Cities,  Change  and  a  New  Economic  Story  for  Housing.

DUNCAN  MACLENNANUNIVERSITIES  OF  GLASGOW,  ST  ANDREWS  and  UNSW

Duncan.Maclennan@Glasgow.ac.uk

Focus  of  Presentation1. Developed  from  research  for  AHURI,  The  Commission  for  Sydney  (no  

the  warm  one),  NSW  Community  Housing  Federation,  and  Shaping  Futures

2. Focus  on  cities/metropolitan  areas,  not  all  pressured  (see  current  Canadian  policy  discussion:  Vancouver  v  Halifax,  and  much  variety  in  between):  extend  to  other  communities.

3. Concern  with  economic  drivers  and  outcomes  of  housing  systems;  across  broadly  Anglo-­‐Saxon  OECD,  urgent  dual  problems  of  housing  affordability  and  affordable  housing  systems  and  providers:  will  focus  on  former  but  overlaps  with  the  latter

4. Policy  framings,  visions  and  roles,  not  instruments

1.  CRISIS  (?),  GROWTH  and  CHANGE

WIDER  OECD  STORY  MIXED,  BUT  Prolonged  Recession,  Slow  Growth  and  Extended  Austerity.

◦ Jobs,  Unemployment,  Wages  Problematic◦ Impacts  on  young,  and  on  poorer  sectors  and  cities:  increasing  inequalities  (Piketty)

◦ But  amidst  slow  growth/  patchy  recoveries:  city  cores  doing  better◦ Problematic  congestion  costs  and  housing/land  affordability:  carbon  rising◦ Consumer  debt  problematic,  house  prices  increasing/potentially  unstable◦ Fiscal  cutbacks  with  loose  monetary  policies:  some  beyond  austerity,  others  not

REDUCING  CORE  PUBLIC  BUDGETS,  PUBLIC  CAPITAL  AND  LOCAL  SPENDING  DOWN  whilst  MAJOR  OUTCOMES  IN  RETREAT!

YET  A  NEW  ROLE  FOR  CITIES  and  INFRASTRUCTURE  SPENDING  EMPHASISED

WHAT  ABOUT  AUSTRALIA  (CANADA)

Different,  Better  Trajectory  over  Last  Decade  (s)

Minimal  structural,  fiscal  effects  of  GFC

Export  driven  growth  until  2014  (Terms  of  Trade,  Demographics)

Cities,  metropolitan  growth  strong,  problematic  house  price  rises

Federal  fiscal  revenues  buoyant……

But  Now?

CONVERGENCE  TO  REST  of  OECD?

BRICS  slowdown,  wider  sluggishness

Federal  fiscal  revenues  falling:  Balanced  Budget  Ethos

Major  States  with  Fiscal  surpluses  (property  tax  and  stamp  duty)

Widely  Apparent  ‘congestion-­‐costs’  and  infrastructure  shortages

Urgent  Need  to  Rethink  Productivity

BUT  ALSO  RETHINKING  OF  FEDERAL/  GOVERNANCE  ROLES  AND  CITIES

ARRIVE  AT  THE  QUEST  FOR  NEW  APPROACHES  TO  CITY  STRATEGY  BY  DIFFERENT  ROUTES.  WHY  CITY  EMPHASIS?

2.  SHIFTING  IDEAS  ON  ROLES  OF  CITIES:  FROM  

DIFFICULTY/DISASTER?SLOWDOWN  AN  APPARENTLY  ADVERSE  CONTEXT  TO  ARGUE  CASE  FOR  CITIES.  AT  THE  STARTOF  THIS  MILLENIUM,  REFLECTING  THE  EXPERIENCE  OF  1970’S-­‐

1990’S  CITIES  ISSUES  SEED  AS  ABOUT

DECAY

DECLINE

DISADVANTAGE

AND  FINANCE  MINISTRIES  SAW  CITIES  POLICIES  AS  SIMPLY  DISPLACEMENT,  REDISTRIBUTION  TO  POORER  PLACES,  DISTORTING  GROWTH  IN  THE  ECONOMY  AND  WITH  NO  POSITIVE  GROWTH  IMPACT  FOR  THE  ECONOMY.  THIS  WORM  

HAS,  IN  MANY  PLACES,  TURNED  IN  LAST  DECADE.    

