The Housing System A mechanism for increasing wealth and income inequality. Anything else? David Hulchanski University of Toronto 12 June 2016 Page 1 of 58 DRAFT 12 June 2016
The HOUSING SYSTEM 1. DefiniEon 2. Criteria for assessing 3. Macro context 4. Role of housing assets 5. Current: Mechanism for increasing wealth and income inequality 6. Future: Mechanism for adequate produceon, choice & affordability Page 2 of 58 DRAFT 12 June 2016
1 The Housing System DEFINITION Page 3 of 58 DRAFT 12 June 2016
Bourne, 1981 a typically vague but convenient shorthand expression to encompass the full range of inter-relaeonships between all of the actors (individual and corporate), housing units and insetueons involved in the produceon, consumpeon and regulaeon of housing. It is thus a much broader term than housing market or sector. 4 Page 4 of 58 DRAFT 12 June 2016
Priemus, 1983 the complex of actors, including their many relaeonships and interaceons, that are involved in housing. the context is important in the development of a housing system, parecularly the economic, demographic, poliecal and spaeal factors which influence the system and are themselves influenced by the housing system in turn. 5 Page 5 of 58 DRAFT 12 June 2016
Boelhouwer & van der Heijden, 1992 It is important to make a disenceon between 1. the organisaeon of the housing market (the insetueonal structure), 2. the actors (supply & demand), and 3. housing policy. These factors interact with exogenic factors (the context) to determine the objeceve characterisecs of the housing system. 6 Page 6 of 58 DRAFT 12 June 2016
Harry van der Heijden, 2013 The housing system refers to the interaceon between actors & insetueons in Eme & space. It is part of a wider societal system; thus its different parts are influenced by broader, external factors such as economic, sociocultural and demographic trends. Housing system outcomes, in turn, have an impact on the broader societal system. 7 Page 7 of 58 DRAFT 12 June 2016
Harry van der Heijden, 2013 The main consetuents of a housing system: Demand Actors: households & their housing preferences Supply Actors: producers of housing & housing services (building firms, developers, commercial & social landlords, and intermediaries, e.g., real estate agents and property consultants) InsEtuEons: the rules, norms and regulaeons under which a system funceons 8 Page 8 of 58 DRAFT 12 June 2016
What shapes housing systems? Demand Supply & InsEtuEons meet in the housing market & generate the outcomes of the housing system Harry van der Heijden, 2013 9 Page 9 of 58 DRAFT 12 June 2016
Economic & Demographic Pressures play the major role in shaping housing systems Harry van der Heijden, 2013, p.183 10 Page 10 of 58 DRAFT 12 June 2016
What about the role of government in shaping housing systems Housing policies of both right & leh of centre governments did not correlate strongly with their ideological stance. Rather it was the: specific housing market situaeon associated factors of housing tradieon insetueonal structure of the housing market Governments will try to achieve their poliecal objeceves within this context. Harry van der Heijden, 2013, p.187 11 Page 11 of 58 DRAFT 12 June 2016
What about change, a 'system shih' in the housing system? 1. Change is not impossible, but will meet with strong resistance. 2. The scale, funceon and relaeonship between the various tenures is relaevely stable. 3. The insetueonal and instrumental context in which housing markets operate and develop is also relaevely stable. 4. There are funceonal imperaeves of economic accumulaeon and poliecal legiemizaeon. Harry van der Heijden, 2013, p.187 12 Page 12 of 58 DRAFT 12 June 2016
2 Criteria for assessing housing systems. What is an Inclusive Housing System? PRODUCTION, CHOICE, AFFORDABILITY Page 13 of 58 DRAFT 12 June 2016
An Inclusive Housing System ought to 1. semulate adequate housing produceon 2. help produce a mix of housing choice (tenure, locaeon, and quality) 3. assist those who cannot afford adequate, appropriate housing United Nations Centre for Human Settlements, Support Measures to Promote Low-Income Rental Housing, 1993 14 Page 14 of 58 DRAFT 12 June 2016
