Affordability now dominates the UK housing debate but the idea is complex and contested. Meen and Whitehead review the available definitions, including the ‘residual’ income’ approach that deducts from disposable income the outlay for a defined standard of non-housing needs leaving the remainder available for housing payments and the housing cost expenditure to income ratio method. They find them deficient both for methodological reasons and their arbitrary nature. How are ‘non-housing needs’ determined and what is the rationale for a choosing a 25, 30 or 40 ratio (to use some of the ratios currently used)?
The authors attempt to reduce the capricious elements in the definitions by developing more sophisticated indicators, different for potential first-time buyers and renters. For first-time buyers this involves a more granulated approach to ratios using Lorenz Curves and Gini Coefficients and, for renters, housing costs are related to subjective notions of housing stress as revealed in answers to questions such as ‘how easy is it to pay your rent after benefits’ and ‘are you up to date in your rent payments’? This adds nuance to available indicators and follows a similar methodology to Shelter’s Living Home Standard set in 2016. However, the approach is unsuccessful in identifying an affordability threshold because, regardless of methodological sophistication, defining affordability is a normative not a technical matter. It involves specifying the level of resources that should be available after the costs of a defined minimum standard home have been paid for, an issue dispassionate economic analysis is reluctant to address. Housing standards are crucial. In England, 1,182,170 (24.6%) private rented dwellings fail to meet the government’s decent home standard. How many would be ‘affordable’ if they were decent?
A narrow focus on housing affordability for lower-income households can lead to piecemeal reforms, usually involving additional state expenditure such as ‘Help to Buy’ and ‘First Homes’. Sub-titled ‘The Economics of Housing Markets’, Meen and Whitehead steer away from this limitation emphasising the ways market operations generate housing stress for lower-income households.
Readers wanting an informed account of housing economics will appreciate this book. None the less, its laudable attempt to cover the myriad forms of state intervention in the housing market tends to produce a somewhat disjointed narrative and the neglect of devolution, especially the approach in Scotland, is disappointing. Under devolution, Scotland has developed a distinctive approach to housing resulting in a higher affordable housing output than in England and a far lower difference between poverty before and after housing costs. In Scotland the percentage of children living in relative poverty increased by 4% after housing costs whereas, in England, the lowest regional increase was 7% in the North West and, in London, the difference was 19% (Francis-Devine, Reference Francis-Devine2020).
Moreover, despite locating unaffordable housing for lower-income households in the context of housing market operations, the analysis would have benefited from a more sustained examination of the structural factors influencing housing outcomes. As an example, the constraints on land release are covered in the book, with an informative section on the technicalities involved in household formation projections, but too little consideration is given to the salience of an inadequate land supply and possible reasons for the dearth. Land cost has accounted for an increasing proportion of house prices with, according to some commentators, the price paid for a home being almost evenly split between the value of the land and the property in 1995 but, by 2016, the cost of the land had risen to over 70% of the price paid for a home (Commission on Economic Justice, 2018).
As Mount (Reference Mount2010) has commented, the planning system manages land prices in ‘the way De Beers keeps up the price of diamonds, by controlling the supply and releasing gems onto the market in carefully calculated batches so that the price is never in danger of collapse’. As this land dearth has fed into house prices, the value of housing assets has increased substantially. The UK’s housing stock was reported to be worth 7.39 trillion, growth totalled £2.74 trillion over the past decade.
Asked what Prime Ministers fear most, Harold Macmillan replied ‘Events, dear boy, events’. So do academics. This book was written before the Covid-19 pandemic. The financial institutions hold a large proportion of housing wealth and any house price collapse, a great boost to affordability, undermines their assets. Hence, in response to the Covid-19 pandemic, the UK government injected 3.8 billion into the housing market in the form of a large cut in Stamp Duty Land Tax. In the longer term, Covid-19 will have a very significant impact on the housing market and affordability.
Geoffrey Meen and Christine Whitehead have made a major contribution to housing economics and this book is replete with insights into how housing markets work. None the less, a political economy booster would have enhanced the analysis.
