11: £6.4bn

The "housing pledge" gives:
Additional affordable housing starts 09/10 & 10/11: 20,000 with completions not later than 2011/12.
Additional expenditure: £1.5bn in 09/10&10/11 and the remaining £0.6bn in 2011/12 (for a grand total of £2.1bn)

I haven't tried to figure out the details of how the extra £2.1bn is funded.

Housing numbers (numbers numbers)

Just catching up with the news around housing numbers.

Here is BBC news: "investment in housing would be trebled to £2.1bn, funding 110,000 new affordable homes to rent or buy over the next two years and creating 45,000 jobs in construction" Same "extra 110,000" figure in the Guardian

Contrast that with the 2020 group from March 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".

CLG: "£1.5 billion boost will deliver an additional 20,000 new affordable energy efficient homes over the next two years - and a further 10,000 homes delivered through the private sector".

Building Britain's Future: "We have already committed to investing an extra £1.2 billion this year to build new houses. But to ensure that we meet the needs of young families across the country, we will expand this building programme by investing a further £1.5 billion over the next two years to deliver 20,000 additional energy efficient, affordable homes to rent or buy."

So, the 2.1bn figure is £1.5bn announced yesterday plus £400m for kick start and £100m for LAs (the latter two announced in the budget) plus some unidentified 100m? (Or a bad typo on the 1.2bn?) . It could involve the extra £500m for kick start mentioned on the HCA website.

I am not sure where the 110,000 figure comes from. It could be the total figures for next year. I don't think it can be extra numbers funded off the back of the most recent announcements.

All a little confusing ...