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Reflections on the Evaluation of English Housing Policy

Professor Mark Stephens reflects on the Evaluation of English Housing Policy 1975-2000, and concludes that its key messages are as relevant today as they were when it was published in 2005.

In December 2002, the Office of the Deputy Prime Minister (ODPM), then the lead department for housing in England, commissioned three universities to conduct an evaluation of English Housing Policy over the 1975-2000 period.

This was a major investment (£300,000 in today’s money), which led to a final report supported by five themed reports, two background reports and one technical report. Together these papers represent a considerable body of evidence.

The Evaluation took place at a time when the government was taking an interest in housing, with reports on housing supply and being commissioned from Kate Barker and another on the mortgage market by David Miles. The Treasury, in particular, had a keen interest in the UK’s housing market and the considerable evidence of its instability contributed to the government’s decision not to join the Euro. The period of ca. 2004-2008 probably marked the only time when government (in the form of the Treasury) took a strategic overview of the housing system as a whole.

Within Communities and Local Government (CLG), as ODPM became, a concerted effort was being made to build up its analytical capacity and to adopt the principle of evidence-based policy. To this end two housing expert panels were established (I led one of them) to provide rapid evidence responses to the policy division within CLG, notably in response to the onset of the Global Financial Crisis when government recognised that the homeowner safety net needed to be strengthened if a repeat of the mass arrears and repossessions witnessed in the early 1990s was not to be repeated. A National Housing and Planning Advice Unit (NHPAU) was also established in 2006 in response to the growing concerns about deficiencies in housing supply. Both of the Expert Panels and NHPAU were abolished on the formation of the coalition government in 2010, and CLG’s analytical services were decimated as the period of austerity began.

The Evaluation itself involved a two-stage evaluation process. In the first instance, 27 policies or clusters of policies were subjected to evaluation using a standard set of criteria; about half of these were subjected to a more detailed second-stage review which included an examination of spillover effects and unintended consequences. These fed into the five theme reports covering: supply, needs and access; finance and affordability; housing and neighbourhood quality; widening choice; and management effectiveness.

We identified three cross-cutting policy which captures some of the main shifts in the housing system over the 25-year period of the review.

  • Deregulation and liberalisation:  The deregulation of the financial system combined with the Right to Buy was key to the growth in owner-occupation from 58% to 70% over the period, whilst the deregulation of the private rented sector in 1988 established the conditions for its revival.
  • Restructuring housing subsidies: At the beginning of the period more than 80% of housing subsidies took the form of supply-side measures, but by the end of it the situation was reversed, with more than 85% of subsidies being demand-side. With the successful phasing out of the regressive mortgage interest relief for homeowners being completed in 2000, this meant that the 85% consisted almost entirely of Housing Benefit. By far the largest financial subsidy to housing was under the control of the Department of Work and Pensions.
  • Asset restructuring: Both these strands were associated with a massive asset restricting as much local authority housing was transferred to housing associations, which had been chosen as the main vehicles for new social housing with the introduction of the “new financial regime” of mixed grant and private finance in 1988.

The Evaluation concluded that individual policies were most successful when judged in their own terms, but there were often unintended consequences and trade-offs. Right to Buy succeeded within its own terms in promoting home-ownership, but if we were to look back from the vantage point of today, the subsequent shift of much of this stock into private renting on which the state pays Housing Benefit on market rents, it is difficult to conclude that the policy was anything other than a catastrophe in the longer-term, even in its own terms. They were also most successful when they went with the grain of social and economic change, and least successful when there were not. Thus the phasing out of mortgage interest relief was successful because it coincided with the period when we transitioned to a low-interest rate environment. On the other hand, attempts at neighbourhood renewal were often hampered by countervailing social and economic forces.

By the end of the period, it was clear that the housing system as a whole has not become more robust, responsive and self-sustaining. This has left a legacy of massively different outcomes between those who are reasonably housed and those trying to gain access to the system…. Instead of coherence there are clearly two separate sectors operating to different rules, and generating a wealth of policies responding to particular problems.”

The Global Financial Crisis and the huge state interventions that it necessitated as mortgage credit dried up almost overnight, banks failed (starting with the former building society, Northern Rock), the housing market collapsed, and the housebuilding sector descended into crisis underlined this assessment more dramatically than we envisaged.

We argued that a well-functioning housing system would be robust to changing economic conditions; flexible in response to economic needs; responsive to demographic changes; and adaptive to rising expectations and needs.

Of the challenges for the future that we identified, the most significant is the challenge for policy coherence. No part of government has a strategic overview of the housing system as a whole. Policy remains fragmented between regulatory bodies (for example Prudential Regulation Authority charged with micro-prudential and the Financial Policy Committee charged with macro-prudential regulation of the financial sector); the lead housing department (now MHCLG in England); the Department of Work and Pensions (still charged with Housing Benefit and the housing cost element in Universal Credit); the tax treatment of housing, expenditure levels and conventions (Treasury); not to mention Help to Buy equity loan scheme which apart from the vast sums involved (almost £23 billion over the 2017/18-2020/21 period) means that government itself has become a major stakeholder in the housing market. Oversight is even more difficult in the devolved administrations where responsibilities are split between jurisdictions. The hastily cobbled together post-referendum compromise on Housing Benefit/ Universal Credit in Scotland may not be sustainable. The hard-fought battle to get the Housing and Planning Bill through Parliament in 2016, only for its most controversial elements to be quietly forgotten exemplifies the lack of policy coherence.

How well prepared are we in the face of future shocks? In 2007, on the eve of the GFC, government debt represented 42% of GDP. It is now only a few percentage points shy of 90%, so the scope for a large fiscal expansion is not there. Interest rates were 5.75% before the crisis; they have now edged up from their post Brexit referendum low of 0.25% to 0.75%, but this is a perilously small buffer with which to play in the event of another shock.

The key messages of the Evaluation of English Housing Policy remain as relevant as they were the day the reports were published in 2005.

Prof Mark Stephens is Co-Investigator at the UK Collaborative Centre for Housing Evidence and Director of the Urban Institute at Heriot-Watt University. Professor Stephens led the Evaluation of English Housing Policy. This blog is based on a presentation he gave as part of the Scottish Government’s Evidence Fortnight on 5 November. 


More information:

The full report, Evaluation of English Housing Policy: Lessons from the past, challenges for the future for housing policy, is available to read on The National Archives website.

 
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Date: November 9, 2018 12:44 pm

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