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- [00:00]
A
Well, welcome one and all, to this LSE Institute of Public affairs debate discussion here at the Conservative Party Conference. My name is Tony Travers from the government department at the LSE and I'm really here to chair this evening's event. Do feel free to enjoy the food and wine as we go along. There's plenty of it at the back there. And we're talking about housing, the crisis that divides. And everybody in the room will know that housing has rushed up the political agenda in Britain in the last three or four years. It's always an issue, but it now actually has several different ways of manifesting itself. Rising house prices, not only in London and the southeast, the need for new forms of housing and indeed more efficient housing throughout the country, and indeed challenges of affordability and for the existence of a very small social sector. And beyond that, whether or not we need to use green land more than has been used in the past to allow the creation of a much higher level of housing supply. But anyway, the speakers will talk about all these issues and many more. They are Richard Blakeway, who is the Deputy Mayor for Housing at the Greater London Authority. Same Eric Gokel, who is a council in the Royal Borough of Kensington, Chelsea, and of course, until very recently, the chairman of the Local Government Association, David Orr, who's the chief executive of the National Housing Federation, and Henry Overman, who is professor of Economic Geography at the lse. I'd like to ask each of them to speak for sort of five to seven minutes if that's not too much of a discipline, and then we'll have plenty of time for questions and discussion afterwards. So if I do it in the order, I've just read it out indeed on the program.
- [02:14]
B
Rick. Cool, thanks. I'll try and be really, really quick, actually, because having done a couple of events earlier, I realized that everyone has got brilliant questions, so we should definitely try and give that some time. There's a really important date coming up next year. I'm not sure you're aware of it though, because it's not the general election. This really important date is on a Tuesday, so not a Thursday. And it's the 6th of January. And the significance of the 6th of January is. Apparently Tony will know.
- [02:44]
C
This is.
- [02:45]
B
Apparently it may be Tony who's worked this out, that London's population will be peaking. It will be the highest it's been in its 2000 year history. It will be about 8.6 million people and it will continue to grow. And overall this is fantastic news for the capital's economy, culture, socially, it's fantastic news for London, but it does of course present big challenges. And those challenges are largely around our infrastructure in all its forms. So demand for electricity will double, demand for the Tube will go up 30%. So there's a big challenge for infrastructure. And infrastructure of course means housing shouldn't be a contentious phrase. But actually housing has often not been thought of as infrastructure and it's been a 30 year problem in the making, which has now reached the point where we clearly have to increase the supply of homes to meet that population boom. It's not just about the supply of homes, by the way, but inevitably that's the primary intervention that we focus on. So just three very, very quick comments in relation to that. The first is in recognition that it's been a challenge for 30 years and that we've had a whole load of different public policy over that period, some of which I think is still bedding down. That's some elements of the 88 Housing Act Mortgage liberalization. There's a huge. This year is the 40 year anniversary of the Housing act that allowed investment into social housing. This has been a big priority for a long time in public policy. But some of that public policy is still bedding down and still more fundamental changes are required around the types of products being supplied, about the types of capital coming into the market, about who's developing and where we're developing. I won't go on at great length about that, but it is fundamentally important that we have this seismic change in terms of how we approach supply if we're to increase it to the levels required. The second thing though is actually it's not just about public policy. And I think housing is now this big political issue as everyone refers to it. And unlike other big political issues like health and education, there isn't a kind of service that's directed from government. You know, there isn't a housing service per se. There's elements of our market which is particularly around affordable housing, but actually fundamentally we're looking at something where the market is expected to respond. So what does that mean for the industry? And as I say, there are parts of this which the role of housing associations and are they developing associations? Big questions which many are still grappling with. And then what type of product, what's the role for local authorities, what's the role for pension funds to come in? And can we see more investment in residential from those guys that we see actually in other forms of real estate like commercial development? And then what type of product do we have the right approach towards construction. My boss visited Ibstock today, the biggest brick manufacturer in the country. You know, we've got this constant problem of feast and famine in terms of