by Peter Ambrose
“No Place Like Home” – an introduction to Z2K Housing Review
- part 1: Why housing is so important
- part 2: What has gone wrong – the evidence
- part 3: Why has it gone wrong – the reasons
- part 4: The main lessons – and how to do it better
We saw in Part 2 that many of the loan and mortgage products developed by financial institutions in recent years have been very complex and have used the mathematics of gambling.
Part 3 opens with a discussion with Alex Tuck. Alex is a Cambridge graduate, works in the legal sector and has lived in a number of EU countries. He is clearly a highly competent consumer of financial products but he lays out the many difficulties of steering a course through what has in recent decades become a complex minefield.
At 3.30 a Joseph Rowntree report about the cost of poverty is referred to. The very latest report from the Foundation (February 2009 – see http://www.jrf.org.uk/publications/ending-child-poverty-changing-economy) makes it clear that the Government has very little chance of reaching its child poverty targets without very considerably increased investment in support programmes – and, we would argue, in affordable housing programmes.
At 4.30 it is shown that the balance of housing support has moved over the past 20 years from an equal emphasis on producer (supply side) support and consumer (demand side) support. This is in line with neoliberal ideologies about letting markets dominate provision but targeting poorer groups with support to enable them to compete. We saw some of the adverse social outcomes of this philosophy in the housing sector in Part 2. Equally important this strategy has served to increase the prices and rents of already existing housing rather than directly stimulating the output of new housing – especially when allied to the flood of mortgage lending already discussed.
At 6.12 – following some information about the longstanding ideological underpinnings of home ownership in the UK – Alex talks of his personal experiences when seeking finance to buy property. The fetishisation of home ownership has not been so pronounced in comparator EU countries. In his view there has been a lack of certainty about the value of the products and a lack of transparency and honesty in their marketing. Much of what has happened has flowed directly to the privatisation of formerly mutual institutions – prudent building societies have transformed themselves into highly imprudent banks.
At 12.35 an extract from a longer scene (shown in full elsewhere) shows the differences in the behaviour and practices of lending institutions over the past 30 years.
At 17.30 there is a discussion of the regulatory framework – the Bank of England, the Treasury and most relevantly the Financial Services Authority (FSA) based partly on Alex’s professional interaction with the Authority. It seems clear that the funding arrangements for the FSA are not such that a truly independent regulatory role can be carried out. Nor has the competence of the FSA in identifying the nature of some of the complex financial products been equal to that of the institutions devising and selling them.
At 22.18 the decreasing output of the housebuilding industry is considered. Adrian Cooper of TEAM Homes Limited addresses the issue and compares unfavourably our output, and its quality, with that of Japan. In his view we have simply not moved on technologically. He believes that high quality and low cost can be combined by using the properly tested and innovative factory and systems building used for many years in Japan (see http://www.teamlimited.co.uk).
At 28.35 Stephen Hill explains how the fluctuations in the price of land reflect the business cycle. He also criticises the simplistic analyses of some economists who do not specialise in land and housing economics. Some analyses based on ‘classical’ economics have simply been falsified by the effects of the ‘credit explosion’ and the irresponsible behaviour of lenders.
At 34.25 we reiterate that the 2005 Z2K Memorandum contained very explicit warnings of the trends apparent in the lending volumes and that no attention was paid to these warnings.
To summarise, the acute problems in the housing sector have arisen from a combination of lack of understanding of the role of housing, under-investment, unhelpful changes in the balance of housing support, outdated production technologies, a lack of understanding of the land market and inadequate regulation of financial markets – a toxic mixture.