Analysis of Affordable Housing in London

1.1 Arguments and Discussions

A report published recently by the Greater London Authority on the problem of affordable housing in London in June 2005, revealed that the issue of “affordable housing” (Karn and Wolman, 1992; p.16) was the most pressing matter Londoners wished to see dealt with in terms of improving London as a place to live (Greater London Authority, 2005; Section 2.3). The Barker Review of Housing Supply, not only supported this viewpoint, but it identified housing as a basic human need (Barker, 2006; p.1).

Affordable housing in London is therefore a controversial and highly topical subject at the moment (Karn and Wolman, 1992; p.16) (Barker, 2006; p.7). The debate surrounding it is underpinned by various political, sociological, economic and financial factors (Greater London Authority, 2005; Karn and Wolman, 1992; p16 (Rugg,1999; p.19). This thesis will examine why there is an affordable housing shortage; who really would benefit from affordable housing and what sectors of the population are affected by problems associated with affordable housing. The concept of ‘affordable’ and who really wants it will be examined in detail, since the notion of affordability is essentially so subjective that it is open to interpretation on many levels. ‘Affordability’ as a concept, will therefore be examined from an ethical point of view; from an economic point of view and finally from a sociological and political point of view, since these viewpoints will all constrain and influence the ultimate interpretation of what it means to be affordable.
 
The thesis will attempt to discover if any agency or individual may be blamed for problems associated with affordable housing in London and the policy context this relates to. Historical factors such as Thatcher’s ‘Right to Buy’ policy (Evans, 2004; p.20) will be examined as well as contemporary initiatives such as equity loans for certain keyworkers’ schemes (Greater London Authority, 2005; Sections 5.16). Where historical issues have impacted the contemporary manifestation of issues connected with affordable housing, these will be analysed.

Specifically, the thesis will examine contemporary and historical issues relating to affordable housing through two in depth case studies. One will be on the subject of the ‘Right to Buy’ policy introduced by Thatcher and the other will relate to the definition and depth of debate contained within the idea of affordable housing. These two in depth case studies will be examined qualitatively and will be referred to throughout the thesis. There will also be an economic analysis of the problem of affordable housing, and ideas such as artificially controlling the prices of houses in London will be considered. In this sense, there will be a theoretical evaluation of who really wants affordable housing, as the research will specifically ask if it would be desirable to advocate the imposition of affordable housing upon the London housing market. 

The thesis will also consider various issues which are related to the problem of affordable housing such as social and economic policies within the city itself and the social problems which are themselves shaped by shortages of affordable housing in London. Therefore various themes will be drawn out during the course of the thesis and these will include social exclusion, poverty, salary concerns amongst professional and semi-professional sectors, house prices, population and demographic cleavages, anti-social behaviour and crime (Greater London Authority, 2005, Section 5.16 ). These themes will be drawn together to ultimately address the question of ‘Who really wants affordable housing?’.

1.2 Conclusions and Recommendations

At this stage the conclusions and recommendations of the chapter are that given the issues which have been highlighted above, an argument can be made that affordable housing is a controversial issue which warrants further investigation. These investigations will attempt to shed more light on the concept of affordable housing and who really wants it. The next chapter will look at the methodology  for the thesis, which will set out the means through which this may be achieved.
 
CHAPTER TWO:
METHODOLOGY

2.1 Overview

This section will explain the definition and nature of qualitative research and how it will be used in the thesis inquiry. It will outline the research methods which will be used in the research and what framework these methods will be used within. The research will be based upon a qualitative analysis of two case studies; one contemporary which will be based on the concept of affordable housing itself, and the other historical and this will centred on the ‘Right to Buy’ policy introduced by Thatcher in 1980. These case studies will be derived from examination of published texts within the field of economic and politics. These texts have been identified as an appendix to the thesis. Where quantitative information is relevant to the thesis this will be looked at, but evaluated qualitatively, since the basis of the research will be mainly qualitative in nature. Primary evidence in the form of interviews was also used.

2.2 Hypothesis

There are two hypothesises which will feature in this thesis.

