Housing and Governance
Why Regulatory Reform is Part of the Problem and Part of the Solution
Josef Konvitz
Working Papers m 2011:06
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Working Papers m 2011:06
Housing and Governance
Why Regulatory Reform is Part of the Problem and Part of the Solution
Josef Konvitz
November 2011
Adam Smith Research Foundation . Working Papers Series
About the author
Josef Konvitz recently retired as Head of Regulatory Policy in the OECD’s Directorate for Public Governance
and Territorial Development. The Regulatory Policy Division carries out studies on risk and regulation, regulatory
management indicators, administrative simplification, multi-level regulatory coherence, and public service delivery.
Professor Konvitz has directed country reviews of regulatory reform of Australia,, China, Russia, France, Sweden, and
Switzerland, and monitoring exercises of Japan, Mexico and Korea. He was responsible for the updating of OECD
recommendations on regulatory reform, now the 2005 Guiding Principles for Regulatory Quality and Performance,
and for the preparation of the APEC-OECD Integrated Checklist for Regulatory Reform. Since 2008 he has
supervised co-operation between the OECD and Mexico on Regulatory Reform.
Professor Konvitz joined the OECD in 1992 in the Urban Affairs Division after nearly twenty years on the faculty of
Michigan State University. His work on urban policy at the OECD has included reviews of Metropolitan Melbourne
and Metropolitan Athens, as well as the Urban Renaissance Reviews (Belfast in 1999, Krakow in 2000, Canberra
and Glasgow in 2001, Berlin and Kitakyushu in 2002). He directed a study on urban indicators, the Ecological City
project, and a major report on Distressed Urban Areas; he organised the OECD-Australia Conference on Cities and
the New Global Economy; and he supervised country reviews of Japan, Mexico and Germany related to urban policy
and infrastructure.
Professor Konvitz holds degrees from Cornell University (BA with Honours in History, 1967), and Princeton University
(PhD in History, 1973). He is Honorary Professor of Education at the University of Glasgow.
Address for correspondence
Prof. Josef Konvitz, c/o Adam Smith Research Foundation, College Research Office, College of Social Sciences,
University of Glasgow, 53 Hillhead Street, Glasgow G12 8QF. Email: Josef.Konvitz@glasgow.ac.uk
2
Introduction: Policy Failure? Political Misjudgment?
T
he “regulatory governance gap” in housing policy has widened glaringly since 2007. This
matters all the more because governments are far more reliant on the regulatory lever now
that their room for manoeuver to use fiscal and monetary instruments is severely constrained.
A wholesale review of housing policies, from credit and banking to building codes and permits was
overdue in the run-up to the crisis. But the crisis has made the prospects for serious reform even
less likely. Proposals for specific macro- and micro-economic reforms are advanced earnestly by
people in government, the private sector and the academy in pursuit of recovery. These however
are not backed up by proposals for effective evidence-based regulatory design and implementation.
Regulatory reform in housing must address three challenges: risk management, cross-sectoral coordination, and multi-level coherence.
Twenty years after regulatory policy gained
prominence in government, reforms are still being
recommended as if execution is a simple matter of
executive power: just do it. Eager to be seen to do
something, governments may jump to conclusions
about what ought to be done, adopting reforms
better suited to correcting the problems of the past
rather than preparing for the urban economy of the
future, without taking the time to carry out a strategic
reassessment of housing policy based on the future
needs of society. Frustrated by the slow pace of
reform, politicians may be tempted to bypass or
suspend sound regulatory practices, practices which
the regulatory officials of OECD countries defended
in 2008 when the crisis unfolded: evidence-based
decision-making, transparency, consultation.
The first part of this paper will highlight the governance
challenges to a more coherent and sustainable
set of macro- and micro-economic housing policy
instruments; the second will question assumptions
about the macroeconomic and social benefits of
increased housing market flexibility and higher levels
of home ownership; the final part, based on the future
aspirations and needs of the middle class, presents
the outlines on which a package of sustainable urban
housing policy reforms could be made acceptable.
case, macroeconomic, perspective. Since the early
2000s, reports and news articles have been tracking
the upward trend in house prices, identifying the early
symptoms of an asset bubble and outlining possible
scenarios that might follow from actions taken by
central banks and governments. Policy makers knew
then what to do: there was no lack of information
about packages of short-term, reversible and of
long-term and permanent policy measures to bring
housing supply and demand into better balance – and
of the risks and costs of not doing so. Yet little was
done: not only was it easy to procrastinate; it was
also hard to see how reforms could be implemented,
and translated into political gains. The only remaining
option then was to wait to act until a crisis, in the
hope that the crisis would not make reform even more
difficult, as indeed is now the case.
Sometimes a crisis makes policy reform easier: this
was the case in 1990-92 when housing imploded in
Housing policy reform is a governance challenge,
operating on all levels of government and across
sectors. Critical to the making of the crisis, housing
is emblematic of the kind of “blind spot” when policymakers focus on a topic from a narrow, and in this
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Adam Smith Research Foundation . Working Papers Series
several countries (UK, Australia, Sweden, Finland,
Japan, the US), with recessionary consequences – a
large stock of unsold new properties, negative equity,
etc. Reforms (but not in the US) included changing the
deductibility of interest payments on primary and/or
secondary residences, and changes in conveyancing
arrangements to reduce churning that feeds an asset
bubble.
The crisis of 2008 and its aftershocks in 2011 however
do not bear comparison: recession has taken over in
many countries, and elsewhere in the developed world
growth is low; the banking system is more exposed,
and alternate forms of investment for individuals are
less attractive: low interest rates and flight to safety
which together still support the housing market in
many countries make it more difficult to persuade
the public of needed reforms that could affect their
decisions about when to buy or sell.
The situation is unprecedented, an inversion of the
1930s. During the inter-war years, the level of political
skill, what the ancient Greeks, who knew a lot about
government and geo-politics, called nous, was very
high, but the theoretical and applied knowledge at
hand during the Great Depression was deficient, even
flawed. Today we know better what to do than how to
do it: analysis is not the shortcoming, political skill is.
Closing the governance gap, to reform housing
policy instruments against new objectives, will not
be easy. The combination of re-regulation in housing
finance, and de-regulation in matters related to
planning, permits, codes, conveyancing and the like,
will be especially difficult to synchronize in time and
to co-ordinate across regions and localities. Fiscal
consolidation and the budget in the United States, and
the problems of debt in the Eurozone, also highlight
governance problems, and make it impossible for
governments to provide assistance to those who
stand to lose from reform. There is a tendency to fall
back on technocratic solutions, without remedying
the institutional or cultural faults that weaken trust in
government. The political economy of housing reform
weighs against reformers, in part because of the sheer
complexity of a reform package, in part because
millions of people who have not lost either their homes
or their jobs may feel threatened by reforms, and in
part because many micro-reforms are more a matter
of local and regional or state authorities than of central
governments. Meanwhile the constituency for reform
– those who would benefit – has probably shrunk as
economic insecurity and fiscal consolidation squeeze
the middle class further. Maybe the electoral dynamics
4
for reform were already weak in the first years of the
21st century, when reforms might have been easier; we
are where we are now.
Little will be gained by pretending that the countries
in which housing asset bubbles and financial reforms
generated the crisis of 2008 belong in a separate
category from the rest. The problems of policy
coherence are widespread, shared across countries,
those which have suffered a housing crash, those
which are vulnerable to one, and those which appear
relatively immune to a collapse. Housing policy is a
governance problem, with a high degree of complexity.
There are major problems of voice and exit when
those who have most to gain from reform are often
newcomers, relatively powerless, or both. Crosscountry comparisons, which by definition tell us more
about the past than the present, are limited by severe
problems of methodological comparability. Housing is
therefore a test – perhaps the test – to overcome the
tyranny of the silos. The term “paradigm shift” is often
over-used and abused, but in this context it is almost
an under-statement.
