Making Sense of the Economic
Environment
Christine Whitehead
London School of Economics
([email protected])
Social Housing Finance Conference
200, Aldersgate, London
11 May 2017
Short term v longer term fundamentals
• OECD increased their UK growth forecast for 2017 BUT in 2018, at
1.0%, still well below North America and Euro-area overall;
• Inflation mainly higher than elsewhere - given devaluation – up to
3% then back to 2% in early 2020s if in line with BoE
responsibilities;
• Real income growth very limited unless productivity increases;
• Productivity is THE potential opportunity – without productivity
increases cannot achieve long term growth which in turn can
enable fiscal stability without too much pain;
• But fundamentals of aging population; increasing welfare
payments; rising aspirations – perpetual austerity?
• The core immediate issues are uncertainty around Brexit and the
world economy – notably whether growth in the USA is
maintaining/ improved;
Contributions to potential output growth
(OBR)
The Housing Market
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House prices still rising nationally but more slowly – but massive regional
variations. North East still below 2008 levels and North West roughly 2008 levels v
Greater London up by around 67% (NI down by 30%);
Some suggestion of falling prices and rents;
Housing starts and completions still rising nationally but some signs of
stabilisation/ decline;
First time buyers at highest since 2006 at 337,000 in 2016 although well below
traditional levels of over half a million;
FTBs make up almost 50% of all loans - established households not moving and
market thin;
Concerns:
– FTBs adversely affected by stronger regulatory controls and labour market and other
uncertainties – so although affordability at historic highs demand limited;
– Buy to Let adversely affected by SDLT and other tax changes – down around 30% from two
years ago;
– Role of pre-sales, large sites, high buildings especially in London;
– Help to Buy accounted for over 30% of completions in the 3.5 years from April 2013;
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Some offset through growth in Build to Rent still mainly in London and of
permitted development
Role of Housing Associations in Expanding
Supply
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Housing associations have a clear aspiration to deliver across all sectors - in order
both to cross subsidise social housing and simply to help meet requirements;
However, this leaves HAs more open to market volatility (especially as generally
do not do pre-sales) - a concern, especially given the limited of capacity to support
HAs in the ways that were possible in 2008/9;
Also anecdotal evidence on relative contribution to reserves of social and market
housing;
However much easier to transfer units between tenures than after the 2008 crisis
– which reduces risk;
Housing associations involved in an increasing proportion of land deals – issues
around pricing;
Costs and benefits of diversification
– Potential for developing new models of intermediate housing for working households?
– Role of Build to Rent in speeding delivery – based on discounted market rents and single
management?
– ‘Niche’ markets - working with the NHS; temporary housing; housing for homeless
households;
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Problems around ‘one size fits all’ government initiatives – although some positive
initiatives in the White Paper.
Looking forward
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Immediate question: the new rent regime.
– What will the government offer and what will the market say?
– How do these controls on rents work if there are problems?
– The original compact v the new regime?
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Effects of constraints on longer term revenue streams
– continued potential for efficiency savings;
– The four year freeze on working age benefits;
– impact of welfare cuts – especially the welfare cap which now begins to hit mainstream larger
households.
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Mergers and acquisitions – incentives to efficiency or management slack – or
both?
Impacts on ratings –no problem as yet?
Re-re-classification?
Government views on the effective use of the capital base or the misuse of past
subsidy? - or both?
What happens if something does go wrong – should we look to the Netherlands as
a warning?
Overall – still government agents or efficient major players in the housing market?