the supply of materials. I think there's some fundamental issues for the industry as well and the shape of that industry. If we're to address housing, which, you know, and particularly for a city like London that depends on a number of very large schemes delivered by a small number of very large developers, there is a fundamental issue there for us in the shape of our industry in terms of doubling house building. And then the third thing which I'll just touch on is the kind of place that we're developing and some of this relates to actually I think the Wolfson process was very interesting around this actually about how, how you engage communities, new towns, the new towns, garden cities, whatever the vernacular is. There was something from those entries which I thought was very interesting and creative around how do you engage communities in this stuff and the aesthetic pleasure that we get from or should get from the built environment and the homes that we're developing. And this is critically important, I think for a city like London that is distinct from other big global cities and also important for ensuring that whole of London contributes to development but recognising that development, that built product, the typologies will be different and need to be flexible as things change over time. And it's highlighted at the moment what we've got is a huge creation of single households. But how do we ensure we've got a product which is as flexible as the Georgian typology to be converted between, you know, sometimes offices, sometimes residential, sometimes a whole house, sometimes apartments. And I think it's something really fundamental to think about the type of stuff that's being built and how that contributes to communities. I'll close there. Just one final thing because it is important is the ability of cities to be able to plan for this growth. And one of the things which Tony worked on, but it was in partnership with or with contributions from the core cities and others, was the London Finance Commission. And the fundamental challenge that we have in the capital and other big cities that we are almost entirely dependent on government grant to address what are fundamental long term and very local challenges. And clearly it is now time for us to have a, a mature discussion about the level of fiscal autonomy you see in the big cities, including London, and what reforms you might make to some of the revenues that could be retained, such as stamp duty, to really address and plan for growth in the long term.
- [09:03]
A
Thanks very much Rick and We'll move straight on to Samairik Kokel.
- [09:13]
D
Thank you, Tony. Well, we know from all the evidence, even from the Chancellor, that we need, I think between 230,000 and 300,000 new homes a year. The Local Government association under my past chairmanship for years committed itself on behalf of local government to about 50,000 new homes over a four year period, provided the government lifted the cap on housing borrowing, which didn't really seem quite the exciting offer that any government post for the next election is going to leap out and grab not local government's throat, but warmly by the shoulders and then follow the line through to where Rick was ending up, which is to actually devolve Power Trust not only cities but rural areas and everything like that that I could talk for the next two hours about. So I was with some colleagues determined that we actually had to come up with something a little more exciting. We did and we went from 50,000 to 500,000 over four years. We thought it was sort of a safe figure. Who knows whether it'll ever be possible but with the, with the right basis that must be achievable for local government to be committing themselves to for the period of a next government. Of course, for many years we local authorities, as planning authorities, but also as housing authorities working with RSLs perhaps have seen quite a narrow range of what we offer. We certainly, in the centre of London, where I come from, we have everybody wants to develop in Kensington and Chelsea. You've got section 106, you've got your term, we've now got the sill from the mayor and what that money could be used for on housing. We always looked for many years at affordable housing in the widest sense as being a solution, partly because frankly there weren't enough other products out there that were, that were different and interesting. We got shared ownership coming in and various other sort of intermediate schemes. We are now happily there are organisations and I've been looking recently at one where actually you take some of the section 106 planning gain that might from a development go into affordable housing and you roll that into private rented sector fixed 10 year agreement between the developer and the local authority to set affordable rents on that. After that 10 years, then it's up to the developer either to sell or to renegotiate with the local authority. But that takes some of the 106 and begins to attract a group that increasingly, certainly in London we're not seeing, and that is young professionals being able to afford to rent somewhere around the centre of London. We have Got to have a more balanced set of communities, not just those who are on benefits and get housing assistance and increasingly the sort of super rich driving out, you know, me and my children and most sort of people with average incomes. And this is one part of the change. But Rick in his wide