“Beware of politicians bearing housing stats”: unpicking new build numbers

Some houses. Image: Getty.

Well, it’s very exciting that the government has decided we need to build more houses, because before yesterday I don’t think anyone had suggested that as a solution to the housing crisis. One consequence is that we’re almost certainly going to see more politicians arguing about how many houses have actually been built.

It’s an argument that’s been raging in London for years, as various mayors and mayoral candidates try to puff up/slap down the figures. Even without the national conversation it’s definitely something that will happen at the next metro mayoral elections, too. (Something to look forward to, Tees Valley!)

So here’s a quick, and absolutely not boring, guide to unpicking housing statistics. Yay!

Purely because it’s handy and we already have a lot of figures to hand, I’m going to use a current attack line from the London Conservatives. (Be aware that housebuilding stats-twisting comes in all party shapes and colours.) Presenting Assembly Member Gareth Bacon talking about how much affordable homebuilding Boris Johnson had overseen while mayor:

“Boris Johnson averaged 10,436 affordable starts per year in his 8 years in office. As of yesterday Sadiq Khan had started 8,935 in 2016/17 and 2,221 in 2017/18.”

There’s an immediate problem here, with Bacon comparing Johnson’s average over eight years with Khan’s early years total. Housebuilding, particularly housebuilding subsidised by the state, goes in cycles that are dictated by funding. At the start of the cycle you don’t get much happening because the money is only just starting to come in. At the end of the cycle you tend to get a load of new homes.

To show just how wildly year-on-year construction can swing, in 2011-12 there were 4,511 affordable homes started in London using funding from City Hall. That’s less than the 4,654 homes started in 2017-18 that the Tories are now saying isn’t good enough. But you can’t cherry pick figures like that because it’s an unfair reflection of a particular stage of the cycle.

Aren’t we at the end of a cycle now, though? Yes, but the cycles have got a bit out of sync lately. Here’s what the funding from central government for affordable homebuilding in all of England has been over the last decade:

  • 2008-2011: £8.4bn National Affordable Homes Programme
  • 2011-2015: £4.5bn Affordable Homes Programme
  • 2015-18: £1.7bn Affordable Homes Programme
  • 2016-2021: £4.7bn Shared Ownership and Affordable Homes Programme

(The eagle-eyed among you will have noticed that the amounts went down after 2011. This is how we ended up with the ludicrous policy that homes can be rented out at up to 80 per cent of market rate and still be called ‘affordable’: to make up the funding shortfall, housing associations and other builders had to charge more rent.)

London now has its own £3.15bn fund to spend, through the Homes for Londoners fund. That covers 2016-21, although the money didn’t come in until 2016 was well underway.

This could look like there’s lots of different funds sloshing money into housebuilding; but if you look at the figures, 12,473 homes were started in London between 2015-17 under the 2015-18 funding cycle, and then the money seems to dry up, because just 448 were started (so far) under that same funding scheme in 2017-18.

Funding for homes in 2017-18 has switched to the Homes for Londoners coffers. But the thing is, you don’t get new funding on day one and break ground on 50,000 new homes the following week. It takes time – for developers to apply for funding under different rules, those applications to be assessed, plans to be drawn up, permissions to be sought, blah blah blah.


Funding is complicated, is what I’m saying here.

And if you want to know just how crackers housebuilding stats get, City Hall tells me they expect to report 12,500 affordable home starts by the end of this financial year. Which would mean another 8,000 starts in the next month.

In short, look very carefully at anyone comparing figures on housebuilding because it is almost always more complicated that it seems. You can’t compare an entire term in office to a partial term because there are cyclical swings that take years to pan out. And you definitely can’t compare years that were flush with funding to years of austerity. Things to bear in mind when the opposition comes for Andy Street in 2021, or when Labour trumpets its London achievements in 2020.

But the main point to remember when talking about housebuilding numbers is: it’s a distraction. The really important thing is not pure numbers. It’s what kind of homes are being built. In the same way that loads of luxury flats in hip urban centres are no good to your average family, churning out a load of one bedroom flats for rent at 80 per cent of the market rate is different to funding fewer large family homes at social rent.

In London (again, because we have the stats), between 2008 and 2011, there were 29,401 homes started at social rent. With new rules in 2011 introducing the ‘affordable rent’ of up to 80 per cent of market rent, that drops right off and just 5,977 homes at social rent levels have been built in the years since. Some 27,207 ‘affordable rent’ homes were begun since 2011 – but the people living in them will have a markedly different experience.