The first is that affordable housing is needed and wanted by the economically disadvantaged within London, and these groups include the poor, the disabled and specific sectors of workers who do not earn enough money to buy their own houses within London.

Another hypothesis of the study is that affordable housing is a problem which comprises many interrelated and intersecting issues; all of which may be seen as sociological, economic and political. It follows that any credible proposals in relation to lessening the problem of affordable housing must take this into account, and simultaneously address economic, political and sociological problems. The essence of this hypothesis is therefore that this is the best why to understand and to approach the description and evaluation of the problem of affordable housing in London and who really wants it. These hypothesises will be tested throughout the thesis.

2.3 Aims and Objectives

Specifically, the primary aim of the study is to examine whether the above mentioned hypothesises can be supported. Overall the aim of the study is to examine the concept of affordable housing in London, and who really wants it.

Primary qualitative data in the form of interviews with key workers and London residents affected by the affordable housing problem, will also be conducted in order to achieve a better understanding of the problem of affordable housing in London. Another aim of the study is to present and interpret these results. Various perspectives on the problem of affordable housing; its possible solutions and impacts will be advanced and discussed by the writer on the basis of these investigations. The study will aim therefore to use this discussion in order to achieve a more full understanding of the problem of affordable housing in London; who really wants it and related sociological, economic and political issues.

Ultimately the thesis will aim to add original literature to the research pool in relation to the problem of affordable housing in London, providing a detailed and holistic overview of the problem; who it affects and how its adverse effects may be lessened.

2.4 Arguments and Discussions
Definition of Qualitative Research/Explanation of Why Qualitative Research is Appropriate  

There are two main categories of research methods; qualitative methods (Bryman, 1995: p20) and quantitative methods (Bornat, Chamberlayne and Wengraf, 2000; Chapter One). The best way to define one is by reference and comparison to the other since the paradigm of research enquiry is mainly split between these two different research rationales (Bryman, 1995; p95 and 20).  Qualitative research aims to explain concepts and phenomena (Bryman, 1995; p95). Specifically the concept of affordable housing will be addressed in this research. As we have seen explained above, the focus of the research will be mainly qualitative in nature. However, in what ways is a qualitative research enquiry more appropriate to this question relating to affordable housing?

Qualitative research tends to be more holistic (Knowles and Sweetman, 2004; p.12) than specific which means that it seeks to understand a topic ‘in the round’ (Bryman, 1995; p.20). On the contrary, quantitative methods value specificity and outcome linked methods of research (Trout, 1998; p.113). This holistic characteristic of qualitative research fits the wider aim of this thesis enquiry, as the problem of affordable housing, its causes, purpose, its critique and its improvement are all topics which, too, must be understood and approached ‘in the round’. Therefore, while quantitative work tends to predict and hypothesise (Trout, 1998; p.113) about possible outcomes, the qualitative researcher will often embark upon their research enquiry with an open mind (Bryman, 1995; p.20), researching malleable conclusions as the enquiry unfolds. This open ended research framework therefore fits the infinitely complex dynamics of affordable housing more appropriately (Greater London Authority, 2005; Section 1-5). 

This open-ended research aim (Knowles and Sweetman, 2004; p.12) relating to qualitative research may be contrasted with the aim of quantitative research which usually seeks to be confirmatory (Trout, 1998; p.113), rather than (and also more so than) explanatory (Harrison, 2001; p.68). In this context, qualitative research may be understood as inductive (Bryman, 1995; p.20) whereas quantitative research tends to be more deductive in nature. This type of research (qualitative) tends to be situational in nature and tends to reflect given cultural and theoretical mores (Knowles and Sweetman, 2004; p.12). This imbibes qualitative research methods with a level of subjectivity which would not be appropriate in a quantitative or positivist study, since the processes under examination (Greater London Authority, 2006; Sections 1-5) often cannot be pinned down by or encapsulated within a quantitative research framework. Again these characteristics of qualitative research fit the enquiry into affordable housing more appropriately since the levels of subjectivity involved in the arguments and theories connected with affordable housing are vast (Greater London Authority, 2006; Sections 1-5). 