discussion mentioned one thing and that is pensions. And that is where I think there's a very interesting opportunity. Most people don't realize that the local government pension scheme, that's all the council's pensions are about. Collectively, that's the key word, collectively. £178 billion. Eddie Trull, who chairs the London Pension Fund Authority, I'm his deputy, amazed me a few weeks ago. He knows these things and he said, well actually we're about the same collectively than the 178 billion is about the same size as the Singapore sovereign wealth fund. It's slightly larger than Qatar. The problem is it's divided 89 different ways. It's not in one or two or three pots, it's in 89 pots. And trying to get 89 of anything, especially 89 of things to do with local government is nigh on impossible to. But that's the potential. We're talking about a sort of what we would call a citizen's wealth fund that could be used, some of it could be used for infrastructure, including housing. Now as a model, lots of people looked at housing in Holland, abp, which is the public sector pension fund in Holland, forget about 178 billion, it's got 309 billion euros, 309 billion under investment and about 9% of that is in real estate. So that's obviously that's investments in commercial and retail and other things. But some of that's going to be in housing. So even if we took, you know, I don't know, 4 or 5% of 178 billion, you'd have the capacity to invest in a lot of housing and a lot of housing for rent. And of course the, it's a good investment, it's a long term investment. Housing, it's just the sort of, just what you want for a pension fund. Actually it's a perfect sort of investment. And actually most people don't default on their rent. And not only that, but if the economy and housing keeps going, you've got the capital investment behind that. And I'm pleased that in London we started in a small way, we started that so just about 10 days ago we bid to the GLA and were successful. So the London Pension Fund Authority is going to be investing. It's about a 40 tiny sort of mosquito bite. It's 43.5 million pounds investment going in with a developer with us and with a builder with us. Hopefully they can get hold of the bricks when the time comes. It is a major problem and that's going to build a mere pin prick again. But it's 200 homes in Newham. 137 of those are private rented sector, 42 are affordable rent and 31 are shared ownership. And as I say, that's just the start. But if we could actually, if the local council pension funds could actually work together effectively, could look at the opportunities that come from housing, could actually help to invest with developers, with builders into actually getting homes coming out of the ground, then actually we don't need to be looking for international sovereign wealth funds. We've got the resources and the capability of doing it ourselves and we've got some of the political risk covered by those being the local government sector pension funds. So this, I think, has got to be in the next 10 years. There are real opportunities for this. Holland and other places in Europe are doing it very successfully. We just simply haven't got our act together and we've got to.
- [16:32]
A
Thanks, Merrick. David. David O.
- [16:36]
C
Thank you very much. I hope you'll forgive me if I stand up, but I just speak better standing up. We've got used to saying the words, haven't we? We have a housing crisis. People have begun to use the words and acknowledge, yes, we have got a housing crisis, but I'm not sure that we've really yet got to the point where everyone believes the words that they're saying, because I see too many examples of people and places where it's clear that new homes are desperately required, where people use my least favorite sentence in the entire world, the one that goes, yes, we need new homes here, but. And then you get a long list of buts and every time you hear the word but, you know that those people don't want the homes to be built. And it seems to me that if we acknowledge that we have a housing crisis, the first thing that we need if we are to deal with this housing crisis, if we are to end this housing crisis, is, is an acknowledgement that we need to build the homes that will help us to get out of the housing crisis. I'm going to give you a few facts and figures because I think these things give some life to what the housing crisis actually looks like. I'm sure everyone in this room knows that the lowest quartile of income earners household income is £18,000 a year or less. That is a quarter of all households in our country have a household income of 18,000 a year or less. A half of all households have a household income of 32,000 a year or less. If you want to be a first time buyer, you really need an income, an average income now of around 36,000 a year. 36,000 is above the income of more than half of the country. So we have made owner occupation something that only the relatively wealthy can afford. Not just relatively wealthy themselves in terms of income, but from wealthy parents, from wealthy families. Because Now 2/3, 2/3 of all first time buyers have capital support from their parents to be able to pay the deposit. Five years ago that was one third. And I just want to give you a little, a couple of figures as comparators. So when I was buying a house, the first time I bought a house, typically that 36,000 at today's prices, at today's figures was 20,000. So just above the lowest