Social Policy V Housing

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Social Policy VHousing

• Dariusz Stanko, Ph.D.
• Department of Social Insurance
• www.sgh.waw.pl/katedry/kus

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Aims of housing policy - UK example (Barr)

• A decent home for every family at a price within
  their means.
• A fairer choice between owning a home and renting
  one.
• Fairness between one citizen and another in
  giving and receiving help towards housing costs.
• A better balance between investment in new houses
  and the improvement and repair of older houses.
• Housing costs should be a reasonably stable
  element in family finances.
• Increased scope for mobility in housing.
• A reasonable degree of priority in access for
  people in housing need who in the past have found
  themselves at the end of the queue.
• The necessity to safeguard the independence of
  tenants.
• The necessity to ensure that the housing needs of
  groups such as frail elderly people, the
  disabled, and the handicapped are met.

Source Barr (1997 chapter 14).
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• This presentation is based on the book The
  Economics of the Welfare State by Nicholas Barr,
  3rd ed., Standford University Press, Chapter 14.

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Types of aims in housing policy

• I. Based on efficiency (economic aspect)
• the size and quality of the housing stock (partly
  aim no. 4)(Fig. Efficiency in the housing
  market)
• tenure neutrality (aim no. 2)
• mobility (aim no. 6)
• II. Based on horizontal equity (distributional
  aspect)
• minimum standards (equality of costs) (aims no.
  1, 8)
• equality of opportunity (aims no. 1, 2, 7, 9)
• III. Based on vertical equity. Once decided I.
  and II., the question is how to finance the
  housing. (aims no.1, 3, 5)

Source Based on Barr (1997 chapter 14).
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Efficiency in the housing market (Barr, 1998 364)
Back
Source Barr (1997 chapter 14).
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Tenure neutrality buying vs renting

• Buying
• Flow of housing services R1, R2, , RN (net of
  maintenance cost), constant rate of preference r.
  Present value of benefits PVB

If RtR, then
Buy only if R/rgt P, P purchase price. Buy the
house outright or to take a loan. Mortgage
present value of cost PVC, interest i
If N is large and i and P are constant, then
Source Barr (1997 chapter 14).
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Tenure neutrality buying vs renting (2)
Introducing two behavioural assumptions 1)
market for housing is competitive for both
purchase (so PVBP) and rental (so RRc,
competitive market rent). 2) the capital market
is perfect, thus ir In result
? RciP. It means that there is an economic
relationship between the market rent Rc and the
purchase price P (i.e. between the flow and the
stock prices).
and ir ? PVC P. It means that the cost of
borrowing and the purchase price are equal and a
rational individual is indifferent between taking
out a mortgage or making an outright purchase.
Secondly, from
Source Barr (1997 chapter 14).
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Tenure neutrality (3)

• In practice there are uncertainties about future
  rates of inflation (unstable real interests and
  house prices, discrimination with regard to
  access to capital market loans).
• So, the choice between buying and renting is not
  that obvious or stable.

Source Barr (1997 chapter 14).
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Mobility

• Fixed location of housing. The housing market
  should be sufficiently flexible to prevent
  persistent excess demand.
• Problems for the labour market, wages,
  inequality, economic growth of the region.
• Typical problem in Poland plus infrastructure
  issue.

Source Based on Barr (1997 chapter 14).
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Horizontal equity

• Equality of opportunity as an access to housing
  of at least some minimum standard
• access to adequate housing generally (obj. 1,7,
  9)
• access to different tenures (obj. 2)
• Minimum standards
• efficiency grounds (imperfect information,
  externalities)
• equity grounds (information and power
  systematically correlated with income protection
  of children)

Source Barr (1997 chapter 14).
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Vertical equity

• Barr Once the efficient quantity/quality of
  housing and its equitable distribution have been
  decided, the remaining question is how housing
  should be financed).