Housing System OUTPUTS 1. Housing stock (size & composieon) 2. ProducEon level (new & rehab) 3. DistribuEon to households 4. Cost (expense-to-income raeo) Boelhouwer & Van der Heijden, 1992 15 Page 15 of 58 DRAFT 12 June 2016
Different Housing Systems have different mix of Housing Tenure HOUSING TENURE: The terms and condieons (rights & responsibiliees), legal and cultural, by which housing is owned, occupied, and maintained. Tenure CA UK NL SE DE OWN 69 63 58 40 42 PRIVATE RENT 26 18 10 20 53 PUBLIC RENT 2 15 -- 18 5* N-P RENT 3 3 32 22 * -- Note: rounded off approximaeons; * = its complicated/mixed 16 Page 16 of 58 DRAFT 12 June 2016
3 The Housing System MACRO CONTEXT: INEQUALITY, TAX REVENUES Page 17 of 58 DRAFT 12 June 2016
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Divided SocieEes: Inequality is a Choice I see us entering a world divided not just between the haves and have-nots, but also between those countries that do nothing about it, and those that do. Some countries will be successful in creaeng shared prosperity the only kind of prosperity that I believe is truly sustainable. Others will let inequality run amok. Joseph SEglitz, 2013 Page 21 of 58 DRAFT 12 June 2016
4 Ray Forrest, 2008 The Housing System HOUSING ASSETS Page 22 of 58 DRAFT 12 June 2016
Housing Assets: Policy QuesEons Is there a difference between people with and without housing assets? Have housing assets become more flexible and liquifiable due to public policy? Does locaeon mater (country, region, city, neighbourhood) in terms of housing assets? Is housing playing a larger poteneal role in social outcomes than in the past? 23 Page 23 of 58 DRAFT 12 June 2016
Ray Forrest, 2008 24 Page 24 of 58 DRAFT 12 June 2016
Life Course ImplicaEons of Housing Assets who you are, where you are, and when you achieve home ownership are criecal determinants of future trajectories. Ray Forrest, 2008 25 Page 25 of 58 DRAFT 12 June 2016
TransformaEve PotenEal of Housing Assets the posieve and negaeve impacts of housing assets in relaeon to social straeficaeon and social inequality, the distribueon of wealth and its deployment within and between households and generaeons, the macro-economic consequences of remortgaging and equity release, and the uneven spaeal impact of these processes within ciees, regions and globally. Ray Forrest, 2008 26 Page 26 of 58 DRAFT 12 June 2016
TransformaEve PotenEal of Housing Assets By transformaeve poteneal I am referring to and the uneven spacal impact of these processes within ciees, regions and globally. Toronto example à à 27 Page 27 of 58 DRAFT 12 June 2016
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Socio-SpaEal POLARIZATION Page 30 of 58 DRAFT 12 June 2016
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Population by Visible Minority Status 1996 and 2006, Three Cities of Toronto 1970-2010 and Jamestown White Black South Asian Chinese Other 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% City #1: Average Individual Income Increased 20% or More 1996 81% 3% 2% 7% 7% 2006 80% 3% 3% 7% 8% City #2: Average Individual Income Less than 20% Increase or Decrease 1996 69% 7% 5% 8% 11% 2006 61% 7% 8% 9% 15% City #3: Average Individual Income Decreased 20% or More 1996 46% 12% 14% 13% 15% 2006 34% 12% 20% 16% 19% Mount Olive - Silverstone - Jamestown Neighbourhood Improvement Area (43% Income Decrease) 1996 30% 27% 24% 2% 16% 2006 15% 23% 40% 2% 20% Notes: Income is census tract average individual income for persons 15 and over, before-tax. Income is measured relative to Toronto average and change is in terms of percentage points, 2010 versus 1970. Income 2010 is for all taxfilers. Constant 2001 census tracts boundaries. Page 32 of 58 DRAFT 12 June 2016
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Life Course ImplicaEons of Housing Assets The divisions between the housing asset rich and the housing asset poor can be conceived of at different spaeal scales to evoke a mulelayered and intertwined geography of advantage and disadvantage. Ray Forrest, 2008 34 Page 34 of 58 DRAFT 12 June 2016
5 The Current Housing System A MECHANISM FOR INCREASING WEALTH & INCOME INEQUALITY Page 35 of 58 DRAFT 12 June 2016