quarter, you could buy a house if you had an income of 20. And typically at that time you needed to deposit in today's prices of 3,000 pounds. Now it's 30,000. We have created a housing market that has locked out half of the population or more. And I think that that is a real and significant problem because it has consequences. One of the consequences is that people go into the private rented sector, not in the main institutional private renting, but buy select private renting, some of which is absolutely great, some of which is abysmal and terrible, but nearly all of which is quite expensive, quite expensive to the extent that typically if you're in private rented accommodation, you have to spend more than 40% of your income on your rent, more than 40%. In social housing it's 30%. If you're an owner occupier, it's 20%. If you're in private renting is 40 and sometimes 50 or 60 or even more of your money is going on your rent. That's because we've not created enough homes. We've not had, if I may suggest, we've not had housing policies for the last 30 years. We've had financing policies and tenure policies, but not housing policies. From 1945 to the mid-1970s, when the IMF came calling falling, we had housing policies. Your manifesto, the Conservative party manifesto in 1951 asserted that housing was the most important, public service, the most important, and that housing policy was central. I'm paraphrasing because I can't remember exactly the quote. But it was central both to kind of social health but also to economic health. Well, let's just think about that one for a moment, shall we? Again, I'm going to paraphrase slightly, but in terms each of the Governor of the bank of England, the CBI and the London Chambers of Commerce in the last few months have said that the single most important stop break on our ability to grow our economy is our failure to provide affordable homes for people. So if you are in the pharmaceutical physical business in Cambridge or financial services in London or all the other places where we see some economic growth and development, the thing that people are most anxious about in growing their businesses is that they can't attract the talent that they need because that talent, even at good wages like £36,000 a year, can't afford to find a decent home. So the talent departs and the impact on the economy is potentially quite profound. And just a couple of other things. The first is that when I was born, I am, I believe, just on the edge of the famous baby boom generation, our parents wanted to craft a world where the future for their children was better than the present. That they had had not just the Second World War, but, but economically and socially, they wanted a better future. At that point, governments were building 300. Well, the nation was building 300,000 homes a year every year and more. And that meant that we could buy homes for £20,000 with a deposit of £3,000 and get good quality rented accommodation. Otherwise it was never perfect, but it wasn't bad. Now we can't assume any of those things. So we have a housing crisis now and we've just had another baby boom. The biggest baby boom in our country since the baby boom generation. 8 million plus live births between 2001 and 2012. But now we're building 120,000 homes a year where our population is the highest that it's ever been. Where London is growing fast than we can keep up with, where London needs a whole new London borough every two and a half years to cope with the growth demand. We have to get our heads around this, that there is a housing crisis. And the single most important thing that we need to do if we are to deal with it is to want to deal with it. To say that building the homes is actually more important than some of these scrabby little bits of green belt that are not green and are only designated such because they were designated that in 1952. We just have to rethink our priorities. That's why we and 80 other organizations are part of this alliance, the Homes For Britain alliance, where what we've said is, for anyone who wants our vote in May next year, we will be asking, will you commit to ending the housing crisis in a generation? You have to ask that question because we know it's going to take a long time, time to deal with. It took a long time to get into this position, it will take a long time to get out of it, but that's not sufficient. We also ask that they will have a proper plan as to how they will do that within a year of taking office. Of course, the good news is that the National Housing Federation will have one of our own that we'll be able to present to the incoming government. So they'll just be able to say, thank you, David, off we go. But this is absolutely critical for our economic success and future social resilience. If we do not get our heads around the fact that we have a housing crisis, it looks different in different parts of the country. Sometimes it's about quality and regeneration. Some rural places it's just about an absence of any kind of rented housing at all. In some places it is about supply. But in every part of the country, unless we understand that housing is and the economy are absolutely interlinked and the success or failure of both is contingent on the success or failure of the other, then we will fail. So I ask that you and anyone else at this conference takes away this message. We need to commit to ending the housing crisis in a generation.
- [25:28]
D
Henry. Professor Henry Overland.