Housing and the Factors of Growth
Problems in housing today are not self-correcting:
there are grounds for intervention. But policymakers
are “pushing on a wet string” when trying to use
traditional remedies which worked in the past. To
continue to address problems in the sector without
taking account of what has changed in our economies
and societies – and to transform these changes into
opportunities – is to hold back the transition to the
economy of the future. This paper concludes with
three: aging, green growth and risk reduction.
Housing helps to clarify what has changed to the
factors of growth, and what needs to change in
public policy and social expectations. This extends
beyond those countries – Ireland, Iceland, the UK,
the US, Spain – where housing, and especially the
links to banking on the one hand, and employment in
construction on the other, are key to understanding the
triggers of the crisis and its longevity.
The expansion that preceded the crisis was nearly
twice as long as the average of 6 years; and real
house prices increased by 120% on average in a
survey of 18 OECD countries (as against an average
of around 45% in previous expansions). When it
comes to construction in general as well as housing
issues in particular, no aspect of this sector is exempt
Housing and Governance . Konvitz
from governance problems. Construction is the largest
sector in employment: 7% of the EU workforce, more
than 40 million people in the EU, the US and Japan
before the crash of 2008, representing 6.47% of GDP.
Does recovery mean returning to the volume of new
housing starts in 2008, when housing markets were
already disturbed by the perverse incentives and
expectations of an asset bubble? What would be an
appropriate level of construction during the crisis? In
a recovery? Can housing lead a recovery when new
housing starts and property investment are usually
a lagging indicator? In an argument about resource
allocation, is it reasonable for an economy to see 15%
or more of its workforce employed in construction?
The components which sustained the housing sector
and supported the upward mobility of millions in
the middle class in the post-1945 era have either
weakened considerably, or gone into reverse.
1. Population is no longer growing in many
OECD countries, or is growing at a low rate;
yet new housing starts remains an important
economic indicator, suggesting that more
is better. The fact that more than half of the
world’s population is now urban – a percentage
that is expected to rise to 60% by 2030 – is
itself a remarkable achievement, based on
economic opportunity and the reorganization
of vast networks for food and energy supply
– but this statistic by itself does not tell us
how much housing needs to be constructed
or renovated, nor where. Urbanisation is
irreversible, but individual cities do not grow
or decline at average rates. The vast internal
migration in most developed countries from
rural to urban regions, and from city to city,
often across hundreds of kilometers, ended
years ago. Nevertheless, housing policies
which dated from the end of World War One
and the Great Depression, when millions
needed housing with minimally decent
facilities, have remained largely unchanged,
in disregard to altered social and economic
circumstances. Population growth is not the
only driver of demand, of course: there are
also changes in household size, as more
people live in one- or two-person households
(sometimes as much as 50% of a large city);
ageing creates a different dynamic, especially
when people can remain independent but
need a safer environment inside and out, and
a different mix of services, than may be found
in the dwelling or community where they had
lived for many years. Facile and simplistic
assumptions are often made about the impact
of an ageing population on housing demand;
crude extrapolations from the recent past,
when conditions were different from what they
are now, should be questioned. Nevertheless,
in many countries the housing stock is already
in excess to the number of households – a
pattern which could yet spread.
2. New cities are not under development in
western countries, and cannot be initiated as
easily as in the past, before concerns about
climate change and other environmental risks,
or about sustainability more generally, entered
onto the public stage. Some cities are still
growing, but many are mostly stable, and some
are declining (a trend unheard of in the western
world in the 20th century). This has implications
for those who argue that land use regulations
need to be relaxed in order to promote an
expansion of the supply of housing, thereby
reducing upward pressure on the price of
real estate and encouraging sales. What may
be needed in metropolitan areas which are
already built-up to make better use of vacant or
damaged land is not what other places need
to contain the loss of land on the urban fringe.
The overall building stock in cities changes
at the rate of 1%-2% annually, meaning that
it takes decades to remake a city through
the process of demolition/new construction.
Incremental change may be good, but it also
has the effect of making planning rather too
much of a theoretical exercise – by the time
a ten-year or twenty-year plan has reached
its use-by date, many of the variables that
went into its development will have changed,
perhaps significantly.
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Adam Smith Research Foundation . Working Papers Series
Housing policies continue to favour new
construction on greenfield sites over intraurban renewal. As a result, land is converted to
housing or to urban economic activities such
as manufacturing or logistics. Urban activities
are taking up more land at a rate greater than
the rate of population growth. Between 1990
and 2000, the increase of artificial surfaces
for housing, urban green areas, industry,
commerce and transport was around 1,000
km2 per year within the 27 states of the
European Union (already highly urbanized),
or about 275 hectares per day, rising by 5.7%
from 176,150 km2 to 186,200 km2. As an order
of magnitude, this is equivalent to the making
of a city exceeding the size of Berlin in a single
year. By 2006, the total figures had increased
to 191,2000 km2, indicating that the rate of land
take was weakening. But of course this overall
pattern masks regional differences (Prokop
et al, 2011; see also MacDonald et al, 2010).
Moreover, in some countries, the amount of
urban land per family is greater than in others;
many cultural, political and environmental
variables need to be taken into account. There
is no single benchmark of how much space
per capita is enough, or when people start to
over-consume. What matters is that the trend
to convert land into urban space continues
upwards. In the end, we reach the conclusion
that undeveloped land is being consumed
with implications for water management and
global climate change, without necessarily
gaining the benefits of agglomeration effects
associated historically with urban development
so necessary to achieving an optimal outcome.
3. Rights are often linked to housing. Property
rights, including the right to privacy within
one’s dwelling and to transfer title, have
been fundamental elements of the social
and political structure, in some regions for
centuries, conveying both voting rights and
fiscal obligations. It is worth remembering
that agrarian societies often limited physical
mobility through tenure arrangements that tied
people to estates. Policy objectives to promote
home ownership in the 20th century were
inspired by the belief that by giving even the
lower middle class a financial stake in an asset
and in a community, the attraction of socialism,
or worse, of communism, would be weakened.
But government has failed to provide uniform
public services of sufficient quality to all
6
neighborhoods. It is no wonder that people
defend acquired rights when housing tenancy
often correlates with exclusive access to better
schools and environmental amenities.
It is hard to anticipate what new right people
will enjoy that is linked to the ownership of
property. Civic rights, which in the past had
been linked to ownership of property above a
certain value, are now universal, irrespective of
wealth or mode of tenure. Tenants, for example,
can vote on the same issues as property
owners even though their respective interests
may be affected differently by the outcome.
Concern over whether housing is a justiciable
right, one which can be enforced in the courts,
one which implies that states must provide
housing at least under certain conditions,
proved to be divisive during the Habitat II UN
Conference on Human Settlements, in Istanbul,
1996. Several OECD countries took the position
that housing is a basic right, to be enshrined
in law and even in a constitution; others,
including the United States, could not concur,
out of concern to create a new entitlement for
citizens. Yet the government of a modern nation
that is “ill-fed, ill-clothed and ill-housed” would
have to intervene, as the government of the
United States did in fact during and after the
Great Depression, with a legacy of institutions
and policies that has proved immune to serious
reform.
