Shelter? or Investment?

It is quite true that man lives by bread alone — when there is no bread. But what happens to man’s desires when there is plenty of bread and when his belly is chronically filled?

Abraham Maslow

Back in the 1940s, psychologist Abraham Maslow postulated a hierarchy of human needs. His argument was refined over the next 30 years, but essentially can be boiled down to the idea that basic physiological needs like shelter and food are physical requirements for human survival. If these requirements are not met, the human body cannot function properly and will ultimately fail. Physiological needs are therefore the most important and should be met first.

It seems to me that in this simple statement we can find some clues to what is happening in the housing market, and by extension in society as a whole.

The finance of housing is predicated on a basic assumption that the house in which we live, from which we gain that basic physiological requirement of shelter, should be treated instead as a speculative resource. By speculative I don’t mean the normal activities of business in building and supplying houses. I mean instead the process by which people are encouraged, almost required, to risk all – food, family and economic security in pursuit of illusory capital accumulation. I say illusory deliberately because vast increases in the capital value of property benefit no one except the mortgage purveyors, property lawyers and estate agents who are parasitic on the housing market. The rest of us cannot realise that increase except by reducing our stake in the market in the form of a smaller house or by moving to a cheaper area. In other words by relinquishing the security the property is supposed to guarantee.

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A bit of light relief from the local Tesco…

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Housing – bibliography

In preparing this series of posts I’ve consulted lots of documents. I’ve given a partial bibliography below, which includes I think all those cited. Any additions can be found here:

A Haunted Landscape: Housing and Ghost Estates in Post-Celtic Tiger Ireland, Rob Kitchin, Justin Gleeson, Karen Keaveney, Cian O’Callaghan, National Institute for Regional and Spatial Analysis, 2010

Abundance of land, shortage of housing, Kristian Niemietz, Discussion Paper No. 38 Institute of Economic Affairs, 2012;

Affordable Housing Supply England, 2011-12, Department for Communities and Local Government, 2013;

Development Plan rezonings: the political pressures, Lee Komito in Promise and Performance: Irish Environmental Policies Analysed, John Blackwell and Frank Convery (eds). Resource and Environmental Policy Centre; University College, Dublin, 1983. pp. 293-302;

How Buildings Learn, Stuart Brand, 1997;

Ireland’s Ghost estates, Peter Geoghegan, LRB Blog, 17 January 2013;

Ireland’s housing boom: what has driven it and have prices overshot?, David Rae and Paul van den Noord, OECD Economics Department Working Paper No 492, 2006;

Man’s Struggle for Shelter in An Urbanizing World, Charles Abrams, 1964;

Mind the Gap – housing supply in a cold climate, David Pretty, Paul Hackett, Smith Institute Town and Country Planning Association, PricewaterhouseCoopers, 2009;

National Housing Development Survey, Summary Report, November 2012, Housing Agency, Department of the Environment, Community and Local Government, 2013;,31621,en.pdf

New estimates of housing demand and need in England, 2011 to 2031, Alan Holmans, Town and Country Planning Association, 2013;

Politics and Clientilism in Urban Ireland, Lee Komito, Doctoral Thesis 1985;

The Containment of Urban England, Peter Hall et al, 1973; Vol 1 –

The Containment of Urban EnglandPeter Hall et al, 1973; Vol 2 –

The Uses of Disorder, Richard Sennett, 1970;

Unfinished estates in Post-Celtic Tiger Ireland,Rob Kitchin, Cian O’Callaghan, Justin Gleeson, National Institute for Regional and Spatial Analysis 2012;

Unlocking public land for housing supply, Town and Country Planning Association, 2007;

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The Fool on the Hill: Ultra-low impact housing and public policy

The Fool on the Hill: Ultra-low impact housing and public policy.

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Housing – the Irish experience

In my last post in this series I argued that we need to increase the supply of land for housing by a substantial amount. I recall a Conservative MP (I’m afraid I can’t remember who and haven’t been able to find a link) recently suggesting that the land available for housing should be tripled. His idea – and to be fair mine – was that this would bring down house prices. If this happened, it would not of course be entirely free of adverse consequences. As the recent history of property developments in Ireland and Spain demonstrate, even a radical increase in supply is not guaranteed to secure a fall in prices. In this post therefore I will look at what happened in Ireland during its ‘Celtic Tiger’ period, to see what lessons can be drawn for the UK, if any.

In Ireland between 1991 and 2011, 933,000 housing units were built, while the number of households went up by 625,000. In other words 1.5 housing units were built for every new household.