- [25:30]
E
Thank you. I mean, it'll be interesting to pick up on this in discussion, but I think I should be clear and I don't think we necessarily set it up this way. All four of us at the front here are fairly confident that in order to solve the housing crisis, we've got to increase supply. Now, I'm with David. I have to say that I think a major issue is land supply, but I'm interested to see, you know, to what extent we think it's capital, to what extent we think it's land, but we're all fairly convinced it's on the land supply. Now, some of us have been saying that for a decade and some of us. I'm younger than I look, but that was about when I started in academia and I took over the mantle from Paul Cheshire, my LSE colleague, who has been saying this since 1970. I think there's a groundswell now of people who are starting to believe it, but I still have to say that, you know, in my public speaking on this and in my blogging on this, I get a lot of pushback and I get a lot of pushback from people that say, oh, you know, typical economists saying you've got to increase supply. What about the demand side? You know, we could do things to shift the existing stock from housing rich to housing poor. So these are the two things. I get that there is an alternative. It's shifting the stock from the housing rich to the housing poor. And it's certainly not about lands of. This is just David as an evil builder who wants a concrete over the countryside. So what I thought I would do is just talk a little bit about a couple of those arguments. And some of the weird thing about it is that there were just a bunch of zombie stats out there that you cannot kill, I mean, no matter how many times you try. So my least favorite zombie stat is the 1 million empty home zombie stat. And this comes around again and again. Now even the organization which talks about the need to get empty homes back, and I think, you know, they make a good case of this, even they say it's about the long term empties, that we care the long term empties. There are not a million. There are 232,000 across the whole of Britain. 28,000 of those are in, 24,000 in London. So, you know, that helps Richard a little bit. It's like, you know, maybe a month, six weeks of what you need. 28,000 in the southeast, fine. So, you know, we get all of that back in. We've increased, you know, we've done 44,000 out of maybe the 150, 200,000 we feel we need. Why, you know, we cannot kill this stat is beyond me when even the people who push this as a partial solution don't use that stat. But there you go. The last person I saw to use it was John Redwood, by the way, way, publicly speaking, empty bedrooms is another one. This is a zombie stat. That's slightly different actually. But empty bedrooms. There is no way that empty bedrooms are going to be a solution to the housing problem. For the very simple reason the bedroom standard that they are built off of is not something that the vast majority of people are willing to accept as being fit for purpose. So 25 million empty bedrooms, we are told. Now the greatest success of these bedrooms is among households who currently have three bedrooms that only require one. And what that means is old people, basically. And that means anyone who has had a family home where they have brought up their children and their children have now left. And if we want to release these empty bedrooms. We need to get those people out of those homes. And the reason why we know this is that the bedroom standard says the following. You get one bedroom per couple and you get one bedroom per pair of children up to 20, okay? Unless one of them happens to be a girl and the other a boy, in which case, from age 10, you're allowed a third bedroom. Okay? Now, on this basis, 3% of households in the UK are over occupying. They're crammed into something that does not fit that minimum requirement. 15 million are under occupying. Now, this sounds something that's simple to fix, right? All we've got to do is get some of those 15 million are under occupying, get them out of their bedrooms that they clearly don't deserve and give it to the 643,000 deserving people. I mean, the way I tend to see this is any politician who tries to do this is suicide, right? You've got a 15 million constituency on one side who actually quite clearly demonstrate that three bedrooms when your kids have left home is something that most people would aspire to. And on the other side, you've got 643,000 who are, you know, having an awful life of it. But, you know, when you weigh these two things up, you know where it's going, I should say. I mean, any given that we've just watched the current government try to do this for people who are having their housing paid for them by the state and had a horrible time of it, the idea that you would then do this for people who've paid for their housing themselves, I think is really a step too far. Now, the funny thing is that, you know, people who propose this solution say, oh, but, you know, there are simple things we could do. People are stuck in these houses, we just need to remove the barriers. This is just clearly rubbish. All right? You know, if you want to get these people out of their homes, you have got. They are not willing to give up 2 to 300,000 pounds worth of capital gains. So if you want to get them out, forget messing around with stamp duty and council tax, you've got to do something that is in that sort of order of magnitude that basically, you know, they're currently willing to sit on two or three hundred thousand pounds worth of capital gains to stay living in their family home. You have got to do something that hurts them more than that. You've either got to hurt them because they're income poor, or you've got to really hurt them and their capital gains and threaten them with Losing this, I do not find this a democratic issue. Acceptable solution. So just before anyone thinks that, I mean anyway, suggesting this, so you know, those are. We could show off the foreigners because they're to blame for so many