Differences between qualitative and quantitative research may also be explained by arguing that qualitative research is process related (Bryman, 1995; p.20) with a relative lack of control (Knowles and Sweetman, 2004; p.12) over the various processes which are to be understood, whereas conversely variables are strictly controlled within the framework of a quantitative research framework (Trout, 1998; p.113). Others have explained the differences between qualitative and quantitative enquiries by arguing that the former is anthropological in nature (Bryman, 1995; p.20) (since it has a focus on society and sociological forces), while the latter; quantitative research being more ‘scientific’ (Trout, 1998; p.113).

Qualitative research methods are also appropriate to this enquiry into affordable housing since they are unstructured (Knowles and Sweetman, 2004; p.12) and discursive (Bryman, 1995; p.20), allowing a researcher room to analyse possible outcomes/rationales/explanations (Knowles and Sweetman, 2004; p.12) as well as the ones which will potentially be accepted as the most credible. Colloquially, this characteristic of qualitative research leads many to regard it as a ‘soft’ subject’ area (Bryman, 1995; p.20) which lends itself well to the area of social science research as opposed to ‘hard’ subject areas such as maths or physics which may be described as more tangible (Trout, 1998; p.113).

However, this particular dichotomy between qualitative and quantitative research methods discredits qualitative research for no better reason than those who critique qualitative research in these terms fail to understand that concepts and phenomena which may be described in tangible, or ‘scientific’ terms do not take precedence over research enquiries into what is not tangible. Simply because a concept may be difficult to understand in isolation, as qualitative subject matter often is does not mean that it is not capable of being understood credibly. Simply because qualitative subject matter may be understood credibly in different ways by different people does not strip each differing rationale of validity simply because another explanation may be pointed to.

It must also be remembered that the objectivity of quantitative research often precludes the existence of other explanations of research phenomena, not because there are no valid alternative explanations but because the nature of quantitative enquiry is not always equipped to cope with multi-faceted concepts, whose existence and form may only be conjectured upon and not encapsulated within a given explanation. Concepts and phenomena are not always thoroughly understood through mere extrapolation, which is what makes the pragmatic and open-ended nature of qualitative enquiry universally important and specifically pivotal to this thesis enquiry into affordable housing. 

These points should however, in no way, be interpreted as a critique of quantitative methods. Indeed, quantitative statistics and studies will be widely consulted as a vital part of the thesis enquiry (Greater London Authority, 2005; Sections 1-7). It just happens to be the case that qualitative research is a more appropriate means to seek to explain the particular context and rationales underpinning the issue of affordable housing in the context of this particular study. The points, mentioned above regarding the qualitative/quantitative aspects of the wider research paradigm are therefore merely a defence of the qualitative method which will form the main bedrock of this research design.

2.3 Sources and Framework  

This thesis will rely upon  primary data gathered through interviews with interested parties and stakeholders in the area of affordable housing. Specifically, groups such as local residents and key workers in London will be interviewed and an interview with a Housing Association in Notting Hill will be conducted. The methodology for this thesis will also rely on sources, such as Government reports and current debates, reports/sources from interested parties in the non-profit making sector, case-studies and contemporary and historical books.

These sources will all be used to contextualise the two case studies which, as has been explained previously, form a pivot of the thesis. Archival research in the form of retrieving and consulting relevant press publications and speeches through these means will also be important. The research will therefore be primary and secondary in nature, and it will mainly make wide reference to qualitative/phenomenological material. Reference will also be made to quantitative and empirically derived data. Examining the range of sources which have been explained above will ensure that the research engages the subject with the necessary degree of depth and theoretical perspective.

2.4 Conclusions and Recommendations

The conclusion of this chapter is that qualitative research is ultimately more compatible with the overall research aims and objectives.  Primary and secondary qualitative research will be used to gather the information needed to comment on the validity of the hypothesises outlined above. 
 
CHAPTER THREE:
LITERATURE REVIEW PART ONE: DEFINITIONS; AND THE PROBLEM OF AFFORDABLE HOUSING IN LONDON

3.1.a Arguments and Discussions
What Does the Concept of Affordable Housing Refer to?