Sadiq Khan is introducing three new types of tenure aimed at making housing more affordable. When an election comes round, that’s the kind of measure we should be looking at, whether we’re talking London, Manchester, Cambridge or nationally. As with Greeks and gifts, beware of politicians bearing housing stats.

 
 
 
 

High streets and shopping malls face a ‘domino effect’ from major store closures

Another one bites the dust: House of Fraser plans to close the majority of its stores. Image: Getty.

Traditional retail is in the centre of a storm – and British department store chain House of Fraser is the latest to succumb to the tempest. The company plans to close 31 of its 59 shops – including its flagship store in Oxford Street, London – by the beginning of 2019. The closures come as part of a company voluntary arrangement, which is an insolvency deal designed to keep the chain running while it renegotiates terms with landlords. The deal will be voted on by creditors within the month.

Meanwhile in the US, the world’s largest retail market, Sears has just announced that it will be closing more than 70 of its stores in the near future.

This trend of major retailers closing multiple outlets exists in several Western countries – and its magnitude seems to be unrelated to the fundamentals of the economy. The US, for example, has recently experienced a clear decoupling of store closures from overall economic growth. While the US economy grew a healthy 2.3 per cent in 2017, the year ended with a record number of store closings, nearly 9,000 while 50 major chains filed for bankruptcy.

Most analysts and industry experts agree that this is largely due to the growth of e-commerce – and this is not expected to diminish anytime soon. A further 12,000 stores are expected to close in the US before the end of 2018. Similar trends are being seen in markets such as the UK and Canada.

Pushing down profits

Perhaps the most obvious impact of store closures is on the revenues and profitability of established brick-and-mortar retailers, with bankruptcies in the US up by nearly a third in 2017. The cost to investors in the retail sector has been severe – stocks of firms such as Sears have lost upwards of 90 per cent of their market value in the last ten years. By contrast, Amazon’s stock price is up over 2,000 per cent in the same period – more than 49,000 per cent when considering the last 20 years. This is a trend that the market does not expect to change, as the ratio of price to earnings for Amazon stands at ten times that of the best brick-and-mortar retailers.

Although unemployment levels reached a 17-year low in 2017, the retail sector in the US shed a net 66,500 jobs. Landlords are losing longstanding tenants. The expectation is that roughly 25 per cent of shopping malls in the US are at high risk of closing one of their anchor tenants such as a Macy’s, which could set off a series of store closures and challenge the very viability of the mall. One out of every five malls is expected to close by 2022 – a prospect which has put downward pressure on retail real estate prices and on the finances of the firms that own and manage these venues.

In the UK, high streets are struggling through similar issues. And given that high streets have historically been the heart of any UK town or city, there appears to be a fundamental need for businesses and local councils to adapt to the radical changes affecting the retail sector to preserve their high streets’ vitality and financial viability.


The costs to society

While attention is focused on the direct impacts on company finances, employment and landlord rents, store closures can set off a “domino effect” on local governments and businesses, which come at a significant cost to society. For instance, closures can have a knock-on effect for nearby businesses – when large stores close, the foot traffic to neighbouring establishments is also reduced, which endangers the viability of other local businesses. For instance, Starbucks has recently announced plans to close all its 379 Teavana stores. Primarily located inside shopping malls, they have harshly suffered from declining mall traffic in recent years.

Store closures can also spell trouble for local authorities. When retailers and neighbouring businesses close, they reduce the taxable revenue base that many municipalities depend on in order to fund local services. Add to this the reduction in property taxes stemming from bankrupt landlords and the effect on municipal funding can be substantial. Unfortunately, until e-commerce tax laws are adapted, municipalities will continue to face financial challenges as more and more stores close.

It’s not just local councils, but local development which suffers when stores close. For decades, many cities in the US and the UK, for exmaple Detroit and Liverpool, have heavily invested in efforts to rejuvenate their urban cores after years of decay in the 1970s and 1980s. Bringing shops, bars and other businesses back to once derelict areas has been key to this redevelopment. But today, with businesses closing, cities could once again face the prospect of seeing their efforts unravel as their key urban areas become less attractive and populations move elsewhere.

Commercial ecosystems featuring everything from large chain stores to small independent businesses are fragile and sensitive to change. When a store closes it doesn’t just affect employees or shareholders – it can have widespread and lasting impacts on the local community, and beyond. Controlling this “domino effect” is going to be a major challenge for local governments and businesses for years to come.

Omar Toulan, Professor in Strategy and International Management, IMD Business School and Niccolò Pisani, Assistant Professor of International Management, University of Amsterdam.

This article was originally published on The Conversation. Read the original article.