things. This also, by the way, just to make it crystal clear, is not something I agree with. I mean here again it's zombie stats, you know, left, right and center. London prime, you know, 50% of London prime is being bought by foreigners. I mean that's true, But London Prime 2 million plus is 80 transactions a month. I mean it's nothing. And the thing is that, yes, it's true that for the first time we've got a majority of foreign buyers, 52% the last time I looked at the stats. But it's historically been about 48. I mean, you know, the only headline thing here is that we've just shifted, you know, from 48% being foreign buyers to maybe 52. Now look, this is less than half of 1% of transactions in London. So you know, I'm perfectly, I have no track with, you know, I'm perfectly comfortable with the idea that we'll just stop rich people, you know, the global wealthy from being able to buy these things. But it's not going to do anything to solve the housing crisis and it may well have other implications if you want to take it as not just prime but total foreign demand. Interestingly here you start to hit up on American rich as well problem which is that, yes, you know, on the figures we have about £3 billion worth of foreign money is coming into the London housing market. It's mostly buying off plan rental property and thank God for that because that has been the supplier of capital during a major, major financial crisis. It's about 10% of the total spend in Britain. So the total, you know, 10% matters but 90% is being driven by domestic demand. I mean I could discuss others but you can't kill the zombie stats. Weirdly, you can't kill the zombie stats on the supply side either. So one of the favorite people for people want to say it's not land supply is to say, oh yes, but 80% of permissions are granted and more on appeal. Now this is, as David will be able to tell you, putting in requests of planning commission, terribly expensive business. You don't do it on greenbelt land, for example, where you know you are going to be refused. So the application is endogenous to whether or not you're going to get the permission. So of course, you know, what this tells us is that David Knows what local authorities and his members know what local authorities are going to do in response to a planning application. They're getting it broadly right, get it wrong 10% of the time right, 90% of the time it tells us nothing about land supply. The other one will do one last zombie stat that I've absolutely failed to kill. This is the 400,000 permissions zombie stat. Now the funny thing about the 400,000 permissions zombie stat is that it has become a high profile zombie stat at the very time that it actually the amount of permissions is falling. It was 500,000 in 2008. I mean, this is. We've actually seen a reduction in the number. And the other thing which, you know, really is difficult with this is that the way we collect these permission stats is that you only disappear off the permission stats once you finish the project. So if you actually go and look at that, we've got 150,000 of those permissions are unstarted, 250,000 of them are already being built on. So. Well, 150,000 is basically, we've got a year's worth of supply. It's a little bit less than we probably need. So fine. You know, I've tried to be as provocative as possible there. I hope I've succeeded with it. I cannot see that any of the arguments around shifting the existing stock from housing rich to housing poor are A popular or B just I don't think they're going to happen in anywhere near the magnitudes that we would need to fix the housing crisis through that. I think we've got to increase supply. I'm interested to hear from others and people in the room about the extent to which this is land, the extent to which it's capital supply, borrowing requirements, the borrowing cap. But I think at least the four of us seem to be convinced that that increasing supply will have to form a crucial part of it. I'll stop there.
- [35:31]
C
Thank you, Alex.
- [35:32]
A
And that did save me. Well, look, I'd just like to thank all our speakers this evening and not only for what they said, but then reacting to what you said. And then we can carry this on over the food and drink that lies at the back. I know people have other events to go to. All I'd say, I mean really just to echo what has just been said, that is that this is an issue which is simultaneously increasingly significant salient nationally. People with all sorts of views about the need for housing and housing development and the different types of housing development. Owner occupation is declining in Britain for the first time in most people's everybody's lifetime. This is a remarkable thing to happen and it will have lots of consequences, many of which we will only learn in the future. So we need to kind of not just the shortage in the short term, but the consequences of a very different set of housing tenures in the future potentially. So there is that. And the second, going back to the issue of the use of green land, it's always seemed to me this is me speaking as me now, not sharing or summing up that those who defend Greenland and the Greenbelt do so because they think if they yield anything the whole thing will go. And the question is how to have a rational debate about the use of non green bits of greenbelt and other bits of Greenland and perhaps on a replacement basis, which I know does happen in some places. But you know, the challenge of providing more land is not sensing that if we allow any of it to go the Greenland it will all go and we'll have ribbon development and we like the interwar period. And I think that's very important. I'd just like to thank my speakers again for bringing up an enormous range of issues and I'd just like to thank the IPA here at the LSE ipa, the Institute of Public affairs, who've arranged this and provided at least the school has provided the excellent food and drink that lies at the back. Please feel free to stay, enjoy it and argue gently and rationally.