4. Innovation, the fourth factor of growth,
is less apparent in the housing sector –
discounting, of course, recent innovations in
housing finance which turned out to cause
unprecedented losses. We live in houses
where people have lived before: what has
changed is the sanitary plumbing, methods
for heating, cooking and cooling, lighting,
and the like – but within a physical structure
which can still be used much as it had been
generations ago. Many vernacular modes of
building have virtues which are of considerable
value for risk reduction (houses on stilts that
survive flooding) or climate extremes (naturally
ventilated structures in Yemen, heavy snow
in northern Michigan). But innovation in the
form of research on construction methods,
building materials, land-use development,
renovation and conversations, controlling
risks and environmental externalities, and
Housing and Governance . Konvitz
so on is under-funded, compromised by the
large number of small home-builders, by the
complexity of building and design codes and
zoned land uses which fragment markets and
inhibit the adoption of new techniques, and
by community resistance based on fear of
change. Innovation, including in governance
techniques to find social, cultural and political
acceptance for new ways of constructing,
renovating and using housing, is a priority on
the way to sustainability.
To conclude, housing is linked to each of the four
factors that affect growth, but in ways that show how
much more conservative it is than many other sectors,
less open to innovation, more strongly linked to codes,
contracts and other legally binding instruments.
Housing, Housing Policy, and
Policy-Making
The fact that the building up of the city is itself an
undertaking that helps to sustain both capital (for
investors and owners) and capitalism (in the form
of a market system which co-ordinates supply
and demand) makes the current crisis even more
important. If the demand for building declines, labour
will be reallocated to other sectors, local authorities will
have to be find other sources of revenue than licensing
and permits associated with construction and land
use change, financial institutions will have to diversify
further from lending for property development and
from holding property as collateral. The challenge,
as we will see, is to maintain and even increase the
positive agglomeration effects of cities and their
metropolitan regions so as to maintain demand for
housing, for quality institutional facilities and places of
work, thereby contributing to the growth of productivity
and of human capital.
Market failures justify intervention. Frederich Hayek, in
a chapter in Constitution and Liberty (1960), focused
his attack not on those who abused the opportunities
of the market as much as on the high political and
economic cost of trying to achieve a more optimal
outcome through administrative action and centralized
planning. In the postwar era, government provision of
housing using industrialised methods was still seen
as both progressive and cost-effective. The quality of
economic analysis related to housing, which Hayek
found inadequate in his day, has improved, but is still
subject to the criticism that important, generalized
findings cannot be supported by narrow studies
using different methodologies in a field in which
the relative consequences of different variables are
impossible to discriminate precisely. One solution
favored by public choice theorists has been to devolve
decision-making close to the people whose lives are
most clearly affected by it. Many aspects of housing
policy therefore are the domain of local and regional
governments.
In the 2011 edition of its survey of economic policy
reforms, Going for Growth, the macroeconomists of
the OECD took up the challenge of recommending
measures to dampen volatility in residential housing
investment, to facilitate residential mobility, and to
couple appropriate regulatory oversight and prudent
banking regulations with innovations in mortgage
markets. Deregulation contributed to the rise in house
prices by as much as 30% in the average OECD
country between 1980 and 2005. Improving banking
supervision, and reducing the maximum loan-to-value
ratio by 10 percentage points, would reduce real
house price volatility by nearly half.
Policy-makers fall back on advice based on
macroeconomic theory about how markets should
work, advice which is difficult to put into practices,
and which may not align with trends about spatial
development. The more flexible the housing system,
Housing, as a major factor in city-building, has
become a hybrid in policy terms, partly a key element
in the formation of capital and thus embedded in
market practices and institutions, and partly itself a
major focus of public policy, to correct for the social
and environmental inequities which accumulated in
the late 19th and early 20th centuries and re-emerge
in an attenuated form. Given the density, size and
complexity of cities, it is no wonder that the proper coordination between policies to promote effective and
efficient markets, and to provide adequately for public
goods, is so difficult.
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Adam Smith Research Foundation . Working Papers Series
the greater the likelihood that demand pressures
will not push up prices. Oversimplified, the policy
packages being recommended today call broadly
for more and better financial regulation, and for
less regulation at local level for planning, codes,
permits and the like. Housing policy instruments
which are fiscal and monetary remains are under the
responsibility of national governments. The tools that
affect the location of housing and, indirectly, its cost or
benefit, such as planning, building codes and the like
however are subject to local and regional regulation,
and are poorly integrated into national housing policy,
which lacks the ability to restrain credit, for example,
in areas where local governments are facilitating
the growth of the housing supply, while improving
market conditions in other jurisdictions which are
over-regulated.
Construction and Land Use
The OECD’s Competition Committee devoted two
Roundtables on Competition Policy in 2008 to related
issues: #86 on Land Use Restrictions as Barriers to
Entry (OECD, 2008a), and #87 on Competition in the
Construction Industry (OECD, 2008b). Competition
in construction is handicapped by a number of
factors, including regulatory barriers associated with
licensing skilled labor and the division of work by
craft-based skills on sites, issues related to the trade in
imported materials and products, and building codes
themselves. Local building firms , which tend to be
small, therefore have market advantages which also
limit the size of local markets. Successful large firms,
which tend to work on large projects, are also favored
by a proven record which may be a precondition for
tendering. The business of house-building has more
in common with 19th century commercial practices,
including debt financing and estate development, than
most other 21st century industries. Fragmentation has
deterred research into new construction methods or
materials; the post-war pursuit of mass production
and large-scale site assembly, which reconstruction
and mass migration made imperative, has reverted to
earlier forms of housing supply.
After enumerating the benefits of intervention
to protect public goods, the environment, and
communities, to minimize negative externalities, and to
distribute the costs of providing public services more
equitably, the OECD background paper highlighted
the costs of land use restrictions, which include
delays in starting a new business (and possibly even
preventing competitive entry), thus increasing costs to
8
consumers. Delays are not only a matter of time while
administrative procedures are under way, but also
engender expenditure to prepare the paperwork, and
to pay fees. Much of the concern is about delays that
affect business operations, and the location of new
retail facilities. (The OECD, in a unique programme of
co-operation with the Ministry of Economy of Mexico,
has identified the most significant obstacles in the
process of reviewing applications for land use and
construction permits in selected municipalities and
states in Mexico, and has set out a handbook to guide
officials in their efforts to improve and reform these
procedures; the OECD is monitoring and evaluating
the efforts of some jurisdictions to implement the
handbook, in order to identify and diffuse good
practices. The results should translate into more
pro-active, aggressive efforts to launch or expand
businesses.) Good site assembly may well explain
the lower profit margins and higher building volumes
of some Continental countries when compared with
the UK. Some of the same problems associated with
land use permits affect housing as well, when permits
have to be granted, and sites have to be assembled:
delays can also reflect local opposition, leading to
two well-known syndromes, the Banana effect (“build
absolutely nothing near anybody”), and Nimby-ism
(“not in my back yard”).
Regulatory uncertainty – not being able to anticipate
the outcome of an administrative procedure such as
a permit application or occupancy permit – deters
investment. Planning and zoning affect the prices of
houses, but studies, the OECD concluded, are not
robust, making it difficult to determine the impact
of specific variables. Changes to rules, an intensely
political process, take place on the margin, leaving
basic regulatory structures, themselves the result of
very considerable political and legal battles nearly
a century ago, in tact. The complexity of reform
matters at a time when transparency is critical to
anti-corruption, when stakeholders and the public
must be consulted according to codified procedures,
when decisions can be appealed through the courts,
- in other words, when public participation, with all
its strengths and shortcomings, must be taken into
account. The logic for reform from the perspective of
competition policy may be strong, but little will be done
in the absence of a compelling plan to implement
reforms - reforms which will generate opposition from
some community and business interests - at all levels
of government.