….TO  A  NEW  SENSE  OF  ‘TRIUMPH’  (OVERDONE)…

NOW

1.  STRONG  ARGUMENT  THAT  CITIES  SHAPE  MAJOR  OUTCOMES  AND  MATTER  NATIONALLY  (GLAESER);  NEW  ‘METROPOLITAN’  ECONOMIC  ARGUMENTS

2.  NEW  ADVOCACY  OF  LOCALISM;  DEVOLUTION    OR  DUMPING:  NEW  POLITICS.

EUROPE  AND  NATIONS,  BRICS  AND  OTHERS  SEE  CITIES  AS  VITAL.  THIS  IS  THE  START  OF  A  PROCESS  THAT  WILL  CHANGE  CITIES  AND  GOVERNANCE  PERMANENTLY  AND  WE  NEED  TO  RETHINK  HOW  WE  ANALYSE,  

RESEARCH,DEFINE  (POLITICALLY),  MANAGE  AND  GOVERN  CITIES.  HOW  DO  WE  DO  THIS?  USEFUL  TO  BUILD  A  SYSTEMS  VIEW  TO  SHAE  BETTER  GOVERNANCE,  

POLICIES  AND  STRATEGIES.

3.  HOUSING  OUTCOMES  METROS

Sluggish  supply  (not  all  due  to  regulation),  Rising  demand

Rising  real  prices,  sustained,  faster  than  incomes

Well  defined  affordability  problems  (but  poorly  modelled)

Falling  earlier  age  specific  ownership  rates;  New  entrant  affordability  issues

Capacity  for  speculation,  but  also  sustained  investment  by  residents  with  capital  (buy  to  let):  growing  inefficient  rental

Pressured  rental  and  poorest  displaced

Rising  inequalities  in  housing,  wealth  and  income  outcomes

PIKETTY  AS  OUR  FRAME  OF  REFERENCE,  BUT  WHAT  TO  DO?

THREE  HOUSING  POLICY  ‘ECONOMIC’  PARADOXES

1.GROWING  VERTICAL  FISCAL  IMBALANCE◦ CITIES  DRIVE  GET  THE  DEMANDS  FROM  GROWTH,  HIGHER  ORDERS  GET  THE  BULK  OF  THE  REVENUES,  NOT  ALL  RETURNED

2.  HOUSING  IS    A  MAJOR  ECONOMIC  SECTOR◦ 20-­‐25pc  expenditures,10-­‐15pc    employment,  40pc  net  assets

◦ FEW  GOVERNMENTS  HAVE  A  STORY  OF  THE    ECONOMIC  CONSEQUENCES  OF  HOUSING, RELY  ON  SOCIAL  JUSTICE

3.  DESPITE  THIS  POLICIES  ARGUABLY  INCREASE  INEQUALITY

HOUSING  WEALTH  AT  THE  HEART  OF  PIKETTY  STORY

AFFORDABILITY  OUTCOMES  REDUCES  PRODUCTIVITY  AS  WELL  AS  FAIRNESS

12/05/2017

4.  SO  WHY  a  NEW  ECONOMIC  STORY  FOR  HOUSING?

SECTOR  NEEDS  AN  ECONOMIC  STORY  TO  MAKE  BETTER  CASE  AS  ESSENTIAL  ECONOMIC  INFRASTRUCTURE  TO  FINANCE  MINISTRIES,  FINANCIAL  PRESS.  THIS  INVOLVES

Professional  competence  within  housing  organisations  and  peak  bodies  to  understand  and  make  economic  cases

Use  of  concepts:  opportunity  costs,  systems,  macro/micro

Development  and  gathering  of  Evidence

Language,  Rhetoric:  economics  as  Rhetoric

Also  requires

Some  Ministry,  at  Province  and  federal  level  to  take  responsibility  for  market  outcomes  (  who  had  responsibility  for  30pc  increases  in  Toronto)

Finance  ministries  to  understand  economics  of  housing  system

Have  to  let  go  of  simplistic  theoretical  models,  develop  evidence,  models.

