Don’s view on crafting a sustainable housing policy

ACCORDING to Cambridge academician Prof Michael Oxley ( pic), housing policies developed in 19th century Britain were driven by health concerns.

For many years, housing was part of the health ministry.

“There are external costs of bad housing – slums can develop,” says Cambridge Centre for Housing & Planning Research director (department of land economy) Michael Oxley.

Policies were introduced to try to improve the quality of housing.

But other than health and labour markets, housing is also inextricably linked to transportation.

The provision of low-cost housing can be essential to attract a particular volume of workers. The end product is larger urban economy.

Oxley was speaking on “Housing as a habitat: A case of market failure or institutional limitations?”, a public talk organised by Khazanah Research Institute.

In the stock market, analysts can monitor certain counters but there isn’t that level of scrutiny in the property market.

This “deficiency of information” underscores the need for rules and regulations by government.

“There is no perfect information – a buyer will not know if cracks exist in a house. Also, demand and supply is never perfectly balanced,” he says.

“There may be a supply issue and because people are impatient, they may want things to be speeded up.”

Why the rise in home ownership?

In any policy, there are options. If a government wants to indulge demand side options, the solution is to give people money.

“Giving extra money to people will result in a rise in house prices, land prices and rent rise,” he says.

The question is: why do policy makers want more home ownership?

“There are votes in it. Politically, this is popular,” says Oxley.

“But is it always the right thing to do?” he asks.

“Another policy which tries to increase ownership is based on passive welfare. There is the belief that it is the asset which will provide your pension, that it is not just a roof over your head. It will support you when you don’t have income and this is supported by the belief that house prices never falls.

“It can fall,” he says and this was seen in US housing during the global financial crisis.

Going down this particular route may also widen the gap between the rich and the poor, Oxley says.

Raising ownership and GFC

Policies which help to raise ownership work at the “margins”. “They help those who are not able to afford to being able to afford.”

Oxley says when he bought his house, he did not have a deposit but he got a mortgage from a local councillor.

“I was told I had a good job (at the university) and there is no problem borrowing. The situation now is different. A 20% to 30% deposit is needed.”

Based on the extensive research on the global financial crisis, Oxley says research tend to point strongly to the root of the problem being in the low cost home ownership in the US and loans.

“People could not keep up with repayments. So low-cost ownership could create massive economic issues,” he says.

Social renting

Ownership aside, renting is an option. The question is: Is it possible for the private rental housing to perform a social function?

Oxley says this is happening in some countries with the help of incentives.

But what do we want social housing rental to do?

> Just to meet housing needs? But this usually leads to poor housing conditions.

> To be more than a residual tenure?

> To offer more than a roof over heads?

While there is a need for good social housing rental, what does good governance look like?

Oxley says there are social housing institutions. In Britain, there is the housing associations, arms’ length management association (Almo) and those run by local councils.

While some of these models work well, the Grenfell Tower fire was run by an Almo with bad governance. It ignored the tenants warnings, which resulted in more than 80 dead.

Good governance in social housing, Oxley says, is crucial. There is a lot of renting in Germany but this is partly to do with policy. Home ownership have security of tenure as long as the mortgage is paid.

When looking to solve housing policy problem, accept that markets and institutions can fall and so coming up with right institutional arrangements is important.

Oxley concludes: “Say exactly what the policy is to do? Specify what the middle income (group) means, specify the objectives, use evidence rather than idealogy to determine the best set of policy instruments.

“It is not a question of market failure or institutional limitation, but good policies need to tackle both.”