Consider the advice given by Alan Mallach and
Jennifer S. Vey in their 2011 article, “Recapturing
Housing and Governance . Konvitz
Land for Economic and Fiscal Growth” for the
Brookings-Rockefeller Project on State and Municipal
Innovation. Older industrial cities contain land that
can be redeveloped, and Sunbelt cities have the
highest foreclosure rates in the United States. The
authors target tax foreclosure laws and laws that limit
the ability of local governments to take control of
abandoned properties efficiently. This is a strategy for
bottom-up regeneration, for which funds are needed
either through new appropriations or reallocations,
not for fundamental housing policy reform. If local
governments could gain control of properties and
then manage and sell them in ways that are consistent
with and help realize long-term development goals,
the negative effects of foreclosures on adjacent
properties would be abated, and the impact on the
local tax base would be capped. But the suggestion
that states should reform laws and regulations to give
local governments the necessary set of legal and
regulatory tools to levy a vacant property registration
fee, to make creditors responsible for code violations,
to create land bank authorities with powers to receive
and resell properties, and to permit local governments
to foreclose more quickly on tax delinquent properties
can only be implemented through the political
process, which itself remains handicapped by the
lack of consistent state policies and strategies. The
limited scope for local and state authorities to interfere
in the property market reflects a long-standing belief
that the rights of individual property-owners are a
major check on arbitrary power. The authors cite as
positive examples laws in Michigan and Ohio, but
even in these states which have been in a prolonged
recession with high unemployment it took years
of decline before lawmakers were willing to enact
reforms. The argument of a desperate last resort
puts a stigma on what should be seen as a positive
initiative.
To be clear: land-use planning and infrastructure
planning and expenditure may be devolved onto local
and regional governments in both centralized and
federated systems. But increasingly, issues about the
future are like nesting boxes: the smaller boxes must
fit into the larger ones, and the larger ones have to
make room for the smaller ones. Regional and local
plans must take account of national programmes and
objectives for energy, clean air and water, pollution
and remediation, and disaster reduction, to mention
just the usual suspects, and issues of trans-border
co-operation, inward investment, competitiveness,
and sustainable agriculture often play a role.
Because housing fixes land use patterns into private
property, the cost of making changes through policy
to a housing pattern can be overwhelming, and are
certainly beyond the means of deficit-conscious
governments for the foreseeable future.
A regulatory reform strategy
The advice of macroeconomists for more structural
and micro housing reforms at the local level is
rarely backed up by an analysis of the obstacles
to regulatory reform, or of the strategies to make
reform happen. The resulting blockage leads to
an overall sense of impotence. Progress has been
made in recent years to improve multi-level regulatory
coherence, to strengthen public participation and
transparency, to reduce regulatory and bureaucratic
barriers, to integrate environmental and regulatory
impact assessments and to carry out both ex-ante and
ex-post impact analysis – but the full set of regulatory
tools and institutions has yet to be brought to bear on
the housing policy agenda.
What would a regulatory reform programme for the
housing sector look like? As a process it would have
to bring together the credit system, land use and
regional development, builders and inspectors, and
all the sectors responsible for local service provision,
from transport and waste management to health and
education. In other words, a whole-of-government
approach would be needed, one sufficiently broad
and flexible moreover to take account of extreme
local variations. This is not a quick fix to the economic
consequences of the crisis, the fall in construction
activity, and the problem of negative equity.
Attention must be paid as well to the tools that local
government need to make appropriate decisions,
ranging from cadasters and data about environmental
conditions and risks, to the facilities to process permit
applications and handle appeals. Conveyancing
requirements and their associated costs, rental
regulations, building codes, land use planning and
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permit systems, are embedded in professional
practice and administrative structures.
Regulatory governance calls for ways to co-ordinate
across sectors and levels of government, and to
involve the business and professional actors who
make housing systems work in the private sector
understand and accept reform. And this will take
political leadership. Wholesale reviews of regulations
for specific aspects of housing and construction
could be undertaken by task forces working against
deadlines, as long as there is also time for wider
consultation, to assess the overall result.
Regulatory risk management is needed for the
financial sector, and to reduce the vulnerability of
housing to disaster, to control corruption at the local
level, and to anticipate moral hazard problems due to
government intervention.
Regulatory multi-level coherence covers high
administrative costs, unnecessary and timeconsuming delays for land use or occupancy
permits, the impact of fees on local government
budgets, problems of weak enforcement, obsolete or
excessively costly building codes, questions of zoning,
and in general, the misalignment between national and
local demands and objectives.
Regulatory policy coherence addresses the problem
of co-ordinating health, education, transport and the
environment.
There is no easy solution to the governance
challenges of housing policy reform. If as is likely
fiscal reforms and reforms of financial instruments for
housing recommended at the central level are more
likely to be implemented than reforms at the subnational level, , the result will be to further enhance the
power and influence of housing finance in the overall
policy package for housing. Macroeconomists cannot
be blamed for putting the emphasis of their analysis
of housing markets on macro-economic stability. But
no one should have any illusions that the full package
of policy instruments that affect housing can or will be
reformed comprehensively.
10
The Policy Objectives for Housing: The
beliefs embedded in macroeconomic
and social policy that helped get us
into this mess and inhibit reform
The question of what should be reformed cannot be
separated from the assumptions about how housing
markets should function. Macro-economists call for
regulatory reforms of real estate markets, to reduce
transaction costs and increase turn-over, of planning
to expand supply, of building codes to reduce costs,
of infrastructure investment to enlarge the areas
available for housing and retail facilities, and transport,
to enhance mobility. There are two basic assumptions
in housing policy in developed countries: The first is
that home ownership is to be encouraged as it helps
to stabilize social conditions in cities where people
from different places and of different origins come
together, and gives them an incentive to remain
employed so as to keep their mortgages. The second
is that housing policy should promote labour mobility,
from regions of higher unemployment to places where
firms are hiring. Both contributed to housing policies
that steered governments toward treacherous financial
shoals; both need to be re-examined in the light of
experience.
Home ownership strengthens social stability
Measures to support home ownership were
embedded in policies during the interwar period and
during the years of rapid growth and rural-to-urban
migration after World War Two, when competing
socialist and communist ideologies exploited the fear
that capitalism would keep workers in a permanent
underclass, ill-housed and ill-clothed. Home
ownership does not bring with it the benefits that made
it a keystone in social policy for generations (The
Economist, 2009) but it continues to influence fiscal
policies on mortgage payments, and helped to justify
the massive influence of Fannie Mae and Freddie Mac
in the United States.
In its 2007 survey of the economy of the United States,
the OECD wrote that “the accumulation of debt has
been encouraged by the long-standing U.S. policy
to promote housing. Governments have used a
variety of instruments for this purpose[…]. While there
seems to be socioeconomic benefits stemming from
increased home ownership, the efficacy of these policy
instruments in promoting homeownership is subject
to controversies in the literature” (OECD, 2007). The
Housing and Governance . Konvitz
survey cites four tax breaks to homeowners: the
income derived from housing service (net imputed
rent) is not taxed; homeowners can exclude up to
$250,000 ($500,000 for a married couple filing jointly)
of capital gains on the sale of real property; full
deductibility of mortgage interest payments on debt for
a primary or secondary residence on up to $1 million
in acquisition debt and up to $100,000 in home equity
debt; and deductibility of local real estate taxes from
federal income tax. As a result, the rate of taxation of
housing is close to zero, and in some cases negative.
These tax expenditures come at a large cost to the
budget: the President’s Tax Reform Panel identifies
incentives for homeownership as the second larges
tax expenditure (after health deductions), with a total
cost of over $700 billion during FY2006-07 excluding
the non-taxation of imputed rent (another $185 billion).
