House prices in countries around the world have been galloping ahead of wage growth. In a report released by PwC this summer, for example, private rents in four regions of the UK are now considered unaffordable for workers on or below the median wage. These are London, the South East, the South West and the East.
Housing was a key topic at MIPIM 2019. The conference session on Building Housing Justice was moderated by Nicolas Buchoud, President of the Grand Paris Alliance for Metropolitan Development. Buchoud was joined on stage by:
- Dr Abel Schumann, Economist, OECD
- Helen Gordon, Chief Executive of Grainger plc, and the new President of the British Property Federation
- Dr Orna Rosenfeld, Global Advisor on Housing
- Ricardo Veludo, Lisbon Affordable Housing Task Force Coordinator, Lisbon City Council
The housing crisis is a global issue
The ‘least’ affordable cities in the world include Auckland, Hong Kong, San Francisco and Vancouver and the ‘most’ affordable are Dubai, Kuala Lumpur and São Paulo, according to Knight Frank’s Global Affordability Monitor. Across all 32 cities tracked, average real house price growth has outpaced average real income growth by 16% over the past five years.
Meanwhile, the United Nations estimates that 828 million people, and rising, live in slums, with ‘sustainable cities and communities’ as one of the UN’s 17 Sustainable Development Goals.
Building housing justice at MIPIM 2019
The intergovernmental Organisation for Economic Co-operation & Development (OECD) put out a call at MIPIM to work with national, regional and local governments and other organisations on housing affordability.
Dr Abel Schumann, Economist, OECD, told the MIPIM audience that the price of housing as a national average – so not just urban areas, where rises have been “more severe” – has risen by an inflation-adjusted 30-50% in the 36 OECD member countries since 2010.
These high prices are caused by a variety of reasons, said Dr Schumann, including:
- Quantitative easing since the 2008 financial crisis, as central banks pump new money into the money supply, and historically low interest rates.
- Demographic trends, as household sizes shrink and people move to cities. The population in cities of over 250,000 in OECD member countries is growing by around one per cent a year.
- Low productivity in the building sector; rates have even fallen off since 1995, compared with big increases in other sectors.
- Planning policies and land use regulations that prevent densification or development on greenfield sites. Dr Schumann quoted Glaeser & Gyourko, 2017, that 10% of US housing is more than twice as expensive due to land use restrictions to the housing supply; and the Deschermeier et al study of 2017 quoting Germany building 40% more single-family homes than needed in rural areas compared with only 32% of units needed in the cities.
Affordable housing is the answer, rather than social housing
Dr Schumann pointed out that if you took the value of capital stock in six OECD countries (Australia, Canada, Czech Republic, France, Japan and Korea), then property (buildings & infrastructure) and land account for a massive 86% of the total.
“Property and land are much more important than other items that we normally think of as being extremely relevant for the functioning of an economy, such as machinery and equipment, inventories or intellectual property” said Dr Schumann, referring to capital stock values.
This kind of wealth inequality was propounded five years ago in Thomas Piketty’s best-selling book, Capital in the Twenty-First Century’. Piketty argued that the world was returning to “patrimonial capitalism”.
Property and land account for 86% of capital stock value in six countries: Australia, Canada, Czech Republic, France, Japan and Korea – OECD
“The big question is,” asked Dr Schumann, “what can we do about it?” He sees social housing as important, but not able to solve the housing crisis in the short term.
Social housing is a long-term investment and currently accounts for below 10% of the housing stock in many OECD countries. “The answer lies in affordable housing,” he added.
Grainger – the mid-market solution
Building affordable housing is about “the ability to access land, access to cheap finance; to build efficiently, and to think about the quality of the build versus the pricing,” said Helen Gordon, Chief Executive of Grainger plc.
Grainger plc is the UK’s largest listed residential property company, both as developer and owner. The company provides mid-market housing, and currently owns and operates 8,400 homes across the country, with a further 8,200 in the pipeline.
Grainger plc – Finzels Reach Bristol
“Investing in the mid-market was a key strategic decision for us, and we have evidence that over time it is the most resilient market to invest in,” Gordon told the MIPIM audience.
Operating in the mid-market provides a “very resilient income stream that feeds into our funding” – Helen Gordon, Grainger plc
Gordon said that operating in the mid-market made it easier to work with local authorities and planning authorities. “They understand our model,” she said. The mid-market is also about the long term. “We allow people to put down roots. We want them to stay,” she added. This in turn provides a “very resilient income stream that feeds into our funding”, allowing Grainger to cut the cost of their debt.
Grainger plc – Argo Apartments London
“We think modular construction is underdeveloped in the UK” – Helen Gordon, Grainger plc
Grainger, one of the UK’s largest landlords, has a team working on how to build efficiently. At present they use modular ingredients, but not modular construction. “We think modular construction is underdeveloped in the UK,” Gordon said.
The way forward – modular construction
Recent examples of modular construction to hit the headlines include:
- Japan’s pioneer of modular construction methods, Sekisui House, signing a deal that will see it working with public body Homes England and Urban Splash to deliver thousands of new homes across England. As part of the deal, Sekisui House takes a 35% equity stake in Urban Splash’s modular House business.
- ICON of Austin, Texas, is leading the way in the 3D-printing of housing of up to 2,000 sq ft, as reported earlier this month by Global Real Estate Experts.
- The United Nations-Habitat has unveiled its Tiny House for the Tropics in Kenya. The 22 sq m house is powered by renewable energy, and has its own waste management system, integrated aquaponic farming, and uses locally available building materials, and local manufacturers.
The example of housing in Lisbon
Housing is a particularly hot topic in tourism-booming Lisbon. This July, the Portuguese Parliament passed the Basic Housing Law, laying the foundation for a national policy for housing, as reported in Citylab.
At MIPIM, Ricardo Veludo, Lisbon Affordable Housing Task Force Coordinator, Lisbon City Council, said that different places needed different toolkits, and that it was all about having the right toolkit.
“In some cities, it can make sense for the public sector to take over the delivery [of affordable housing]because the returns for the private sector are not feasible,” he said.
Different places need different toolkits – Ricardo Veludo, Lisbon City Council
The Lisbon Affordable Task Force has identified 15 locations for residential projects as part of its Affordable Rent Programme, involving €708m of private investment and 7,000 housing units, and where the municipality owns the land.
Two projects have already been awarded to a private developer following a public tender, with other public tenders opening soon. The appointed concessionaire designs, builds and operates the project for a period of between 35 and 50 years, without having to pay for the land.
Veludo mentioned the “trauma” of previous bad experiences with public-private partnerships. “There is a need for transparency. We are looking for investors and developers with a long-term perspective,” he said.
The public sector needs “effective engagement” with the private sector
To summarise the session, Buchoud said that the question of private-public partnership needed to be considered at city level and to be backed by a “series of engagement rules” at a regional (EU) level and a global level. “The instruments are not there,” he said.
No public sector is able to solve the housing issue without “effective engagement” with the private sector – Dr Schumann, OECD
But as Dr Schumann said, no public sector in the world is able to solve the housing issue without “effective engagement” with the private sector. The key, as with so much in urban development, lies in public-private partnership.
