We shouldn’t be surprised that a North East devolution deal failed

You can't tell, but this guy is crying. Image: Getty.

Earlier this week, the North East Combined Authority finally pulled the plug on a regional devolution deal for the area, with Sunderland, Durham, South Tyneside and Gateshead all voting against taking the proposals out to public consultation. This means it is now all but impossible for a deal to be agreed, and for the necessary parliamentary orders to be passed, ahead of the proposed May 2017 mayoral elections.

On the one hand, this is certainly regrettable. For the second time in twelve years the North East has stepped back from the opportunity to build a pan-regional institution capable of taking more control over the area’s economic future.

With other devolution deals agreed for places like Greater Manchester, Merseyside and the Sheffield City Region, the likelihood is that the North East and its cities will slip further behind other parts of the country in the years to come, as local leaders remain unable to take some of the big decisions that could boost growth, create jobs and raise wages locally.

On the other hand, should we really be surprised that the deal has fallen through? The result of the EU referendum has caused much uncertainty across the region given the implications for funding and investment across a range of sector. This has led some local politicians, already deeply concerned about the impact of austerity, to make securing guarantees from national government on future funding a red line on agreeing to the devolution deal.

In addition, many Labour politicians in the area have consistently opposed the agenda, either because they are long term sceptics of the mayoral model, or because they fear the erosion of their own political power under the proposed arrangements.

But most of all, the idea of a devolution deal and a directly elected mayor that would be responsible for an area stretching from Sunderland to Berwick – some 74 miles apart – has always seemed a challenging proposition, particularly given the long-standing tensions that have existed between many of the areas involved.

While Greater Manchester and Greater London are city-regions which span several local councils and are made up of a number of joined up town centres and settlements, the North East is demonstrably a region. It encompasses seven times more land than either Greater Manchester or Greater London, large tracts of which are rural. It also includes many more individual towns and major cities, each with their own distinct identities and far fewer economic links.

The truth is that, as in some other parts of the country, a devolution deal process that was initially designed to boost the economies of major urban areas and city-regions has been stretched to encompass a far larger, more multi-polar and less densely populated area than it was originally designed for.

This is in part due to the quirks of the current local government map of England – for example, the unitarisation of Durham and Northumberland make sense for many reasons, but make defining finely tailored geographies for devolution deals more difficult. Nevertheless the net result is that as things stand, Newcastle and Sunderland – the two most important drivers of growth in the North East – will not now see important powers over transport, skills and jobs devolved in 2017.

There will undoubtedly be many fingers pointed across the region and towards Whitehall in the days and weeks to come, as to why exactly the negotiations have failed. But whatever the particularities of the local history, politics or economics, the collapse of the North East Devolution Deal shows that taking a pan-regional approach to mayoral devolution is inherently fraught with difficulties. While in some places it may represent the pragmatic way forward, it is not the optimal way to improve the economic performance of major cities and their surrounding areas.

And although hopes of securing devolution for the North East in 2017 may be over, now is the time to think again about devolving power to city-regions within the area – where political agreement may be easier to reach, and which would better reflect the geography over which people live, work and access public services.

Indeed, it’s worth noting that Newcastle, Northumberland and North Tyneside all voted in favour of proceeding with the devolution deal today. Although still not perfect, perhaps this would be a good basis to start thinking about some kind of “Greater Newcastle” deal, to ensure that devolution for the North East does not come to a standstill entirely.

Ben Harrison is director of communications at the Centre for Cities, on whose blog this article was previously published.

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The best way to make housing more affordable? Raise interest rates

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.