Lenders took advantage of these fiscal breaks,
lowering lending standards significantly: in 2001,
only 8% of home purchases had a down payment of
zero, but by 2007 this figure had risen to 22% (OECD,
2011, p.186). Given the low savings rate in the United
States, the housing boom was partly fuelled by foreign
capital, and triggered a reallocation of resources from
tradable goods to construction, “potentially weakening
the competitive position”. Normal mechanisms for
adjustment simply have not operated in recent years:
it would be surprising if inflows of funds which ended
up in housing were driven by a search for the most
profitable investment opportunities! (André, 2010).
It is important to grasp the scale of this annually
recurring package, which contributed to an overheated housing market and left millions stranded with
negative equity when the bubble burst, and which
favours individuals with above-average incomes, in
the light of the growing US deficit. This means not only
that tax breaks and credit facilitation measures put
in place by law for the express purpose of promoting
homeownership have little effect on the propensity to
own, but also that the benefits of homeownership are
probably exaggerated, and in any case are difficult to
disentangle from other factors such as educational
opportunities that affect social mobility and lifestyle.
these are not easy waters to navigate if only guided
by a chart to steer away from the coastal enclaves
of high-income residents who benefit most from the
mortgage interest deduction, and toward the lowlands
of the lower middle classes. A simulation of winners
and losers from reform may reinforce an argument
in favour of reform, but it won’t tell policymakers how
to achieve it. Again the remedies in terms of tax and
housing policy are clear, but the political means to
achieve them are even further beyond the grasp of
elected officials than they were in 1993, when the fiscal
cost of these subsidies to households was a fraction
of what it became in 2007.
The findings of the OECD on housing tenure show
that “home owners tend to be less mobile than private
renters, even after taking into account other household
characteristics (e.g., age and income, and marital,
migrant and employment status, etc.)” (OECD, 2011,
p.189). Why? Is this because homeowners face higher
transaction costs than renters (a reason to measure
those costs and re-regulate the conveyancing
requirements and credit procedures)? Owners without
a mortgage are estimated to be 13% less likely to
move annually than private renters; by comparison, the
annual mobility rate of owners with a mortgage is only
9% lower than that of renters. In other words, people
with a mortgage may be in the housing market slightly
more often than owners without one, perhaps because
they are less likely to be retired, perhaps because they
need to remain employed in order to keep up with
mortgage payments.
After decades of housing development in the United
States (and elsewhere) based on single-family
houses that are owner-occupied, access to schools,
recreational facilities and even shopping is often a
matter of “buying in”, acquiring a house within a given
district. This is self-perpetuating: people may have no
choice but to become owners, because other forms
of tenancy do not provide equivalent access to the
An April 2010 paper by Eric Toder, Margery Austin
Turner, Katherine Lim and Liza Getsinger, Reforming
the Mortgage Interest Deduction (Toder et al., 2010),
compared the distributional effects of eliminating the
mortgage interest deduction in different American
regions, concluding that any of several tax credit
options would benefit low-and middle-income groups,
blacks and Hispanics, Midwestern metropolitan
households and non-metropolitan households. But
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services and amenities that they want. The roll-over
of capital gains not he sale of a primary residence
further reinforces home ownership, limiting consumer
choice. There is evidence that the market does not
reflect consumer preferences well enough. A recent
report from Australia’s Grattan Institute highlight that
people value both housing type and location, and that
there is a mismatch, suggesting that there is greater
potential for apartment buildings of 4 levels or more,
and for semi-detached houses in the already built-up
areas of central Melbourne and its inner suburbs. But
financing for single-family dwellings on greenfield sites
is easier to secure; lenders prefer a standard to an
innovative product; and building and material costs will
be lower for the house on a previously undeveloped
land parcel. The case for government intervention can
be made if there is the political will to make it – and
the discipline to select instruments which will be least
distorting, and easiest to remove or modify over time.
Jane-Frances Kelly, “The Housing We’d Choose”,
Report 2011-5, June 2011)
Housing mobility reduces unemployment and
improves resource allocation
The second assumption concerns the impact of
housing tenure and related regulatory measures
on structural adjustment and unemployment. The
argument is that when the nature of work changes,
and when unemployment rises, a fluid housing market,
one in which supply corresponds to demand and
in which it is relatively easy to buy and sell property
or to find adequate rental arrangements, promotes
the redistribution of labor to regions or places where
people can find work. This people-to-jobs strategy
in a free market is reflected in the average of 6% of
annual relocation characteristic of OECD countries as
a whole. It is difficult to see how this can be part of the
solution to the current economic crisis when people
cannot so easily either buy or sell property.
The macroeconomic logic of theory, to promote
labour reallocation through housing policy to favor
mobility, breaks down in reality. In countries with a
strong, primary metropolitan region, there is less
competition for workers with mobile and transferable
skills than in a country with a more complex regional
and urban structure. Language, religion, political
orientations and other cultural and social variables
affect residential choice. Rental tenancy should, from
this point of view, be preferable to home ownership
as long as rental arrangements do not lock people in
to long-term leases, But in many countries such as
12
Australia and the US, rental housing is the secondbest option. On the one hand, renters are more likely
to be unemployed, or to relocate to improve social
and economic opportunities; but if renters are also
more likely to be immigrants, or lack the resources
to become home owners, they are precisely those
groups who may need to be encouraged to buy
property as a step toward social stability. Moreover,
the glaring problems of social disengagement and
alienation, once again high on the list of issues
that governments must confront, are not primarily
linked to poor quality housing or inadequate access
to credit, but to the failures of government to coordinate the supply of public transport, vocational
secondary education, and access to health care
and environmental amenities at the neighborhood
or district level. As the OECD pointed out in its
1998 report on distressed urban areas, unless
complemented by more effective forms of intervention
to improve them, a very fluid and flexible housing
market will actually exacerbate patterns of spatial
deprivation in large metropolitan areas, raising costs
to society. Disparities within metropolitan areas can be
as acute as those between fast-growing and declining
regions. The challenge is to adopt low-cost means of
enhancing accessibility, to reduce the social as well
as physical distance between where people live and
where they work by adopting area-based forms of coordination, to find solutions that people can use in their
daily lives.
Yet the hold of these assumptions, the first on the
public and politicians, and the second on economists,
is hardly shaken – yet. The sense of security that
comes with homeownership, including forced savings
and the opportunity for capital gain in anticipation
of retirement later in life, remains strong, and does
not appear to be affected when fiscal measures
to encourage homeownership are withdrawn.
Encouraging people to relocate remains rooted in
a historical phase that is largely over in developed
countries, a period of help-wanted signs posted
on factory gates and in the advertising sections of
newspapers, of a workforce of generic skills such that
little on the job training is necessary, and of a sharp
decline in the workforce employed in agriculture and
living in the country. The combination of policies to
promote homeownership and mobility made sense at
a time when in a two-person household, one income
could suffice; and it made sense when people did not
have significant restrictions on mobility in the form of
health benefits, pension rights, and the like.
Housing and Governance . Konvitz
There is an obvious way to see how these two
assumptions are often coupled, and why the coupling
is flawed: areas of high unemployment are often
areas where housing costs relatively less than areas
where there are more jobs, and more better-paying
jobs. But the transfer of people from the one to the
other does not clear housing or labour markets: lower
housing prices are not sufficient to turn these areas
around. The rustbelt of the US, eastern Canada,
northern England, eastern Germany – the examples
can be multiplied. The movement of people to areas
where employment is growing can lead to locally
overheated housing markets and to popular resistance
to alter housing policies to accommodate population
growth. The macroeconomic recommendation to
increase supply is politically difficult, and int he best of
circumstances, takes years to show effects.
