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EXCLUSIVE: Improving the market by design

Robyn Hall

July 31, 2014

To initiate a quality-based programme of change will require the full commitment of at least one government department involved in housing or the Bank of England. This commitment will begin with defining strategic objectives aimed at resolving the housing problem.

The Government’s Position

In its 2011 housing strategy Laying the Foundations: A Housing Strategy for England, the Prime Minister and Deputy Prime Minister pledged that that they:

‘…would be a different kind of government: one that took decisions that were right for the long term, not right for the headline; that always acted in Britain’s national interest; that left this country stronger and fairer for our children’.

The Secretary of State for Communities and Local Government went on to say:

‘…we will not achieve this by attempting
to control the market from Whitehall. The system of setting top-down targets for housing, vast amounts of planning guidance and excessive regulation did not deliver the homes we need nor the places that people want to live in. This Government is doing things differently’.

It follows that the government is relying on free market principles. While I applaud the sentiments, this strategy does not explain how all this will be achieved.

Free Market Principles

With a true free market, homes would be getting larger, better and cheaper in relative terms, in response to the demands of the consumer. This is not happening. New properties are about half the size they were in the 1930s and they have become so expensive that millions are now being delayed or excluded from homeownership.

The housing market is virtually the only sector where this is happening. Imagine if we, in the UK, were driving cars that were worse than they were in the 1930s.

Relying on free market forces will not work so long as builders, lenders and private sector landlords can exploit the existing dysfunctional market. Things could even get worse.

I am not suggesting that the government and Bank of England should become involved in the day to day operations of the market, but rather they collaborate with stakeholders to fix the housing problem and then exit once a self-correcting free market exists.

Setting Objectives

Setting objectives requires some thought, but fours sets of goals immediately come to mind:

• Improving first time buyer affordability

• Removing the taxpayer from the system

• Creation of a customer-led, free market

• System resistance to asset price bubbles

Current initiatives take us in the opposite direction. The Help to Buy scheme is assisting first time buyers buy into an over-priced market, rather than improving affordability. Indeed the influx of first time buyers may be contributing to property price inflation. The scheme is also drawing the taxpayer into the day to day operation of the market, rather than fixing it.

I am not saying that we shouldn’t have a Help to Buy scheme, because we must assist young people in the short term. However, it should be envisaged as an expedient tactical workaround, which is being employed only until strategic solutions take effect.

The Bank of England’s involvement in setting lending criteria may ensure lenders lend more conservatively, but if this encourages homebuying delays and exclusion in homeownership the economy will suffer. In a similar fashion to capping housing benefits, fixing one problem often creates a larger one elsewhere, because the market is a complex system.

Objectives will spotlight where collaboration is vital between government departments, the Bank of England, homebuilding planners, lender regulators and stakeholders.

For example, the Department of Communities and Local Government defines housing policy, but the Department for Work and Pensions picks up the tab for failings in this policy in terms on increased demand for housing benefits. Therefore, the setting of objectives should include consultations with policymakers and stakeholders.

This approach establishes collaboration as the foundation for the programme of change.

Conclusions

Setting objectives will facilitate the establishment of a quality-based programme of change. However, we must consider the fact that the housing market is a complex system and will react in a potentially unpredictable manner to corrective actions.

Quality techniques will give us a customer-orientated, collaborative approach, but we also require tools to anticipate the market’s dynamic behaviour.


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