COUNCIL of MORTGAGE LENDERS

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Can the housing market operate effectively
without intervention?A view from the dark side

• Peter Williams
• Council of Mortgage Lenders, London

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My presentation

• Challenging to me and to you!
• Previous lives, current roles
• Reflections
• The Housing Market, Failure and Potential
• Role of the State
• Conclusions

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Reflections

• A statist audience? Inherent suspicion/ criticism
  of the market yet careers built on critique of
  the state?
• State v market - a quiet area in housing studies?
  Implicit/lost in technical clutter?
• Calls for intervention easy in theory!
• A permanent tension - boundary shifts over time
  reflecting economy/society

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The Housing Market

• The market is dominant and this is true in
  housing - tenure and provision
• For the most part it works efficiently/effectively
  and with relatively low subsidy?
• Expanding supply, satisfied consumers, innovative
  and competitive.
• FTBs 370,000 in 2005 but see Chart 1
• Provide for those on low incomes?
• Weaknesses yes but then their causes ?

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Number and proportion of first-time buyers,
1973-2003
Source FTB numbers - Holmans (2005) FTB
proportion - Survey of Mortgage Lenders
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Market Failure

• Market failure? Quality, rural, energy but..
• The 1991 recession 76,000 repos and 835,000 2
  months in arrears 10 but market continued
  (330,000FTBs)
• Market volatility if failure whose? The economy
  stupid!
• Generally no, though much to address - one
  question is how?

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Market Potential

• Markets good and government bad is an
  oversimplification but market/democracy
• Can the housing market deliver in line with
  individual/social aspirations?
• Recognise the diversity of housing markets and
  different settings/issues
• Markets can allocate relatively efficiently and
  at low cost - through the price mechanism/signal

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Market Potential

• Generally we have witnessed a forward march in
  terms of peoples housing conditions/circumstances
  - pre-dominantly via the market. But at the
  margins..?
• Market theory and reality diverge but
  alternatives?
• Turn the question around - the capacity of the
  state?

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Role of the State

• Long history of central/local government
  intervention in housing in the UK
• Cost and longevity are two reasons alongside
  distribution of wealth/income
• Role changed over time - standards, regulation
  and direct intervention via subsidies/homes
• Focus has largely been on public sector housing
  with sporadic forays into the private sector

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Role of the State

• Council housing - 5 million homes and the
  creation of an industry
• Forays into the private sector controls on
  prices, land, building, planning, finance
  provision of mortgages/grants taxation and
  subsidies and most recently mortgage regulation,
  home buying and selling and HMO landlords and 75
  target

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Role of the State

• Intervention in reality - the CBA
• Home buying Between the market and politics?
• Mortgage regulation rationality and reality?
• REITS/SIPPS Grant for developers
• RRO Low demand/market renewal - market failure
  or the market? And state intervention?

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Role of the State

• Sporadic/often contradictory government failure
• Continuing ambiguity around property ownership -
  promote it/tax it
• Encourage the market/distrust the market
• Devolve and centralise
• Increasing market intervention reflecting new
  found importance of housing?
• Housing market central to meeting policy
  objectives

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Conclusions

• Markets capacity to innovate/meet demand
• Market can deliver but at what price?
• States capacity to meet social objectives and at
  what price?
• Intervention of different form? competition on
  supply side, choice on demand side - both in
  evidence
• Steering the market? Evidence to date weak

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Conclusions

• Returning to the proposition can the housing
  market operate effectively without intervention
  to a large degree YES
• Does intervention improve the operation of the
  market to a large degree No
• What do we want build on the strengths of the
  market and a new realism, recognising the
  weaknesses of the state ( and of the market)

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References

• Barlow, J Duncan S (1992) Markets, States and
  Housing Provision Four European Growth Regions
  Compared, Progress in Planning, 38,2
• Cole, I (2006) Hidden from History? Housing
  studies, the Perpetual Present and the Case of
  Social Housing, Housing Studies,21,2,283-295
• DTI (2005) Public Policy Using Market Based
  Approaches, Economics Paper 14, DTI, London
• Hills, J (1991) Unravelling Housing Finance,
  Clarendon Press, Oxford
• Holmans, A (2006)Policies in Britain in the 1970s
  on mortgage lending, house prices and mortgage
  interest rates An episode of intervention worth
  remembering, CCHP, Cambridge
• Norberg, J (2003) In Defense of Global
  Capitalism, Cato Institute, USA
• Saunders, P (1995) Capitalism - A Social Audit,
  Open Univ Press
• Self, P (2000) Rolling back the market economic
  dogma and political choice,Macmillan, London
• Smith, S. J. (2005) States, markets and an ethic
  of care Political Geography 24 1-20
• Smith, S. J., Munro, M. and Christie (2006)
  Performing (housing) markets. Urban Studies 43
  81-98