This is clearly a middle class issue. OECD analysis
does not screen for national or regional differences,
but interesting new research from France shows that
the effect of the crisis of 2008 combined with the high
cost of housing in Paris and the limited availability of
quality rental properties in many smaller towns where
there may be jobs are depressing relocations. A
national survey on living conditions for the employers
federation Medef, showed that 70% of those employed
would turn down a professional opportunity if that
involved a move which would increase their housing
expense, calculated not only to include the cost of
housing but also the cost of transport to work. The
survey concluded that 500,000 people had refused
a job opportunity over the last five years for this
reason, and that people who owned their housing
were overwhelmingly likely to take this decision, much
more so than renters (Le Monde, 2011). If this trend is
substantiated elsewhere, it hints at a new normative
pattern which further undermines the assumption that
housing mobility is key to reducing unemployment: we
may be in a new equilibrium.
generations, sometimes unwillingly, sometimes under
compulsion, but often in pursuit of political freedom
as well as economic opportunity. But migration is not
the only or best solution for many. In a logic based
on population mobility, cities try to capture jobs, to
retain or attract people. They also try to make it more
difficult for people who are likely to need expensive
social services to stay put. Moreover, governments
are concerned that too many people want to live
in only a few places, leading to other problems for
service delivery both within large, dense metropolitan
regions, and in the rest of the country. The point is not
to make housing markets less fluid, but to question
how much they contribute to adjusting labour markets.
There is a strong case to revise regulations that make
transactions unnecessarily costly and time-consuming
without resorting to arguments about labour resource
allocation.
The challenge is strengthen the link between firms
and territories, to develop a form of stability for both,
with reciprocal benefits. This goal, to lift overall output
by developing the assets of all regions, is also part
of the OECD policy toolkit for regional policy. That
there is a tension between place-based regional and
a-spatial macroeconomic policy simply reflects two
different approaches to enhancing performance and
the efficiency of public intervention. We will see which
is better suited to the future.
From the macroeconomic perspective, the best
counter-argument could be that housing policy,
based on improving economic opportunities where
people live (rather than relying on mobility), will
achieve an acceptable – and perhaps a better –
allocation of resources. The reality is that most people
relocate infrequently over a lifetime, and often stay
within the same region when they do so. Moving is
widely recognized to be among the most stressful
experiences of life, nearly as severe as coping with
death in the immediate family. Overall statistics
The neo-classical solution of people-to-jobs, to
increase “mobility by making housing supply more
responsive and lowering purchase transaction
costs”, does not take into account either the time
it takes to bring about the necessary regulatory
changes to improve mobility even if that were the
desired outcome, or the likelihood that the crisis will
itself generate a new pattern of unemployment and
smaller households. The growth of cities in the 19th
and 20th centuries has been a demonstration of
the positive effects of mobility unique in the history
of mankind: no other socio-economic experiment
has been pursued by so many millions, across the
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about how many people change residence annually
mask the fact that some people change locations far
more often than others. Building urban areas on the
assumption that relocation or settlement should be
easy has implications for the design of housing. In
the logic of mobility, the more places resemble each
other, with similar housing markets, schools and retail
facilities, the easier it will be for people to relocate.
The neo-classical approach to change, which would
move people to jobs, can lead to a situation of
precipitous decline in some places and unmanageable
growth elsewhere. What does it cost to develop
more sustainable territories? Or put another way,
what is the cost to firms of weaker territories? What
are the consequences when cities put short-term
economic objectives ahead of medium-term social
and environmental goals? And what can take the
place of the strong belief, embedded in structural
reform policies, that the solution to the mis-allocation
of resources are migration and labour mobility?
Wouldn’t it make more sense to look at place-based
development positively, and align housing markets
and policies accordingly?
A jobs-to-people strategy assumes that localities have
an adequate endowment in human and social capital,
that investment is not distorted by subsidies and fiscal
incentives, that administrative procedures (“red tape”)
keep barriers to entry low and enable access to land
and utilities, and that environmental and transport
policies allow for under-developed or under-utilised
assets to be re-developed. Admittedly this is a
complex policy package, but evidence from countries
as diverse in the OECD as Sweden, Switzerland,
Mexico and Korea show how the right policies can be
designed and implemented.
The Middle Class and the Political
Economy of Reform
Everything that has been said up to this point has
highlighted the critical status of the middle class
in a public culture that increasingly facilities and
promotes public participation, and is suspicious if
not intolerant of top-down decisions taken without
public consultation. Building a constituency for reform
is critical to the success of any reform strategy,
and perhaps more so for structural reforms which
affect each household’s economic opportunities.
Parliamentary democracy, the expansion of the
suffrage and active participation in public affairs have
been associated with the growth of a middle class
14
with a high level of social capital, a commitment to
education, and a willingness to adopt innovations.
But its optimism has been undermined, evident in
indicators of declining trust in government across a
variety of countries with different growth rates over
the past two decades. Reforms of policy instruments
in the housing sector which could reduce community
control - the thrust of proposals affecting zoning,
design standards, density, land use and construction
permits - would be all the more difficult to adopt
through a process which promotes and demands
public participation.
The ratio of incomes to housing prices has
deteriorated, making it difficult for many younger
people to enter the market to buy, and pushing owners
to take on more debt when they do buy: household
debt represented one year of disposable income in
1995 in OECD countries, 120% in 2000, but 170%
in 2007 – levels which national governments reach
at their peril. The long-term trend in price-to-income
ratio in 7 countries exceeded 150 (when the long-term
trend has a value of 100) (André, 2010, p.10). As
borrowing constraints were alleviated, people enjoyed
easier access to credit, without fully understanding
the downside risks. Thus, the percentage of people
who believed that prices would continue to rise
kept increasing, even after the objective conditions
to sustain such a belief began to come undone
(p.24). No wonder that household debt increased
dramatically, from about one year of household
disposable income in 1995 to 120% in 2000 and close
to 170% by 2007 (pp.21-22). Massive changes in the
position of countries from debtor to creditor status, or
vice-versa, have historically been associated with the
most significant geo-political realignments: typically,
wars and revolutions, or the gain or erosion of an
empire. (This involves the expansion of the housing
market in China’s cities just as much as it does the
asset boom in the US or Australia.) These are metaevents which overwhelm individuals, and alter, at least
for several decades, the larger horizons of what they
consider possible. A rapid transformation of this kind
within a population – with all it implies for national
imbalances – is evocative of a change of values
and behavior that is harder for people to understand
because averages mask huge differences within
communities, leading to a stronger sense of unfairness
in the distribution of gains and losses.
The opportunity to change behavior and expectations
is there in countries where housing values have
declined. People who acted as if prices would always
rise have learned that home ownership does not
Housing and Governance . Konvitz
“purchase” security. But memories that affect behavior
fade after a few years, and except for traumatic events
– the great depression, for example, or hyperinflation
– are unlikely to be embedded in the outlook of
successive generations. Will the crash of 2008 and
its after-effects fade, or persist? And what would be
the consequences if its effects continued to influence
public and private consumption and investment? In
other words, the bias in behavior to invest in property
as something more secure than other instruments for
capital appreciation is likely to persist, and may in fact
be reinforced by the excesses of financial deregulation
and the sheer unintelligibility of financial instruments
that it generated.
“Many Americans Fear U.S. Living Standards Have
Stopped Rising; They Believe Their Children Face a
Tougher Future”, ran the headline of The Wall Street
Journal, not in 2009, but twenty years earlier. In an
ironic twist, and perhaps an unconscious one, the
article appeared on 1st May – a day celebrated worldwide except in the United States and Canada as Labor
Day. Eighteen months later, The Economist published
a survey on American living standards, “Running to
Stand Still” (1990). “I do not remember a time, not
even during the ghastly ‘60s”, wrote Alistair Cooke,
whose observations on America go back to the 1940s,
“when Americans have complained more, in a tone
close to despair, about the visible and seemingly
unhealable wounds in American society[…], daily life,
in every sort and size of community, is getting more
squalid, expensive and dangerous” (Cooke, 1991).
