Raising interest rates would make housing cheaper. But it might not make it more affordable

Lol, no. Image: Getty.

Speaking to the Conservative Party conference in September 2017, the UK prime minister, Theresa May, gave a stark assessment of the UK housing market which made for depressing listening for many young people: “For many the chance of getting onto the housing ladder has become a distant dream”, she said.

Now a new report by the Institute of Fiscal Studies (IFS) provides further, clear evidence of this. The study finds that home ownership among 25 to 34-year-olds has declined sharply over the past 20 years. Home ownership rates have declined from 43 per cent at age 27 for someone born in the late 1970s, to just 25 per cent for someone aged 27 who was born in the late 1980s.

The most significant decline has been for middle-income young people, whose rate of home ownership has fallen from 65 per cent in 1995-6 to 27 per cent now – most significantly hitting aspirant buyers in London and the South-East.

Causes and consequences

The IFS study lays the blame for all this on the growing gap between house prices and incomes. Adjusting for inflation, house prices have risen 150 per cent in the 20 years to 2015-16, while real incomes for 25 to 34-year-olds have grown by 22 per cent (and almost all of that growth happened before the 2008 crash).

A bleak picture. Image: Institute for Fiscal Studies.

But, as the report acknowledges, the problem goes much deeper than this. Home ownership rates differ by region. Although there has been a decline in home ownership rates for young people across all areas of Great Britain, the decline is less significant in the North East and Cumbria as well as in Scotland and the South West. The biggest decline in ownership has been in the South-East, the North-West (excluding Cumbria) and London.

So a person aged 25 to 34 is more than twice as likely to own their own home in Cumbria, as their counterpart in London. Worse, young people from disadvantaged backgrounds are less likely to own their own homes – even after controlling for differences in education and earnings. Home ownership continues to reflect a deeper inequality of opportunity in our society.


More houses needed

Part of the problem is that both Labour and Conservative governments have seen housing as a single, stand-alone market and have focused their attention on what is happening to prices in London. But housing is a number of different markets, which have regional variations and different interactions between the owner-occupier, private rented and social rented sectors.

Regional variations in house prices for similar sized properties reflect the imbalances of the economy: it is heavily reliant on financial services, which are concentrated in London, while the public sector makes up a significant share of many local economies – particularly in the North. Migration from across the UK to overcrowded and expensive areas – such as London and the South-East – have put property prices in those areas even further out of reach for would-be buyers.

To make matters worse, both Labour and Conservative governments have routinely failed to build enough houses. While the current government’s aim to build 300,000 new properties a year by 2020 is welcome, it is simply not enough to meet the backlog in demand – let alone address the fundamental affordability problem.

Where homes are being built, they’re often the wrong types of homes, in the wrong places. Family homes are being built, despite there being some 4m under-occupied such properties across the country.

Not that long ago, government was reducing the housing stock in many parts of the North, through the disastrous Housing Market Renewal programme. Houses are currently being sold in smaller cities such as Liverpool and Stoke-on-Trent for just £1. And none of the government’s actions suggest that ministers understand these issues, or are prepared to address them.

House price inflation – and the awful affect it is having on home ownership rates for young people – is part of a wider problem of the global asset bubble. This bubble has seen huge increases in the price of assets – stocks, housing, bonds – in high income countries such as the UK. Successive governments have helped to fuel this through quantitative easing, ultra-cheap money and successive raids on pension funds.

The ConversationWhat’s needed to address this asset bubble is a substantive increase in interest rates. But while this may slow the growth in house prices, the sad truth is it will do nothing to make housing more affordable for most young people.

Chris O'Leary, Deputy Director, Policy Evaluation and Research Unit and Senior Lecturer, Manchester Metropolitan University.

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

 
 
 
 

What other British cities can learn from the Tyne & Wear Metro

A Metro train at Monument. Image: Callum Cape/Wikipedia.

Ask any person on the street what they know about Newcastle, and they’ll list a few things. They’ll mention the accent; they’ll mention the football; they’ll mention brown ale and Sting and Greggs. They might even mention coal or shipbuilding, and then the conversation will inevitably turn political, and you’ll wish you hadn’t stopped to ask someone about Newcastle at all.

They won’t, however, mention the Tyne and Wear Metro, because they haven’t probably heard of it – which is a shame, because the Metro is one of the best things the north-east has to offer.

Two main issues plague suburban trains. One is frequency. Suburban rail networks often run on poor frequency; to take Birmingham for an example, most of its trains operate at 30-minute intervals.

The other is simplicity. Using Birmingham again, the entire system is built around New Street, leading to a very simple network. Actually, that’s not quite true: if you’re coming from Leamington Spa, Warwick, Stourbridge, Solihull or a host of other major minor (minor major?) towns, you don’t actually connect to New Street – no, you don’t even connect to the ENTIRE SYSTEM BUILT AROUND NEW STREET except at Smethwick Galton Bridge, miles away in the western suburbs, where the physical tracks don’t even connect – they pass over each other. Plus, what on earth is the blue line to Walsall doing?

An ageing map of the West Midlands rail network: click any of the images in this article to expand them. Image: Transport for the West Midlands/Centro.