For the decade and a half between 1993 and 2007 the Irish economic model, the so-called ‘Celtic Tiger’, roared. GDP growth rates soared year on year, with double digit growth for a number of years. The unemployment rate fell to the lowest in Europe, with the number of people at work almost doubling between 1992 and 2007, increasing from 1.165m to 2.139m (CSO 2010). Between 1991 and 2011 the population grew by 1.055m to just over 4.5m (29.9% increase). And as the economy and population grew, the country embarked on a building frenzy of private housing units, commercial property and public infrastructure such as roads and light rail. For example, between 1991 and 2011 housing stock increased by at least 869,949 (76.7%, not including replacement stock; CSO 2011).

Unfinished estates in post Celtic Tiger Ireland Working Paper 67 Feb 2012 National Institute for Regional and Spatial Analysis (NIRSA)

During this period Ireland experienced a huge growth in property construction and in house prices. Construction became a major component and driver of the Irish economy reaching at one point 16% of GDP. Both development and its underlying finances became massively over-extended, creating an enormous property bubble. In 2008, with the banking crisis, the bubble ‘popped’ in a spectacular fashion leading a huge fall in house prices, widespread negative equity, and a collapse in construction activity. (NIRSA – WP59)

The average new house price rose from €78,715 in Dublin, and €66,914 for the country as a whole in 1991, to €416,225 in Dublin (a 429% increase) and €322,634 for the country as a whole (382% increase) in 2007. Not unsurprisingly, second-hand homes follow the same trend, costing on average €76,075 in Dublin in 1991, and €64,122 for the country as a whole, rising to €495,576 in Dublin (551% increase) and €377,850 (489% increase) across the country in 2007. … In the same period, house building costs and wages only doubled (Brawn 2009). In Q3 1995 the average secondhand house price was 4.1 times the average industrial wage of €18,152, by Q2 2007 secondhand house prices had risen to 11.9 times the average industrial wage of €32,616 (datasheet 5). (NIRSA – WP59)

Land values also reached incredible levels.

…in 2005 the 7 acre site of Jury’s Hotel and the former Berkeley Court Hotel in central Dublin sold for €379m (€54.1m per acre). A nearby 2.05 acre site, the former UCD Veterinary College, sold for €171.5m (€83.7m per acre) and a 0.3 acre site for almost €40m (€95m per acre). None of the three sites had planning permission for re-development. Derek Brawn (2009) details that between 2004 and 2007 there were 55 sites in Dublin 2 and 4, totalling 62 acres, which sold for a collective value of 2.01bn.(NIRSA – WP59)

Irish land became the most expensive in Europe nearly twice the cost per hectare of any other European country and three times greater for all but four countries (Spain, N. Ireland, Luxembourg and the Netherlands).

The outcome however is that at October 2011 there were over 2800 ‘ghost estates’ – developments where at least 50% of the units are unoccupied. In the haste to cash on on the seemingly never ending increase in property prices, many of these were built in areas without adequate access to services – even mains drainage. Septic tanks and soakaways were common not just for single houses, but for estates.


These numbers also hide a great deal of variation. In many cases construction has simply been abandoned part way while in others, completed developments simply remain unsold because of the crash in property prices.

The incomplete status of these estates have given rise to a number of health and safety issues, including the lack of pavements, poor road surfaces, sewage contamination, poor water quality, unsecured construction materials, open excavation pits, uncovered manholes, partially completed buildings that could be unstable, no street lighting, no open or play areas, and isolation from neighbours. Children are using the building sites as playgrounds and some estates have been plagued by vandalism, theft and anti-social behaviour. Given the location of some estates, especially in rural areas, there are issues over access to services such as schools, crèches, medical centres and public transport. In those cases where an estate management company is meant to be in place to manage the services, low levels of occupancy make such companies unviable, meaning that service provision is patchy or nonexistent (see Mahon and O’Cinneide 2010). For residents in these estates, they are living with the stress of an uncertain future with regards to works being completed, massive negative equity (in excess of 60% from peak), and a lack of a sense of place and community. Whilst occupancy levels in some estates is high, and there has been a rise in occupancy in some estates, the remaining units on the vast majority estates are filling up very slowly.(NIRSA – WP67)

Standards of construction were often defective. In March 2012 there was an explosion at an (occupied) semi-detached house on the Gleann Riada estate in Longford, seventy miles north-west of Dublin. The blast – which blew out the sitting-room window and left a hole in a ground floor wall – was caused by methane that had accumulated underneath the property. In October, Ireland’s Health Service Executive said that Gleann Riada was ‘unsafe’ and called for ‘necessary and immediate remedial work’. Residents were told not to light fires and to keep their windows open.