WHAT  DID  I  LEARN  FROM  THE  CANADIAN  PARLIAMENT’S  FINANCE  COMMITTEE  REPORT  OF  17TH APRIL  2017?  CONTRAST  WITH  AUSTRALIAN  FINANCE  MINISTER’S  SPEECH  ON  MORE  OR  LESS  THE  SAME  DAY!  

UNDERSTANDINGs  OF  HOUSING  IN  ECONOMY:  FINANCE  MINISTRY  PERSPECTIVE

COMMON  STORIES

JOBS:  Keynesian  multiplier/  fiscal  stimulus  (to  1990’s)

STABILITY  1:  reinforcing  cycles  (post  1990),  equity  release

STABILITY  2:  bubbles  (Systemic  risk:  real  or  blaming  victims?)

REDISTRIBUTION:    ‘political’  choices,  largely  fiscal  displacement  (rewards  for  ‘Social  sector  lobbying’)

THIS  IS  THE  ‘ACCEPTED’STORY    IN  FINANCE  AND  TREASURY  POST  GFC.  BUT  NOT  ENOUGH,  GROWTH  STORY  MATTERS.

WHAT  IS  THE  CASE  FOR  HOUSING  AS  ESSENTIAL  ECONOMIC  INFRASTRUCTURE  FOR  ECONOMIC  GROWTH  AND  PRODUCTIVITY  ENHANCEMENT?

12/05/2017

WHY  DOES  PRODUCTIVITY    MATTER  

Raising  productivity,  the  effectiveness  of  resource  use,  (re)-­‐emerging  challenge  as

RISING  GDP  per  capita  last  3  decades

Strong  terms  of  trade,  fav    demog

Reliance  on  capital  deepening,  more  capital  per  worker

BUT:  Multi-­‐Factor  productivity  (innovation)  has  been  poor  in  Canada(cf UK,  Australia  )

Growth  drivers  are  human  capital,  business  capital  and  innovation;  now  recognise  infrastructure,  what  

about  housing/land?

5.  FRAMEWORK  FOR  NEW  STORY:  HOUSING  AND  ECONOMIC  PROGRESS

1.  Recognise  that  ‘housing’  applies  to  ‘process’  (VERBS)  as  well  as  ‘characteristics’  (NOUNS)  outcomes.

2.  Housing  ‘characteristics’      ‘outcomes’◦ Housing:  size,  comfort,  style◦ Neighbourhood  ◦ Location:  jobs,  play,  schools,  shops  (see  transport)◦ Metropolitan  supply:  quality,  availability◦ Prices,  rents,  price  changes

3.  Synthesise  evidence  of  ‘effects’  on  drivers  of  productivity:  HUMAN  CAPITAL,  BUSINESS  CAPITAL,  INNOVATION  plus  effects  on  SPENDING  AND  CONSUMPTION

SHAPING  NEW  HOUSING-­‐ECONOMY  APPROACH

1. Adopt  a  bottom-­‐up  perspective2. Ensure  reach  from  individual  to  

neighbourhood  to  CITY  to  global3. Essential  to  adopt  a  MOG  view4. Start  with  logic  chains  

HOUSING  IS  DIFFICULT,  DON’T  BE  TOO  REDUCTIONIST,  DON’T  THROW  OUT  BABY  

WITH  BATHWATER

HOUSING  OUTCOMES,  GROWTH.

HOUSING

CHARACTERISTICS PROCESSES

AVAILABILITY PRICES SPILLOVERS

LANDHUMANCAPITAL BUSINESS INNOVATION

GROWTH  AND  PRODUCTIVITY

A  MACRO  MODELLING  APPROACH:  not  worth  it  yet?