• Vertical equity can be achieved via
• reduction of prices ? efficiency grounds for
  subsidy or public production
• increase of means (cash transfers) ? if none of
  the above

Source Barr (1997 chapter 14).
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The simple theory of the housing market(Barr,
1997 chapter 14)

• Durability of housing
• consumption of housing services on daily basis
• yet the production (stock) long-term.
• therefore slow changes in demand (UK 2 p.y.,
  Poland 0,9-1 p.y.)

A simple stock-adjustment model of the housing
market
Source Barr (1997 368).
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Theoretical arguments for intervention
efficiency

• Assumption about perfect information
• size, location OK (surveyors) technical issues
  less OK but still less complicated that
  healthcare
• information about prices infrequent
  shopping, heterogeneous commodity (realtors,
  estate agents)
• knowledge about the future (insurance),
  relationship between buying and renting (risk to
  landlords)
• State should regulate only minimum standards for
  the surveying and valuation professions and for
  house-insurance policies

Source Barr (1997 chapter 14).
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Theoretical arguments for intervention
efficiency (2)

• Assumption about perfect competition
• sharp changes in prices yet no problem with
  efficiency only with equity, no major
  violations of the market mechanism but
• market failures can occur with regard to
• equal power assumption (landlord monopoly
  power) home implies transferring personal
  belongings, improvement of the house, learning
  the area and making friends ? increase in the
  marginal value of the house to the individual
• perfect capital markets lending only to the
  safest clients
• The state can regulate via a tribunal and via
  public provision of loan finance or loan
  guarantees.

Source Barr (1997 chapter 14).
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Theoretical arguments for intervention
efficiency (3)

• Existence of externalities
• safety, sanitation reasons (regulations or
  subventions to the maintenance of building
  standards)
• spatial externalities (market Coase 1960
  theorem if law assigns unambiguous and
  enforceable property laws, small number of
  actors Pigovian taxes or zoning and planning
  control)
• related to the above the slum process
  (improvement grants or planning control), private
  vs social discount rate
• public goods (parks) regulation through
  planning control
• increasing returns to scale (amenities sewers,
  drains, water, distribution of gas, electricity)
  regulation requiring each property to have a
  provision of these services
• Features of housing durability, heterogeneous
  commodity, capital asset, indivisibilities,
  transaction costs for moving.

Source Barr (1997 chapter 14).
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Theoretical arguments for intervention equity

• Horizontal equity
• access to housing
• access to capital markets (imperfections as
  higher burden on the lower socioeconomic groups)
  public loans or guarantees
• perfect information and equal power subsidies
  to prices or incomes, regulation
• Vertical equity income redistribution or direct
  transfers of housing
• benefits in kind due to bad consumption
• self-interest of the rich good housing
  improves the health and productivity of the
  workers and prevents social unrest (merit-good
  argument)

Source Barr (1997 chapter 14).
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Possible ways of intervention in the housing
market

• Pure market provision likely to be inefficient
  and inequitable. Proponents of a free market
  provision Hayek and Friedman.
• Mixed public/private provision
• regulation on the S side (minimum standards,
  planning of land use, regulation of professional
  standards for surveyors and valuers, regulation
  of landlords rent controls)
• finance public provision of loans and loan
  guarantees limited cases of price subsidies

Source Barr (1997 chapter 14).
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The effect of rent control on the quality of
housing
The rent control incentives for lowering
quality of housing but it may not prevent excess
demand.
Source Barr (1997 388).
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Rent prices in the UK
Source http//www.communities.gov.uk/housing/hous
ingresearch/housingstatistics/housingstatisticsby/
rentslettings/livetables/
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Housing market in the UK
Source http//www.communities.gov.uk/housing/hous
ingresearch/housingstatistics/housingstatisticsby/
householdestimates/livetables-households/
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Housing market in Poland(Rocznik Statystyczny
GUS 2007 42-43)
Growth of the market 107 thousand flats (2008,
I-IX), 133,7 (2007), 115,3 (2006), 114,1 (2005),
108,1 (2004).