Jim Gleeson has an interesting blog entry about the consequences of making a city more liveable. In short, there is a danger that making an area more liveable can price out lower income people. By reducing air pollution and generally improving the local environment in more deprived areas, richer people will start to move in displacing the people who should have benefitted.
His prescription is more housing supply to accompany environmental improvements. But we need to think a bit more carefully about this to get the medicine right for places like London.
As he points out, the economic benefits of making an area more desirable will largely go to existing home owners and landlords as the value of the land, and therefore the rent they can charge, increases. Lower income people will be forced to move, presumably (according to Jim’s argument) to less liveable areas. Council and housing association tenants who are secure in their homes gain a nicer environment, but they have no direct stake in the increased value of the land their homes sit on.
Building more homes as Jim suggests could help to keep prices down, meaning less of a windfall gain for land owners and possibly more stable rents. But in practice, due to London’s policy of “mixed and balanced communities”, deprived areas tend to see council housing demolished and replaced overwhelmingly with housing for sale in order to “balance out” the social “mix” of people in the area. There’s no way anyone with an average income and average wealth would be able to buy a new flat in most areas of London on the open market.
The flats will be bought by wealthier-than-average people, and probably many then let on the private market, with a good number of those subsidised by housing benefit. So while more supply might dampen the economic consequences of making an area more liveable, and while it might spread the wealth a little more widely, the economic benefits will still mostly go to wealthier people.
You would need to increase house building across London to 50% higher than Boris Johnson’s aspirational target just to stabilise prices. It would be interesting to know whether there is enough spare land and available development finance to raise supply levels high enough in order to gradually reduce prices so that the benefits of new homes would be principally accrued by ordinary Londoners.
But there are other ways in which we can reduce unequal access to nice local environments while maintaining or reducing levels of economic inequality. Housing supply is undoubtedly part of the picture, but policies need to be a bit more sophisticated to achieve this aim.
One simple policy would be to try to build lots more council housing in wealthier areas that already enjoy high environmental quality. That would require a government to reinstate an adequate housing capital budget; the new budget for London in 2011-15 is two-thirds lower than than the budget for 2008-11!
Another would be to ensure all the new housing is put into the control of a Community Land Trust, which owns the land and so can keep homes permanently affordable. Members of the Trust, usually a co-operative, use any rise in land values to benefit the local community and not private individuals. To date, there is only one example of this in London – Coin Street. Despite valiant efforts and credible plans from various other communities, the HCA, GLA and government have done little to make this concept happen.
A third more radical solution – radical as in dealing with the root of the problem (from radix, Latin for ‘root’) – would be to bring back taxation on land. Winston Churchill and Lloyd George both tried, and failed, to do this at the turn of the 20th century. They were blocked by wealthy landowners in the Lords, whose ancestors got rid of them as the power of the Crown diminished.
We have a tax system that raises income off hard work and consumer goods, and that leaves people to rake in huge gains from increases in land values and capital gains with comparatively little or no tax. If we brought back “schedule A” taxes, land values wouldn’t rise so much, the benefits could be clawed back for investment in affordable housing, all local residents could therefore benefit including council tenants, and people might be encouraged to invest their savings in productive stocks and shares rather than dead bricks and mortar.
These solutions have all been applied in the not-too-distant past. But as with the debate over the National Planning Policy Framework, they seem to get overlooked in simplistic debates over false choices like “housing supply vs. conservation”.
Jim’s post is much more sophisticated, looking at the relationship between environmental improvements and the housing market. But his prescription – more supply – needs to be equally sophisticated to ensure that we deliver environmental and social justice side by side.
Tom, thank you for a very thoughtful response. I agree with much of what you say, including that supply is not the only policy worth pursuing – though I do think it is an extremely important one, and all too often ignored.
I do want to see more social housing built, and perhaps CLTs too, but if they come at the expense of new market housing they will not help, and may exacerbate, the affordability problem in the market. I understand that above-average earners (the only ones currently able to buy, as you say) are in no sense a needy group but it would not actually help the poor if we stopped building for the market on that basis, as they would just get squeezed out of the existing stock (indeed, this is already happening).
I also agree there is a lot of scope to improve housing/land taxation and would see this as a very important part of the ideal policy mix, but it wouldn’t be enough by itself to ensure long term affordability in a city where both population and incomes are growing.
There are also substantial environmental benefits of building in already urbanised areas close to jobs and services, but that’s a whole other discussion …