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 would an extended Glasgow Subway look like?

West Street station. Image: Finlay McWalter/Wikimedia Commons.

There are many notable things about Glasgow’s historic Subway.

It is the third oldest in the world. It is the only one in the UK that runs entirely underground. It runs on a rare 4ft gauge. For reasons passing human understanding, it shuts at teatime on a Sunday.

But more significantly, it’s the only metro system never to have been expanded since its original development. A couple of stations have come and gone in the 122 years since the Subway opened (and promptly shut again following a serious accident before the first day was out). But Glasgow’s Subway has remained a frustratingly closed loop. Indeed, while a Scottish newspaper recently estimated there have been more than 50 proposed new stations for Glasgow's iconic Subway since it first opened, all we’ve had are a couple of replacements for closed stops. 

The original route map. Image: SPT.

It’s not for a lack of trying, or at the least discussion. Glasgow’s SNP-led council pledged a major expansion of the Subway as part of their election pledge last year, for example, vowing to find the funding to take the network beyond the existing route.

All this sounds very familiar, of course. A decade ago, with the 2014 Commonwealth Games in mind, operators SPT began looking into a near-£3bn expansion of the Subway into the East End of the city, primarily to serve the new Velodrome complex and Celtic Park.

In the end, the plans — like so many discussed for expanding the Subway – failed to materialised, despite then SPT chairman Alistair Watson claiming at the time: “We will deliver the East End extension for 2014. I am being unequivocal about that.”

As detailed previously on CityMetric, that extension would have seen seven new stations being opened along a second, eastern-centric loop, crossing over with the original Subway at two city centre sites. Had that gone ahead, we would by now have had a new route looking something like this:

The 2007 proposals for an eastern circle. Image: Iain Hepburn.

St Mungo’s would have been close to Glasgow Cathedral. Onslow, presumably located on or near Onslow Drive, would have principally served Dennistoun, as would have a link-up with the existing Duke St overground station.

Gorbals, benefiting from the ongoing redevelopment and residential expansion that’s all but erased it’s No Mean City reputation, would have gained a station, while Newhall would have been next to Glasgow Green. Dalmarnock station would, like Duke Street, become an interchange with Scotrail’s services, while crucially Celtic Park would have gained the final stop, serving both the football stadium, the nearby Emirates Arena and velodrome, and the Forge shopping centre.


Those plans, though, were drawn up more than a decade ago. And if the SNP administration is serious about looking again at the expansion of the Subway, then there’s more than a few changes needing made to those plans.

For starters, one stop at the far end of the loop serving Celtic, the new sports arenas and the Forge feels a bit like underselling the area, particularly with so much new residential development nearby.

Two feels more realistic: one serving the Forge and the rest of Dennistoun, and the other sited on London Road to serve the mass volumes of football and sports traffic. And if Ibrox can have a stop, then it seems churlish not to give the other of the Old Firm clubs their own named halt.

That’s another thing. The naming of the proposed stations is… arbitrary, to say the least. You’d struggle to find many Glaswegians who’d immediately identify where Newhall or Onslow were, off the top of their head. 

The former, especially, seems like there’s a more natural alternative name, Glasgow Green; while the latter, with a second Forge stop also serving Dennistoun, would perhaps benefit from named for the nearby Alexandra Place and park.

(Actually, if we’re renaming stations from their unlikely original choices, let’s say goodbye Hillhead and a big hiya to Byres Road on the original Subway while we’re at it…)

So, what would a realistic, 2017-developed version of that original 2007 proposal give us? Probably something like this:

Better. Image: Iain Hepburn.

One glaring issue with the original 2007 study was the crossover with the… let’s call it the Western Subway. The original proposal had St Enoch and Buchanan St as the crossover points, meaning that, if you wanted to go out east from, say, the Shields Road park and ride, you had to go into town and double back. 

Using Bridge Street as a third interchange feels a more realistic, and sensible, approach to alleviating city centre crowding and making the journey convenient for folk travelling directly from west to east.

There’s a good case to be made for another south east of the river station, depending on where the Gorbals stop is sited. But these are austere times and with the cost of the expansion now likely more than £5bn at current rates, an expanded Bridge Street would do much of that legwork.

Putting all that together, you’d end up with something looking like this:

 

Ooooh. Image: Iain Hepburn.

Ahead of last year’s election, SNP councillor Kenny McLean vowed the party “[would] look at possible extension of the Subway and consider innovative funding methods, such as City Bonds, to fund this work. The subway is over 120 years old. It is high time that we look to connect communities in the north and east of Glasgow.”

Whether Glasgow could raise the £5bn it would probably need to make the 2007 proposal, or an updated variation of it remains, to be seen. And this still doesn’t solve how many places are left off the system. While a line all the way out to Glasgow Airport is unrealistic – after all, an overground rail service to the airport from Paisley has failed to materialise after 30 years of discussion and planning – there’s plenty of places in the city not well served by the Subway, from Maryhill in the north to Hampden in the south, or the riverside developments that have seen flats replace factories and new media hubs, museums and hotels line the Clyde.


Image: Iain Hepburn.

Key city landmarks like the Barrowlands, the Riverside Museum – with its own, fake, vintage subway stop, or the Merchant City are woefully underserved by the subway. But their incorporation – or connection with a Glasgow Crossrail – seems a very expensive pipe dream.

Instead, two adjoining loops, one to Ibrox and one to Celtic Park, seems the most plausible future for an extended Subway. At least colour coding the lines would be easy…

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