A few weeks ago I spent an afternoon in Gleann Riada. One of the residents told me she was worried ‘there could be an explosion at any time.’ All her windows were open. A bank of plug-in air fresheners barely masked the smell of sewage inside the door. The ceiling was so low my head almost touched it (I’m under six foot). ‘If these things are visible to the eye, what short cuts were taken in places people can’t see,’ said John McNamara, an engineer and residents’ spokesman. Nearby, an occupied three-storey block of flats had no proper fire door.

Peter Geoghegan – Irelands ghost estates

According to Geoghegan, thousands of buildings have pyrite in their foundations, a naturally occurring mineral that becomes unstable when exposed to air, causing walls and floors to crack. In Dublin in 2011, hundreds of people had to move out of the Priory Hall apartment complex after it was judged unsafe.

Clearly something went seriously wrong in Ireland. According to Kitchin et al:

As well as a catastrophic failure in Ireland’s banking and financial regulatory system, there has been a catastrophic failure of the planning system. In a housing boom planning should act as a counter-balance to the pressures of development in order to maintain a stable housing market and try to prevent boom and bust cycles. Planning should provide checks and balances to the excesses of development and act for the common good, even if that means taking unpopular decisions. However, during the Celtic Tiger period a laissez-faire approach to planning predominated at all levels of governance that was insufficiently evidence-informed with respect to long-term demographic demand, market conditions and issues of sustainability, and which marginalised and ignored more cautious voices.

Both the fiscal and planning levers of development were overly pro-growth. As a result, not only was there an unsustainable growth in property prices, but this was accompanied by a property building frenzy that led to a significant oversupply of housing (as well as offices, retail units and hotels) in almost all parts of the country.

They go on to describe the Irish political culture as “short-termist …shadowed by low-level clientelism and cronyism.

My own experience (as a planning consultant) in Ireland did not bring me into direct contact with political culture, but the level of planning expertise in Irish local government appeared in general to be low, with some clear exceptions. Even there, political decisions often appeared to outweigh those based on firm evidence. There also appears, if Geoghegan and others are to be believed, to have been a wide spread failure to meet constructional standards.

The outcome though is that Ireland now has a huge oversupply of housing, concentrated to a large degree in areas in the West of Ireland where demand in any case is lowest.

housing vacancy rate ireland 2011

It is very difficult to piece together the reasons for all of this. However key issues appear to include:

  • an over-reliance on construction as a driver for the economy

  • a willingness by banks to provide mortgages at hugely inflated income ratios

  • an obsession with the investment value of domestic property rather than on its basic role of providing shelter and security

  • a lax approach to the provision of basic services like potable water, mains drainage and safe construction

  • a gold rush mentality applied to construction of all kinds

  • corruption and cronyism on a large scale

It will take another post I think to consider how much of this is applicable to the UK.

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The supply of housing

A series of earlier posts have looked at affordable housing, self help provision in shanty towns and at the supply of housing generally here in the UK. In this post I want to look at more general issues around housing supply.

To begin with, some stark figures.

According to recent research published by the TCPA, and carried out by Alan Holmans of the Centre for Housing and Planning Research at Cambridge University, there is currently a need for over 240,000 homes per year. We are actually building around 110,000 per year.

This huge shortfall is on top of the backlog of unmet housing needs and exists in a context where local planning authorities are legally required to maintain a five year supply of housing land. However given the gap between building and supply recorded in the research, the overall validity of that exercise must be questioned. If the majority of councils are meeting the supply requirement why is the gap between need and provision widening? To my mind this can only be because the basic premises on which these calculations are constructed are fundamentally flawed.

No discussion of housing in Devizes can ignore this basic problem.

The supply – or rather the lack of supply – of affordable housing is inextricably linked to the supply of ordinary housing, whatever that is. Of course we only need to create a special class of housing called ‘affordable’ because the general cost of provision has risen to such ludicrous heights on the back of the artificially constrained market created by the way in which we plan for housing.

Why is this happening? In areas like housing or health many argue from a perspective of social justice or equity, that the market will not meet the needs of those unable to pay and the intervention of the state is needed to redress that imbalance. It doesn’t seem to me however that this is what we have. . We have a market that is heavily regulated and controlled, while government increasingly tries to apply a market model in areas like health with conspicuous lack of success and a forecasting model to areas like housing and retailing with similar failure.