This was written in 1991, not 2011 when the political
effects of inequality and polarization had tightened
not only in the United States but in many western
democracies where the centre no longer governed.
(See also the article by Edward Luce, “Goodbye,
American Dream”, (Financial Times, 2010), ironically in
the same edition as an interview with Alan Greenspan
in retirement.)
shaped by trends reflected in public opinion that the
victory in the Cold War, although it owed much to the
western economic model, like the end of World War
One, had not delivered an economic benefit.
Trends that are the frequent subject of columnists
since 2008 reflect concerns that were already manifest
twenty years before: the slow growth of the earnings
of American male workers; the likelihood for many that
their children will do less well; and that housing and a
college education, those two key features of middleclass families in the post-war era that appeared to
explain and also symbolize the advance of America
on the rest of the world, were less likely to repay the
investment they absorb.
The question is not, how accurate the assessments
of 1989 or 1991 were, but how the sense of fear
and insecurity takes hold in societies where people
no longer trust government. Living standards have
remained as high as before but at the price of
heavier borrowing and higher spending. How can the
situation be unwound when productivity can only be
increased through greater investment in education,
the environment and technology? The issues were just
as clear in 1989 as in 2011. But the level of debt that
has to be reduced or carried forward is considerably
greater today, and the pressures on competitiveness
in a globalised world are more intense.
Why bring up the issue of the middle class squeeze?
Without middle class support, the politics for reform
in the housing sector remain elusive at best. The
insecurity of the middle class shifts the politics of
reform away from rebuilding fundamentals and
toward reassurance of existing measures of social
protection. Any package of reforms, combining
reforms of housing finance and taxation, tenure
contracts and rent regulations, land use and zoning
rules and objectives, environmental policies and the
modernization and extension of infrastructure and
In 1990 it was clear that stagnation was distributed
unequally: 80 % of the families in America knew what
it meant, but the top fifth increased their percentage
of the nation’s wealth. There were more two-income
families, but these faced higher living costs and
more expenses, not surprising in a country where
the number of registered paid lobbyists in the United
States Senate had increased from 365 in 1960
to 33,704 thirty years later, or 337 per senator. (A
comparable figure concerns the number of lawyers:
260,000 in 1960, but 765,000 in 1990, in a country
whose population had barely doubled). The run-up to
the 1992 Presidential election in the United States was
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Adam Smith Research Foundation . Working Papers Series
transportation services will have to persuade the
middle class that the future can be better and safer.
What Could Be the Future Housing Policy?
The picture is admittedly bleak: a prolonged housing
slump, stranding millions of owners with negative
equity, inhibiting family choices about employment,
marriage or divorce, whether to have children,
how to care for ageing parents; the reconversion
of unemployed construction workers; deferred
maintenance especially of rental properties; continued
banking balance-sheet fragility; and a banking
sector adverse to lending for imaginative projects.
Municipalities will be hard-pressed to maintain the
current level of property taxes in real terms, leading to
difficult decisions about which services to maintain,
which to cut, and which to provide for a fee. And
housing prices will remain high in the large, global
cities such as Paris, London and New York reflecting
demand from foreigners seeking financial and
political diversification, and from a small number of
high-end, competitive professional sectors. In which
western nation is there a people who believe that their
communities will be better places to live and work in
10 years? The tensions between regions characterized
by stagnant or rising property markets will weigh on
national governments when considering interest rates,
fiscal policy and visas for non-citizens. Can this policy
mess be untangled?
The point of departure is to recognize that the market
is unlikely to generate a breakthrough, internalizing
social costs and especially those associated with the
risks of doing things differently today and tomorrow.
The short-term dynamic driven by credit cycles obliges
house-builders to bring to market the volume and
style of product that can be expected to sell. The sale
of new houses therefore reinforces the belief that the
market supply of houses closely matches consumer
preferences. But many people make choices within
tight time frames, taking account of many variables
such as access to recreational or educational facilities,
commuting patterns, outdoor amenities, neighborhood
security and the like which already limit his search to
particular areas: in other words housing is very much a
matter of compromises.
The challenge lies in finding ways that blend a liberal
approach to economic change with the social and
environmental concerns of people in the places
where they live. Now and for the foreseeable future,
cities need to exploit their place-based assets, the
16
physical and immaterial qualities that can help attract
jobs to the people that businesses want to employ.
After all, most people do not move. A ‘jobs to people’
strategy engages macro-economic policy in a debate
about whether place-based development can raise
overall output rather than merely shift investment and
employment from one place in decline to another
which is growing.
This is where strategic spatial planning becomes
critical – not restrictive, predictive planning which
freezes the status quo, but a creative exercise to
identify the assets of places and to enhance their
potential. As a form of strategic insight, it helps gives
policy makers and the public a range of options
and some insight into the consequences that could
follow. Its task is to exert influence by framing ways
of translating intentions into reality, mobilising many
actors, leveraging investment. It cannot escape from
the problems of policy coherence, the obstacles
to implementation, the inherited professional
specialisations, the lack of multi-year and multisectoral budgets, the different timeframes of public
and private sector decision-makers. But perhaps it can
contribute to solutions that transcend them (OECD,
2006, pp.135-6). If I am right, that a direct approach to
reform housing policies at the macro and micro levels
will not advance, even when supported by arguments
in favour of growth and employment, then a different
agenda, appealing to the middle class and its demand
for security combined with community development,
should be given consideration.
Housing is linked to three of the most important
issues facing government and society – how to
accommodate an ageing population with its specific
needs without segregating people by age; how
to promote green growth when construction, as
an activity, is energy-intensive, and when the built
housing stock is responsible for significant recurring
impacts on the use of energy and resources; and
how to guide development to places where the risks
of disasters are low, and to cope with reconstruction
when disasters occur. Policies and strategies that
mobilize private investment in relation to one or more
of these objectives will help restore housing to a
sustainable path by working with long-term trends.
A suggestive overview should be sufficient to lift the
reader’s vision, drawing attention away from detailed
articles about loan-to-value ratios, the deductibility
of mortgage interest payments, and the pressure
on local governments that comes with a collapse
in housing prices. Structural and regulatory reforms
aligned with these policy objectives may be more likely
Housing and Governance . Konvitz
to attract political support than reforms grounded in
macroeconomic theory, which is too remote front he
preoccuptions and interests of people int he cities
where they live.
1. Ageing, from the macro-economic perspective,
is a question of how to leverage the stored
value of homeownership to provide for housing
and care. Instruments exist and more will be
invented as the market grows. But the postwar
baby-boomers now entering retirement, and
perhaps their children in 2-3 decades, cannot
so confidently expect a rising level of benefits
as their parents enjoyed. At the very least
this augurs ill: a return to the time when a
rising percentage of the elderly fell back into
poverty, or at least to a lower standard of living.
Independence and self-reliance for the elderly
will be as important to people in the middle
class aged 25-55 as to their parents; the
alternative, the multi-generational household,
has already returned due to the circumstances
facing young people (delayed marriage,
unemployment, etc.); it could again be a
pattern that marks advancing years.
Financing is important, but there is the risk
that a focus on innovative financing methods
is simply a way to push the problem of
sustainable housing solutions for an ageing
population onto the population at large.