Estimates  in  Infrastructure  from  production  functions

At  national  scale,  Aschauer (1988,1990)◦ Suggest  strong  impact◦ Now  questioned,  new  methods,  new  data

Recently,  convincing  metro-­‐regional  estimates  are  all  about  transport;  estimates  are  location,  sector  specific,  not  universal;  killer  statistics  of  time  savings:  see  what  consultants  do!

Often  claims  the  housing  gains!  (commuting)

What  are  the  killer  numbers  for  housing

See  how  infrastructure  effects  for  health  and  schooling  infrastructure  are  treated  

For  housing,  ◦ few  macro  estimates,  no  convincing  modelling  approaches◦ Make  case  from  micro  and  metro  levels

CITY,  REGIONAL  LEVEL  EVIDENCE

CLEAR  EVIDENCE  ON

Residential  density  and  productivity  (2-­‐8pc  of  GDP)◦ Labour  markets  effects  ◦ Innovation  systems  

Net  advantages,  housing  costs  and  location◦ Wage  Inflation◦ Distorting  away  from  most  productive  locations

Higher  housing  costs  reduce  spending  on  tradeable  goods  with  higher  returns  to  scale    and  productivity  ABSOLUTELY  CRUCIAL  in  METROPOLITAN  ECONOMIC  STORIES

HOMES,  NEIGHBOURHOODS

Housing  Size,  Comfort,  Amenity◦ Impacts  on  health,  learning  ability  (Human  K)◦ Impacts  on  energy  use,  costs,  carbon  production  (Natural  K,    K)◦ Effects  on  Home  business  formation  and  growth  (Business  K)

Neighbourhood  and  Location  (Separating  selection  and  neighbourhood  effects  important)◦ Social  capital  formation,  trust  (K)◦ Teenage  school  and  work  performance  (HK)◦ Employer  address  discrimination  (HK)◦ Time  spent  travelling  to  fulfill household  activity  pattern  (gain  claimed  by  transport!),  (HK)◦ Quality  and  variety  in  n’hood:    Florida  ‘boho’  effects

Price  and  Rent  effects  on  growth:  need  a  whole  new  essay:  What  Does  it  do  to  Patterns  of  Savings,  Investment  and  Economic  Culture:  have  we  created  a  rentier  economy  rather  than  entrepreneurial  economy                

HOW  DO  YOU  START?LOOK  AT  WHY  MISSED  OUT?  YOUR  PRACTICE,  THEN  EVIDENCE.

A  review  of  local  area  and  metropolitan  economic  development  plans

Separate  Interviews  with  policy-­‐makers◦ local  economic  development  officials  views  on  priorities/housing◦ Housing  officials  and  their  view  on  economic  impacts◦ Planners  on  housing  and  economy  linkages

Bringing  the  Groups  together

Developing  a  similar  conversation  with  key  business  interests

Use  the  data  and  do  some  research

CONCLUSIONS1. The  Housing  sector  has  a  strong  economic  story  to  tell

2. The  Finance  Ministries  need  a  new  housing  view,  evidence  base  and  modelling  capacity,  that  links  to  meso  and  has  real  space  and  time  dimensions.

3. Cities  have  key  upward  and  downward  facing  roles:  stronger  data  and  analysis

4. Needs  a  multi-­‐order  approach  to  understanding  and  delivering  improved  outcomes  from  the  housing  system    with  new  housing  deals  to  raise  productivity,  with  rediced price  inflation  in  metros  critical

5. Will  reduce  growing  inequalities,  improve  intergenerational  equality,  social  mobility  and  shape  a  more  effective  economy

WE  ARE,  I  BELIEVE,  AT  THE  BEGINNING  OF    A  THIRD  AGE  IN  HOUSING  POLICIES  THAT  FINALLY  GET  TO  GRIP  WITH  HOUSING  SYSTEM  OUTCOMES  AND  THEIR  

CONSEQUENCES.  IT  WILL  BE  HOUSING  POLICY  FOR  THE  PRODUCTIVE  ECONOMY,  WITH  THE  PROSPECT,  TO  QUOTE  LORD  KEYNES,  OF  EUTHANASIA  FOR  THE  RENTIER  

CLASS!