One technique of planning large human settlements developed in the past hundred years has been the device of establishing ‘projective need’. This means guessing the future physical and social requirements of a community or city and then basing present spending and energy so as to achieve a readiness for the projected future state. In planning schools, beginning students usually argue that people’s lives in time are wandering and unpredictable, that societies have a history in the sense that they do not do what is expected of them, so that this device is misleading. Planning teachers usually reply that of course the projected need would be altered by practical objections in the course of being worked out; the projective need analysis is a pattern of ideal conditions rather than a fixed prescription.

But the facts of planning in the last few years have shown that this disclaimer on the part of planners is something that they do not really mean. Professional planners of highways, of redevelopment housing, of inner city renewal projects have treated challenges from displaced community groups as a threat to the value of their plans rather than as a natural part of the effort of social reconstruction. Over and over again one can hear in planning circles a fear expressed when the human beings affected by planning changes become even slightly interested in the remedies proposed for their lives. ‘Interference’, ‘blocking’, and ‘interruption of work’ – these are the terms by which social challenges or divergences from the planner’s projections are interpreted. What has really happened is that the planners have wanted to take the plan, the projection in advance, as more ‘true’ than the historical turns, the unforeseen movements in the real time of human lives.

“The Uses of Disorder”; Richard Sennett 1970

This quote is taken from a book published in 1970, but is still relevant today. It applies moreover not just to what we conventionally call planning in the UK, but to all those other areas where the state attempts to predict what will happen in order better to work out how they – which means we – will pay for it.

At the root of predictive thinking used this way, is an idea of perfectibility that runs counter to all we know of human behaviour. We will never have enough information; we will never have enough money to do everything. Expecting the state nevertheless to act as if it can do just that is surely dangerous.

This is exactly what I think is happening in housing.

Limiting the land available for housing through the planning system does several other things:

  • It generally drives up the price of housing land and hence of both new and existing housing1.

  • It encourages the concentration of new housing in large chunks, because it is also easier for the planners to show compliance with the need to maintain a five year housing land supply.

  • house builders like big lump development too, because they are better able to keep out their competitors, This biases the market towards the bigger companies who can afford those big chunks, creating conditions of near monopsony in the market for land, and near monopoly in the supply of housing.

  • Large chunks allocations through the planning system hand huge financial windfalls to local landowners as land values shoot up from £3-5,000/acre to £3-500,000/acre or more.

  • Larger chunks of development concentrate the environmental impact of new development.

  • Concentration of development in the hands of a limited number of developers reduces the likelihood of innovations in design.

  • Smaller allocations do however make it harder to create new settlements as originally envisaged by Ebenezer Howard so encouraging the situation where existing settlements, like Devizes, are often extended beyond acceptable levels as the rate of development of housing often outstrips the ability of the local market to provide the other infrastructure, whether public or private, at the same time.

  • The ability of developers to contribute towards the cost of infrastructure without driving up the cost of housing even further is limited by high land costs caused by the artificial market.

  • In any event developers (and through them new occupiers) can only legally be asked to contribute to the cost of such additional demand on infrastructure as they might generate. They can’t be asked to make up any existing shortfall and even if they could that would be yet another increase in new house prices.

The big question of course is how to address these issues. If the predictive method is unsound, then we clearly need to find ways to increase the supply of land – by a substantial amount. We still however need to address other planning issues like density of development and urban form. Density of development is a key factor in assessing land requirements. We also need to look at ways to reduce central state power over the quantity and pattern of development without handing that power to locals who simply want to pull up the drawbridge behind them.

That will form the basis of the next post in this series.

1 A book published in 1973 “The Containment of Urban England” by Peter Hall and others (Vol 1; Vol 2) estimated that in some cases the effect of the planning system was to increase the value of agricultural land 100fold. I suspect this still holds at minimum and in crowded areas like the SE will have been exceeded.

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Affordable housing – supply issues

Previous posts have looked at the way we provide affordable housing in the UK and identified some problems with that approach and at shanty towns in the developing world. In this post I want to touch on some of the other factors that affect the supply of affordable housing.

I grew up on a council estate in NE England in the ’50s and early ’60s. At that time the people who lived there were a much wider social range than would be the case now. It was expected that buying a house would be beyond the means of most and that Councils would try to bridge the gap. Of course there was still a substantial private rented sector too, but it was understood that for both security and quality, if you couldn’t buy, you were better off in a council house. Generally, the stigma that now attaches to social housing did not exist.

The reasons for this change are generally outside the scope of this post, but the sale of council houses to existing tenants at hugely discounted rates without using the income to build more, has increased the pressure on social housing providers to the extent that only the most disadvantaged are likely even to become eligible. This has also increased pressure on other areas of the housing market.