But Newcastle has long been a hub of railway activity. Tragically, the north-east has fewer active railway lines than any other region of the UK. Less tragically, this is because Tyne and Wear has the Metro.


The Metro was formed in 1980 from a somewhat eccentric collection of railways, including freight-only lines, part of the old Tyneside Electrics route, underground tunnelling through the city centre, track-sharing on the National Rail route to Sunderland, and lines closed after the Beeching axe fell in the early 1960s.

From this random group of railway lines, the Metro has managed to produce a very simple network of two lines. Both take a somewhat circuitous route, the Yellow line especially, because it’s literally a circle for much of its route; but they get to most of the major population centres. And frequency is excellent – a basic 5 trains an hour, with 10 tph on the inner core, increasing at peak times (my local station sees 17 tph each way in the morning peak).

Fares are simple, too: there are only three zones, and they’re generally good value, whilst the Metro has been a national leader in pay-as-you-go technology (PAYG), with a tap-in, tap-out system. The Metro also shares many characteristics of European light rail systems – for example, it uses the metric system (although this will doubtless revert to miles and chains post-Brexit, whilst fares will be paid in shillings).

 

The Metro network. Image: Nexus.

Perhaps most importantly, the Metro has been the British pioneer for the Karlsruhe model, in which light rail trains share tracks with mainline services. This began in 2002 with the extension to Sunderland, and, with new bi-mode trains coming in the next ten years, the Metro could expand further around the northeast. The Sheffield Supertram also recently adopted this model with its expansion to Rotherham; other cities, like Manchester, are considering similar moves.

However, these cities aren’t considering what the Metro has done best – amalgamated local lines to allow people to get around a city easily. Most cities’ rail services are focused on those commuters who travel in from outside, instead of allowing travel within a city; there’s no coherent system of corridors allowing residents to travel within the limits of a city.

The Metro doesn’t only offer lessons to big cities. Oxford, for example, currently has dire public transport, focused on busy buses which share the same congested roads as private vehicles; the city currently has only two rail stations near the centre (red dots).

Image: Google.

But it doesn’t need to be this way. For a start, Oxford is a fairly lateral city, featuring lots of north-south movements, along broadly the same route the railway line follows. So, using some existing infrastructure and reinstating other parts, Oxford’s public transport could be drastically improved. With limited engineering work, new stations could be built on the current track (blue dots on the map below; with more extensive work, the Cowley branch could be reinstated, too (orange dots). Electrify this new six-station route and, hey presto, Oxford has a functioning metro system; the short length of the route also means that few trains would be necessary for a fequent service.

Image: Google.

Next up: Leeds. West Yorkshire is a densely populated area with a large number of railway lines. Perfect! I hear you cry. Imperfect! I cry in return. Waaaaaah! Cry the people of Leeds, who, after two cancelled rapid transit schemes, have had enough of imaginative public transport projects.

Here’s a map of West Yorkshire:

Image: Google.

Here’s a map of West Yorkshire’s railway network:

 ​

Image: West Yorkshire Metro.

The problem is that all of the lines go to major towns, places like Dewsbury, Halifax or Castleford, which need a mainline connection due to their size. Options for a metro service are limited.

But that’s not to say they’re non-existent. For example, the Leeds-Bradford Interchange line passes through densely populated areas; and anyway, Bradford Interchange is a terminus, so it’s poorly suited to service as a through station, as it’s currently being used.

Image: Google.

With several extra stops, this line could be converted to a higher frequency light rail operation. It would then enter an underground section just before Holbeck; trains from Halifax could now reach Leeds via the Dewsbury line. The underground section would pass underneath Leeds station, therefore freeing up capacity at the mainline station, potentially simplifying the track layout as well.

 

Image: Google.

Then you have the lines from Dewsbury and Wakefield, which nearly touch here:

Image: Google.

By building a chord, services from Morley northwards could run into Leeds via the Wakefield line, leaving the Dewsbury line north of Morley open for light rail operation, probably with an interchange at the aforementioned station.

Image: Google.

The Leeds-Micklefield section of the Leeds-York line could also be put into metro service, by building a chord west of Woodlesford over the River Aire and connecting at Neville Hill Depot (this would involve running services from York and Selby via Castleford instead):

The path of the proposed chord, in white. Image: Google.

With a section of underground track in Leeds city centre, and an underground line into the north-east of Leeds – an area completely unserved by rail transport at present – the overall map could look like this, with the pink and yellow dots representing different lines:

Et voila! Image: Google.

Leeds would then have a light-rail based public transport system, with potential for expansion using the Karlsruhe model. It wouldn’t even be too expensive, as it mainly uses existing infrastructure. (Okay, the northeastern tunnel would be pricey, but would deliver huge benefits for the area.)

Why aren’t more cities doing this? Local council leaders often talk about introducing “metro-style services” – but they avoid committing to real metro projects because they’re more expensive than piecemeal improvements to the local rail system, and they’re often more complex to deliver (with the lack of space in modern-day city centres, real metro systems need tunnels).

But metro systems can provide huge benefits to cities, with more stops, a joined-up network, and simpler fares. More cities should follow the example of the Tyne and Wear Metro.