Are Autumn winds blowing bubbles?
As the chatter about a new housing market bubble grows, Robin Staines, chair of the new Housing Supply Task Force, pens an ode to innovation and building some houses
Autumn is definitely the season of mists, mellow fruitfulness, Housing Bills and bubbles. From the slough of despair that was the credit crunch (and may friendly bombs fall on that as it isn’t fit for humans now) we are now lurching to a housing bubble. Or are we? Certainly the chatter is the housing market is getting to meltdown before it has even warmed up. Trying to throw a little light rather than heat into the debate, let’s reflect on what is really happening.
Boom and bust
The housing market is not just about house prices and the availability of mortgages, although you wouldn’t believe it. Talk of boom and bust in the housing market is important because of its relationship with the wider economy, especially confidence. Owner-occupation may represent the aspirations of, and reality for, the majority, but does not take into account the needs of a significant minority: growing waiting lists (demand), rising numbers of empty social housing properties (as tenants abandon their homes, changing demand to the private rented sector), or increasing rent arrears. All due to the false economy otherwise known as spare room subsidy/ bedroom tax. Does this qualify as a bubble?
Furthermore, the housing market is a complex, shifting dynamic with different regional drivers, tenures, and variables (within Wales as much as between Wales and the UK). The price rises in some parts of the UK are mirrored with price reductions in others. As we talk ourselves into a bubble, let’s remember we are not building at anything like the levels of 2007, or lending with the irresponsibility of ridiculous and unsustainable loans to values. The finance world, through international credit control and regulation, is cleaning up its act. Help to Buy in England has had an impact, as has reducing unemployment, quantitative easing and growing confidence. As ever, the devil is in the detail rather than the ‘housing market’ as a standalone, simple concept.
All the talk of bubbles reinforces the fascination with housing demand. But any market reflects the equilibrium between the fundamental economic elements of supply and demand. We can pump as much mortgage money into the market as we wish to artificially create/support demand. The result will inevitably be a rise in prices (if supply doesn’t increase to compensate). Nasdaq talks of a bubble as ‘a phenomena characterised by surges in asset price levels significantly above the the fundamental value of that asset’. In other words we create uncertainty rather than understanding of the real (and non- economic) value of housing and homes. Regardless of tenure, good housing creates tremendous value. An increased supply of good housing creates even better value. As Nasdaq concludes: ‘Bubbles are hard to detect in real time because there is disagreement over the fundamental value of the asset.’ As housing and regeneration professionals we have a head start as we know the value, as much as the cost, of good housing – we just need to make sure we can prove it.
Our housing minister, Carl Sargeant, recognises the importance of good quality housing and the need to shift the debate to supply and to get Wales building – with all the social, health and economic benefits that will bring. To that end a Housing Supply Task Force has been created specifically to look at the barriers to housing supply and what we can do to overcome them. With colleagues from housing associations, house builders, financiers and local government we are focussing on providing recommendations to increase supply across all tenures and by all providers.
As chair I have, not just hope, but a real expectation that we will deliver. I am fortunate enough to have seen the talent around the taskforce table, and the recent evidence day was hugely successful in identifying the issues and beginning to get our thoughts together on the potential solutions. Some of these are already being delivered but as ever good practice is a bad traveller. This includes the opportunity for councils to build again, especially with the context of exiting the Housing Revenue Account subsidy system (which currently sees £70 million of Welsh tenants’ rents making their way over the bridge). It’s part of the solution, as is sweating the assets and talents of all the providers.
In ‘To Autumn’ Keats moves from one who conspires, to one who ripens fruit, and to one who eventually harvests. In other words, let’s get together, innovate, and build some houses – you know it makes sense.
Robin Staines is former chair of Housing Leadership Cymru. Follow Housing Leadership Cymru on Twitter @housingleaders