Pikety s Theory The core of Pikety s theory or model is that 1. an unequal distribueon of wealth is reinforced by high rates of saving from wealth based returns rather than labour income. 2. that a high elasecity of subsetueon between capital and labour allows capital, or property, to grow without inducing a fall in the rate of return to property. 3. this proposieon runs counter to the equilibraeng tendencies of neoclassical models Maclennan and Miao, 2016 36 Page 36 of 58 DRAFT 12 June 2016
Pikety s PredicEon that the paterns of the last 30 years will conenue in this century that r will be greater than g, perhaps by a larger amount than at present (this fact is the central contradiceon of capitalism. 2014, p. 571) that if r > g, the wealth of the capitalist class will grow faster than the incomes of workers, leading to an endless inegalitarian spiral (p. 572). Maclennan and Miao, 2016 Page 37 of 58 DRAFT 12 June 2016
The Housing System & Pikety s Model Pikety s work has important implicaeons for how housing researchers and economists might think about major economic paterns within housing systems. how housing markets, and rising housing asset values in parecular, will impact r & g. Housing markets and outcomes are embedded at the core of growth and inequality. Maclennan and Miao, 2016 38 Page 38 of 58 DRAFT 12 June 2016
Facts about Housing & Urban Land (1) Supplies of developable land remain inelasec and housing supply elaseciees are universally low. Supply inelasecity is a fundamental rather than passing feature of housing systems The interaceon of spaeally concentrated economic growth & housing supply inelasecity has a key role to play in shihing wealth paterns Maclennan and Miao, 2016 39 Page 39 of 58 DRAFT 12 June 2016
Facts about Housing & Urban Land (2) The condieons set out above determine that housing and land values will rise faster than the overall (income) growth rate. As long as land and housing are privately owned and a patrimony perspeceve on capital is employed, then the incomes and asset values of property owners will rise ahead of the overall growth rate. Maclennan and Miao, 2016 40 Page 40 of 58 DRAFT 12 June 2016
Facts about Housing & Urban Land (3) Ricardo s scarcity thesis meant that certain prices might rise to very high levels over many decades. This could well be enough to destabilize en9re socie9es. The price system plays a key role in coordina9ng the ac9vi9es of millions of individuals...the problem is that the price system knows neither limits nor morality. It is Eme to put this percepeon of housing markets, and house price rises, at the core of research and policy thinking. Maclennan and Miao, 2016 41 Page 41 of 58 DRAFT 12 June 2016
ImplicaEons of Property Ownership (1) Fact: there is a wider distribueon of property ownership than a century ago. Greater resistance to further density increases (NIMBYism) makes housing supply more inelasec. Owners are the majority of voters within most democracies. Maclennan and Miao, 2016 42 Page 42 of 58 DRAFT 12 June 2016
ImplicaEons of Property Ownership (2) Therefore: tax policies emerge that favour Home ownership, and small scale landlordism, and preclude the taxaeon of scarcity rents, or unearned capital gains. Maclennan and Miao, 2016 43 Page 43 of 58 DRAFT 12 June 2016
ImplicaEons of Property Ownership (3) Therefore: Governments also take extensive measures to prevent house prices from falling, support the formaeon and perpetuaeon of housing wealth gains and the inequaliees that flow from them. There is thus an expanded reneer class who expect and defend unearned wealth gains. Maclennan and Miao, 2016 44 Page 44 of 58 DRAFT 12 June 2016
Housing System ImplicaEons (1) The fundamental nature of housing markets in modern economies is that they present the poteneal for growing concentraeon of wealth and for r to exceed g for long periods. A high r driven by rising house prices raises upper and middle income wealth. It will also tend to reduce the disposable incomes of poorer, younger and reneng households. Maclennan and Miao, 2016 45 Page 45 of 58 DRAFT 12 June 2016
Housing System ImplicaEons (2) OECD countries have come to organise their housing systems as mechanisms for encouraging reneer returns and increasing wealth and income inequaliees. The Housing System: A mechanism for increasing wealth and income inequality Maclennan and Miao, 2016 46 Page 46 of 58 DRAFT 12 June 2016
