Duncan Maclennan University of Ottawa

TAILS AND ELEPHANTS? The Economy and the Housing Market: Modern Policy Challenges

Argument –Global, Booms: National and Local Processes –Consequences: Multiple, Not just Affordability –Scope for Modernising or Remaking Housing Policies –Policy Shifts –Policy Conclusions

1. Economic Systems  Globalisation, growth and inequality  Rising real incomes  Lower real and nominal interest rates  Reduced real user cost, tax reinforced  Deregulated Housing Finance Circuits  Borrowing Rules  Mortgage equity release  Impacts Local Planning/Infrastructure systems First best and flexible impacts catallaxia systems

1. Global Challenges and Local Outcomes  Cross – national differences  Housing markets, spatial concentration  Localised land and labour  Localised booms and bubbles  Policy Issues are Housing and Cities

2. Consequences; Immediate Effects House prices  Homeowner burden, user cost down  Critical deposit capacity –Starter incomes –Parental and family wealth –Education debt –Single Person demographic  Reducing equilibrium ownership rate?  Renter burden? Rents Flat? – Buy to let – Gentrification?  Social, rental roles and queues

2. Consequences; Medium Term Medium Term  Supply increases –Faster suburban, land lower cost –Land prices and wage rates up –Developer speculation?  Macro effects –Equity withdrawal –Price expectations reinforce –Monetary policy complicated –Riskier lending and borrowing? –Migration, immigration

2. Consequences; Longer Term Longer Term  A lost legion?  Disrupted integration, soc mobility ladders  Sprawl encouraged, infra costs rise  Interest rates and inflation  Growth rates and housing?  Spending gains on existing bricks as progress?  Incentives for saving and investment by sector? Tenure outcomes, prices, burdens, rental sectors and shortages: which problem manifestation

3. Modernising Policy: Affordability - A Starting Point?? Policy uses.  Affordability, the rhetoric  Which groups, what ethical judgements  Affordability, the trigger to support Analytical roles?  For Whom, for How Long, For What?  Affordability versus Acceptability  Affordability, the explanation of choices? A muddy, ethical concept. Costs and shifting income distributions are the issues

3. Modernising Policy: Basis for Change Retrenchment after the 1980s  Income target support  Housing as residual social security/policy  Reduce social housing investment, Pub Ex  Focus on homelessness  Favour ownership ( rather than efficient market), tax breaks  Role for non-profits  Devolution, Subsidiarity, Dumping? Demoralised, delinked policies

3. Modernising Housing Policy Re-engagement Starts in 1990s Because  Costs rising, income inequalities  Homelessness  Low income renters, n’hood decline  Growth and displacement in city cores  Sprawl and quality impacts on environment  Recognition of economic role beyond income, to stability and growth

4. Policy Shifts Now?  Financial regulation, BIS etc  Monetary policy, asset prices  Macro view on housing  Taxing non-labour incomes  Prices and the environment  Housing supply  Mortgages and demand –Different sectors, levels

4. Policy Shifts: Governance of Supply Change  Recreate policy capacity – Central / Local  Improve information and evidence base  Inventory of public land  Framework / evidence to link to meta goals  Government and Governance structures Can governments rethink a better governance system for housing?

4. Policy Change: Planning  Governance, Culture & Aims of Planning System  Beyond ‘better building regulations’  Strategic Planning –From metro-region to n’hood templates –Coherent economic and social analysis –House price aims, using pricing tools  Development and Masterplans –Speed and delivery –Delivery vehicles and affordability

Policy Change: Supply cost/tax  Taxing unearned gains?  Alternatives –Strategic inclusionary zoning with capture agent –Community land in new 3 rd sector vehicles –Infrastructure charging, settlement structures  Related issues –Smart growth –Construction labour shortages

4. Policy Change: Ownership Demand side  Taxation of housing: renting, owning  Recycling parental gains to children  Should sellers pay stamp duty?  Capital gains tax  Do mortgage reforms help?  Shared equity products  Equity growth shares for tenants? But is demand the issue? But is demand the issue?

Policy Change: Rental Rental Markets  Buy-to-let versus REITS  Taxation, again  Security for longer term? Renting social  Case to keep  Create local housing agencies  Mix tenures and equity ladders from gains?  Low income tax credits, all sectors

5. Policy Conclusions for Moderate Modernisation?  System-wide approach and governance  Outcomes orientation  Evidence informed, strategy driven  Cross departmental, cross order  Maximise subsidiarity

5. Policy Conclusions for Moderate Modernisation?  Reshape NFP Developers  Use contestability in provision and planning  Consider tax neutrality and “economic rents”  Dynamic wealth focus  Supply side focus of support Good Luck!