Housebuilding and city economies: meeting demand?
Author: Adam MarshallDate: 11/07/2008
Publication: Inside Housing
In the media frenzy surrounding the credit crunch, a non-expert would be forgiven for thinking that the housing market is a national beast. The public is being subjected to a barrage of national statistics - most of them negative - on market demand, prices, affordability and repossessions, suggesting that conditions are broadly the same countrywide.
This week we published Home Economics: How housing shapes city economies, a report which finds that, as any experienced housing professional knows, housing markets are undeniably local. Yet policy makers - with their focus on national statistics and targets - are out of step with Britain's housing practitioners. For all intents and purposes, ministers and Whitehall officials lack a proper understanding of the complex relationship between housing and our cities' economic performance.
A couple of short anecdotes illustrate the dilemma. In successful cities - Bristol and Cambridge, for example - the sector is struggling to keep pace with demand for affordable housing. A nurse living in Cambridge on a salary of £18,500 would need to invest 11 times his or her income to afford a house in the area. But in cities with less-buoyant economies and lower-quality housing, such as Sunderland (where three-quarters of houses are in the two lowest Council Tax bands), the middle class continue to vote with their feet and move elsewhere.
So what can be done to bridge the national/local divide - and get decision makers in Whitehall and town halls in line with practitioners?
First, we need to make it clear that housing is a key driver of local economies. For too long, policy makers have focused almost exclusively on increasing supply without gaining a better understanding of how housing supports local workforces and business growth.
Second, developers, investors, landlords and employers must help all tiers of government to link house building more closely to cities' economic requirements - which means actively involving the private sector. If Britain's cities and towns are to develop flexible labour markets which can drive business growth and prosperity, policy makers need to set housing objectives that reflect local economic requirements. This means more local flexibility in setting targets and allocating funding.
Better market assessments
Practitioners need to work with city leaders to improve their understanding of how local housing markets work, going beyond a narrow conception of ‘housing needs' towards comprehensive analysis of current and future housing demand. Local economic assessments, proposed as part of the Treasury's sub-national review of economic development and regeneration, are an important opportunity to align housing provision with demand. For the first time in more than two decades, councils and sub-regions are being asked to think economically - and to provide clear evidence underpinning policy and investment decisions.
If introduced as planned in 2010, these assessments would provide the perfect opportunity for councils, housing associations, developers and investors to conduct a forensic assessment of sub-regional housing needs. This stronger evidence base could be used to better plan provision of both affordable and market-rate housing across economic areas.
The importance of engaging other private sector players, especially local employers, in the assessment process cannot be overestimated. A better dialogue between local leaders, business organisations and experienced housing professionals would help cities avoid repeating past mistakes, such as the last decade's oversupply of one and two-bed flats in northern city centres.
At a time when market conditions prevent many would-be investors from taking risks, strong housing market assessments would boost institutional and investor confidence. By demonstrating levels of demand in a city-region, assessments could also help less conventional products, including high quality, well-managed private rented homes or shared equity schemes, get off the ground.
A holistic approach
City leaders also need to rise to the challenge, using the market knowledge generated by these assessments to pool powers and funding, and work to deliver housing across the economies of places like Greater Bristol or the Liverpool city-region.
Some complain of the silo mentality of local councils where housing, economic development and planning departments work independently, pursuing separate goals and targets. This artificial split is exacerbated by local authority boundaries, which cut across housing and labour markets. These divisions must end if cities are to harness house building as a driver of economic growth and greater prosperity. Comprehensive local housing market assessments - as described above - would help unite cities' housing and economic development work, and would underpin increased co-operation at city-regional level. But cities will need to go further and consider whether institutional reforms, such as a single city-regional housing and planning service, would help increase housing investment and better link supply and demand.
And Whitehall must deliver more flexible funding streams. At present, national ring-fencing prevents cities from integrating housing, transport, labour market and regeneration money. In some cities, the ability to free up earmarked resources to deliver improvements in transport, training or public space would bolster the market for existing homes and provide confidence for new investment. In others, the ability to move additional resources toward affordable housing would help to address demand. Wherever possible, local area agreements and multi-area agreements should be used to remove the funding and administrative silos that prevent cities making investments that support their housing market needs.
If we want to see a metropolitan approach to housing and economic development - with a single set of objectives, flexible resources, and the ability to respond to market signals across a real economic area - involvement from regional development agencies and the new Homes and Communities Agency will be critical. Impending regional strategies must take account of city-regional housing market requirements, rather than simply impose supply targets from above. The HCA's proposed ‘single conversation' on housing and economic development will be invaluable in reconciling local, regional and national housing goals - particularly if discussion takes place at city-regional level.
Highs and lows
Taken together, careful market assessments and integrated governance will allow city-regions to develop a housing ‘fix' that better meets local demand.
In high-demand areas market assessments will help cities to make the case for the larger and much improved private rented sector crucial to maintaining open and flexible labour markets. When well managed by long-term investors, private rented homes can play an important role in bridging the affordability gap between social rented housing and homeownership. In cities and towns that have seen economic decline and low housing demand, careful market assessments will help councils and their partners identify the changes needed to help the area attract more highly skilled and upwardly mobile residents. This could mean upgrading the existing housing stock and focusing resources on making better places rather than building more homes.
Linking a city's housing stock to the performance of the local economy is a complex business. Over the past few decades, local leaders in Britain's cities and towns have lacked the market knowledge and information required to target housing development in a way that supports growth.
Now, however, there is an important window of opportunity for housing professionals to help national politicians and city leaders beat the information gap - and work together to deliver social, private rented, and owner occupied homes that fit local economic needs. It's time to seize that chance.
A version of this article first appeared in Inside Housing.