Conclusion re Housing Policy an urgent need for a renewed poliecal economy of housing policies. the consequences of house price inflaeon & housing asset ownership are central policy issues. House price outcomes and housing wealth paterns need to be at the core of major debates about distribueon and growth. Maclennan and Miao, 2016 47 Page 47 of 58 DRAFT 12 June 2016
6 Future Housing System Change A MECHANISM FOR ADEQUATE PRODUCTION, CHOICE, & AFFORDABILITY? Page 48 of 58 DRAFT 12 June 2016
A Decent & Humane Housing System must couple shelter with security, warmth, peace and independence, living space and space to grow, nurturing and refuge and support, independence and proteceon and recreaeon, access to work and culture, good relaeons with neighbours and strangers. Peter Marcuse, 1987, 232. 49 Page 49 of 58 DRAFT 12 June 2016
How do housing systems change? 1. Change is not impossible, but will meet with strong resistance. 2. The scale, funceon and relaeonship between the various tenures is relaevely stable. 3. The insetueonal and instrumental context in which housing markets operate and develop is also relaevely stable. 4. However, the funceonal imperaeves of economic accumulaeon & poliecal legiemizaeon need to be addressed occasionally. Harry van der Heijden, 2013, p.187 50 Page 50 of 58 DRAFT 12 June 2016
Housing System Change Change what? Demand Actors: households & their housing preferences Supply Actors: producers of housing & housing services (building firms, developers, commercial & social landlords, and intermediaries, e.g., real estate agents and property consultants) InsEtuEons: the rules, norms and regulaeons under which a system funceons Harry van der Heijden, 2013 51 Page 51 of 58 DRAFT 12 June 2016
Conclusion from We believe that Capital in the 21st Century provides new insights on changing wealth paterns and thought frameworks to examine them. It provides a strong set of foundaeons on which to think through housing related issues. It is Eme to debate housing capital in the century ahead. à What does debate housing capital mean? ß Page 52 of 58 DRAFT 12 June 2016
Germany s Housing System: Not a mechanism for increasing wealth & income inequality? The German housing system: fundamentally resilient? Kofner, S. (2014) Journal of Housing and the Built Environment, 29(2), 255-275. Page 53 of 58 DRAFT 12 June 2016
German house prices: 10% decrease in real terms over 30 years. UK +230%. Page 54 of 58 DRAFT 12 June 2016
German Housing Policy Page 55 of 58 DRAFT 12 June 2016
What is the problem with the housing system in Anglo-American naeons? Income & wealth inequality DiscriminaEon Policy focus on house ownership: The lack of tenure neutrality in policy & culture Housing subsidies in Canada: $6B ownership; $2B social rental; $0.5B private rental RegulaEon of rental housing providers Page 56 of 58 DRAFT 12 June 2016
For an inclusive housing system Decrease house ownership subsidies Tax real estate flipping and unearned capital gains (beterment levies) Mandatory inclusionary housing & zoning Subsidize private & social rented housing construceon and rehabilitaeon Page 57 of 58 DRAFT 12 June 2016
References Bourne, L.S. (1981) The Geography of Housing, London: Arnold. Forrest, R. (2008) GlobalizaEon and the housing asset rich: Geographies, demographies and policy convoys, Global Social Policy, 8 (2), 167 187. Hulchanski, J.D. (2010) The Three Ci9es within Toronto: Income polariza9on among Toronto's neighbourhoods, 1970-2005, University of Toronto, CiEes Centre. Maclennan, D. and J. Miao (2016) Capital, Housing, and Inequality in the 21st Century. forthcoming. Marcuse, Peter (1987) The Other Side of Housing: Oppression and LiberaEon, in B. Turner, J. Kemeny and L.J. Lundqvist, eds., Between State and Market: Housing in the Post-Industrial Era, Goteborg: Almqvist, pp. 232-266. Murie, A. (2012) Housing in the welfare state: ParEEoning places and people, Local Economy, 27(5-6), 480-485. Murie, A. (2012) The Next Blueprint for Housing Policy in England, Housing Studies, 27(7), 1031-1047. van der Heijden, H. (2013) West European housing systems in a compara9ve perspec9ve, Amsterdam: IOS Press. Page 58 of 58 DRAFT 12 June 2016