The increased numbers of people seeking to buy houses, until recently anyway, caused by the shift away from council housing to private ownership that began with the Thatcher Government, has not been fully met by an increase in the number being built. The gap between the numbers provided and the demand has been growing. The theory is that housing provision is best met by ‘the market’ and not by state bodies, but in practice the market doesn’t exist. What we have is a heavily regulated system with state control of the overall numbers via the planning system, creating artificial scarcity.

Planning consent is often hard to get, and thus the value of land which has planning consent is enormously inflated. Agricultural land sells for £5-£10k per acre – in some areas even less. The blogger at Fool on the Hill bought ten acres of it for £40k. If he were to build houses on it at a modest density of four to the acre, the cost of the land would be a very reasonable one thousand pounds per house, still leaving the total cost of a family home well below the notional deposit in David Cameron’s ‘5% of £250,000’ scheme. A mortgage of £250,000 means the purchaser would have to raise twelve and a half thousand pounds deposit, and would then have to pay one thousand six hundred pounds a month every month in good times and bad, in sickness and in health for the next twenty-five years – and that assumes interest rates didn’t rise above their present historic low. The value multiplier created by the artificial scarcity in housing land is huge – land with planning permission sells for twenty to thirty times as much as land without – even more in London. I’m not saying that planning law is without merit but pointing out one of its unintended and desperately damaging consequences. So if we have what amounts to a conspiracy to inflate the price of housing, cui bono? Or, to put it another way – follow the money.

To understand what is going on, we need to look at the history of the speculative bubble in housing. Over the past half century, the price of housing has risen considerably above the rate of inflation. Which means that everyone who has owned a legal home has seen a windfall profit, a profit which has come directly out of the speculative bubble. People are naturally inclined to project the past into the future. House prices have risen, so house prices will go on rising. In fact though, we’ve probably reached the natural limit of the bubble. Like any other Ponzi scheme, it can go on running only as long as there are new people ready and able to buy into the scheme, and frankly there no longer are. New entrants into the housing market may wish to join the dance, but they can no longer realistically raise the buy-in price. So house prices cannot rise without catastrophic effects on those without houses.

Housing is one of the two products – the other being pensions – that have over the past two generations required most people to hand over most of the money they earn to the ‘financial services’ industry, and the ‘financial services’ industry grew very fat and greedy on the proceeds. Note that I’m not claiming that the ‘financial services’ industry invented planning law, let alone that they did so with malice aforethought. Rather, planning and building law was created by well-meaning people to tackle real problems. If people were allowed to build their own houses wherever they wanted to, some of them would be eyesores or in places where any building would be an eyesore. If people were allowed to build houses ignoring the building standards, some of them would be dangerous, and some of them would fall down. Planning law and building standards tackle real problems in the real world. But by interfering with the market, they create excess value for someone to hoover up; they create, in effect, a new ecological niche. We tend to call the creatures which move in quickly to exploit new ecological niches ‘vermin’. Or ‘financial services’.

So the ‘financial services’ industry cannot be allowed to collapse. Yet that industry depends in large part on the tithe of mortgage charges it levies on householders, which enable those householders to have and to hold houses purchased at artificially inflated prices. If – or more likely when – the bubble bursts, those householders will be bankrupted. If/when those householders are bankrupted, they will stop paying their tithe to the ‘financial services’ industry, and the ‘financial services’ industry will be bankrupted. And that cannot be allowed to happen.

You think I’ve come a long way from Devizes, don’t you?

I haven’t.

The idea that you could build your own dwelling, yourself, now, at a cost that will not require you to borrow any significant sum is heretical, because if the young people who ought to be taking out David Cameron’s quarter of a million pound mortgages hear it and heed it, they’ll stop taking out quarter million pound mortgages. They’ll stop buying houses, and start making their own. Which means that housing will no longer be scarce. Which means that the market price of housing will drop – as it naturally must – to the cost of production. Which means that people who bought houses on borrowed money at artificially inflated prices won’t be able to sell them at artificially inflated prices. Which means they’re bankrupt. Which means the banks are bankrupt. Which means the economy, and the political system as we know it, must collapse.

There are desperate attempts to find ways around this problem. The approach adopted by Kennet was one of them, but could never meet more than a fraction of the demand, nor meet the needs of the many who did not qualify for social housing but were still in poor quality inadequate housing.

Perhaps we need to accept the heresy. That’s hard. We know what happens to heretics – especially when they start getting followers.

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