Government interventions that go far beyond
tax credits, legal changes that permit people to
withdraw equity without affecting the rights of
inheritors, etc. will be needed. The challenges
for housing for an ageing population include:
adapting dwelling units so that people can
stay in them even as their physical and mental
conditions alter; maintaining contact at the
local level and across distances, including
the use of tele-communications and video;
convenient and accessible transport for people;
and arranging housing to promote social
interaction including across generations. Local
cultural and socio-economic circumstances
will dictate particular solutions, but innovative
methods to renovate housing (or even to
build housing so that it is suitable to people
as they age), and of the financing to cover the
costs, will bear international, cross-cultural
comparison.
usually positive. In one sense it is nothing new:
a conservative use of resources is always to
be preferred to waste. What then is distinctive
about green growth? First, that the parameters
and targets can and will be measured, with
indicators that can be disaggregated down
to the level of the individual household and
aggregated upwards to large metropolitan
areas. Individual efforts will be necessary to
achieve collective results. In terms of housing,
this will call for extensive renovations to the
existing stock, new designs and technologies
for new buildings which in turn will need
renovation over time to remain state-of-the-art,
monitored construction and waste treatment
operations, integrated transport-housing
strategies, and much more. The transition
from established city-building practices to new
standards and procedures, will itself generate
economic activity. Green growth will affect
public procurement, trade in urban goods and
services, and employment, of course positively
in the eyes of those who promote it. Because
different parts of a metropolitan area call for
different degrees of change, and because
the costs and benefits of change will vary
accordingly, the investments for green growth
will have implications for the perceived value of
individual properties and neighborhoods. New
governance arrangements for green growth
management will be needed as well. And
existing tax arrangements affecting housing
and public service investment will need to be
re-examined.
3. Risk, the third challenge, is closer to the
management of rights. The emergence of the
gated community or enclave, and the spread
of passive tele-surveillance technologies, are
symptomatic of the demand for security, but
also of its political and social costs. At the very
2. Green growth is one of those elusive terms
that means different things to different people,
17
Adam Smith Research Foundation . Working Papers Series
least, they speak of the felt need to identify with
a place, and to live in a place with an identity.
Anything that threatens this is perceived as a
threat to the community, and weakens trust in
government.
People have a right to be protected against known
risks with catastrophic potential, and to be assisted
should a catastrophe occur. This is why states
possess legal powers that allow governments to
prevent construction in flood plains or in zones prone
to devastating fires, to force relocations under certain
conditions, and to suspend the operation of certain
rules and obligations during an emergency, and
impose others. A comprehensive view would look
at building codes, neighborhood design, land-use
planning, insurance, enforcement and compliance.
We know that people are notoriously poor judges
of the risks to which they are actually exposed; that
emergency services often prove to be chronically
deficient when asked to perform; that governments
at all levels are ill-prepared to reconstruct a territory
that has been badly damaged or destroyed in a
catastrophe; that governments are reluctant, to say the
least, to re-shape the settlement pattern of a region in
the light of new evidence that the risks of a disaster are
far greater than had previously been believed; and that
popular enthusiasm to do things differently, which is so
strong in the immediate after-effects of a crisis, abates
quickly. Providing a reasonable level of protection
against social disorder and environmental disaster
was the responsibility of the medieval commune; why
not of the modern metropolis?
All three policy challenges also involve major
infrastructure commitments – but usually these are
seen as separate from housing policy. Infrastructure
embodies a vision of how space can be organized,
and therefore of opportunities to capitalize on change,
lifting the economy in ways that return significant
dividends in the form of more efficient labour
markets, higher levels of social and human capital.
Infrastructure investment can be mobilized, not just
to improve annual maintenance, nor to simply extend
capacity in existing networks for water, energy and
transport, but to support new patterns of development
within existing metropolitan regions. There is latent
demand – underdeveloped land, regeneration sites,
bottlenecks, social services and open spaces to be
improved and enlarged.
Each of the last three waves of metropolitan
development since the 1880s has been characterized
by the close – almost synchronous – development
18
of new housing patterns and infrastructure: 1880s1920s – streetcars and metropolitan railways put
order into suburbs and supported the densification of
urban cores with high-rise construction; the 1950s-70s
witnessed the creation of urban and inter-urban highspeed road networks and of rapid regional transit,
permitting dense urban nodes to develop on the urban
periphery; and since the 1990s, the modernization
of older forms of urban travel including streetcars
and cycling, making inner-city living attractive as an
alternative to further outward development at low
density. Airports are now the largest employment
nodes in metropolitan areas, but no one wants to
live near them, posing significant questions about
24-hour transport services. Rather than define the next
infrastructure-innovation-investment wave in terms of a
single mode of transportation (canal, turnpike, railroad,
automobile, airplane, container ship…), look instead at
how different transport modes, technologies of control,
and patterns of energy use will be articulated into
specific local and regional systems.
Taken together, the three imperatives – housing for
an ageing population, green growth, and protection
against disasters – imply changes in the fabric, scale
and complexity of cities from the level of the individual
neighborhood to that of the metropolitan region. In
many cases this will lead to increased density and
“compact cities”. But the emphasis should not be
put on density as such – this can lead to narrow
definitions and numerical targets – but rather to quality
of life indicators and their elusive relation to economic
performance. Places where the results can be seen
first will enjoy “demonstration effects” much like Paris
in the 1860s, Chicago or Berlin a generation later,
New York at mid-century, followed by Los Angeles,
and Tokyo. Is “paradigm shift” too strong a term? Is
anything less likely to sustain the governance agenda
needed to generate a recovery?
All three policy challenges have significant implications
for regulations that affect housing construction and
markets. And all three have implications for spatial
planning, especially to prepare cities to absorb
change to the existing built environment. Combining all
three policy challenges into a place-based approach
will be a challenge for a generation, one equivalent
to the mobilization of talent, initiative and investment
that occurred after 1945 throughout the developed
economies of the west. But it may take nothing less
to compensate for the lack of vision and proactive
policy today. The nature and rapid pace of change
has always been uncertain, but there have been times
when leaders in government, business and society
Housing and Governance . Konvitz
were more confident of the kind of future they wanted
for their cities and regions. The utopian aspects of
building new cities and suburbs can and should be
transformed into the rebuilding of cities and suburbs
for the society we have now and are likely to have
for a few decades. Let the old city become the new,
with more mixed use, more customized design, more
specialized forms which take better account of the
changing needs and wants of people for leisure, work
and daily living.
Conclusion
Inertia has become a substitute for policy when difficult
decisions with long-term consequences are needed.
Construction contributed massively to the crash of
2008, with ramifications in many countries whose
housing policies were apparently sound. We cannot
build our way out of this recession, but we can set the
foundations for a more sustainable pattern of urban
development. In summary, what is needed, beyond a
moratorium on proposals for micro reforms that fail to
include sound work plans for implementation?
•
Forward-looking assessment of housing needs
based on structural demographic trends;
•
A place-based approach that combines risk
reduction and an integrated energy-watertransport planning;
•
Aggressive investment in research to develop
the products, skills and designs for green
growth in housing; review of regulations
to promote the adoption and diffusion of
innovations;
•
•
Intensive application of the tools to assess and
revise regulations at national and sub-national
level, including in finance;
ministers. The private sector won’t take the initiative,
nor will communities more afraid of the future than
satisfied with the present. Macroeconomic stability
and other economic policy objectives have not been
sufficient to generate reforms in housing policy;
pragmatically, a different approach is necessary.
Ageing, green growth and risk reduction , will help
people anticipate the benefits of reform in terms they
appreciate. When millions of people needed to be
housed in the 20th century, ministers discovered the
secret charms of housing policies that generated
ribbon-cutting and spade-digging opportunities every
week. Yet at hand is an equally compelling agenda
to make housing policy politically attractive. Who will
show the way?
The regulatory governance gap in housing policy
must be redressed. This paper began with the
assertion that regulatory reform of both macro and
micro instruments in housing policy is and will remain
difficult, handicapped in part by the disconnect
between regulatory policy and housing policy experts.
It concludes with an agenda for reform and for a
review of regulation which could support the dialogue
that so far has been missing.
m
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