Affordable Housing has been defined by Plymouth City Council as: ‘Low cost market, and subsidised housing…..that will be available to people who cannot afford to rent or buy houses generally available on the open market….that definition should be framed to endure for the life of the plan, for instance through reference to the level of local incomes and their relationship to house prices or rents, rather than to a particular price or rent applicable at that one point in time (http://www.plymouth.gov.uk )’. 

Affordable housing causes particular demographic cleavages such as the inaccessibility of certain areas of London to what are referred to as key or essential workers such as teachers, nurses, police officers and employees of the health and social services (Greater London Authority, 2005; Section 5.16) (Karn and Wolman, 1992; p.16). This problem of inaccessibility means that these groups are ‘priced out of the market’ which means that on the salary that is typically earned by people in their jobs, it is difficult to find a house which is affordable (Karn and Wolman, 1992; p.16).  

The problem of affordable housing has also defined as ‘infrastructure needs’. These needs have been elaborated on in the following way: ‘The changing face of London’s population has immediate implications for every aspect of London life-education….transport and infrastructure….employment and employability, competitiveness and culture…Housing provides a useful example…..London has 42 per cent of England’s most overcrowded households…..’ (Greater London Authority, 2006; Section 2.8).   

Affordable housing therefore refers to a situation where there are not sufficient numbers of houses being built to satisfy the level of demand there is for these types of houses and accommodation in general (Greater London Authority, 2006; Section 5.17 and Karn and Wolman, 1992; p.16) (Barker, 2006; p.7). This situation (some would say artificially) increases the price of property within certain areas affected by affordable housing shortages. These are essentially the mechanics of affordable housing. This definition therefore goes to the heart of what the concept means in practical and real terms. However, this definition does not encapsulate how malleable this concept of affordable housing can be when it is viewed from particular standpoints.

The concept of affordable housing is particularly linked with certain social and economic problems, such as social exclusion, poverty and crime (Pacione, 1997; p.7 and Rugg, 1999; p.19). This is also supported through the primary research findings of the writer. An interview with Kate Bond revealed that she was suspicious of the social problems which are associated with affordable housing developments and is reluctant to allow her children to play in these areas (Interview One, 2006; p.1).

Affordable housing can therefore also be interpreted from a purely ethical standpoint, in which case it would refer to the wider problem of housing shortages being linked to problems such as poverty, crime and low wages for certain sectoral groups. In terms of economics (and this will be looked at in more detail in the next section) this ethical perspective it somewhat suspended from the analysis and the problem becomes one which is defined in terms of how certain factors such as supply, demand, resources and money shape the concept of affordability in terms of the housing sector.

These issues of definition are important to an analysis of affordable housing since, if one is to examine the question of who really wants affordable housing, it is imperative to extrapolate the concept in sufficient detail. Therefore, the problem of affordable housing and its theoretical underpinnings and context will be examined alongside a discussion of what the concept essentially means to different people, as the next section, an economic analysis of the problem of affordable housing and who really wants it, will elucidate.

3.1.b Economic Analysis of the Problem

The price of housing in a free-market economy is determined by supply and demand. The supply of houses increases, other things equal, as the price of housing rises. The reason for this is that as the price of housing rises, other things equal, producers will find it profitable to allocate more resources to the production of houses relative to the production of other things they might otherwise produce. However, as the price of housing rises, other things equal, the demand for housing falls. The reason for this is that as the price of housing rises, other things equal, consumers will find it advantageous to substitute away from the consumption of houses towards the consumption of other goods that are now relatively cheaper to purchase. The price of housing, known as the “equilibrium” price, is the price at which these two forces, demand and supply are equal. This is how economists’ typically analyse markets (Landsburg, 2002; ch.1).

How does the price of housing adjust to ensure that “equilibrium” is reached? If demand exceeds supply, then there is more demand for housing at the existing price than producers are willing to supply at that price. In such circumstances, economists say that purchasers of houses are “rationed” – not everyone who wants to buy a house at the existing price can get one. These potential purchasers start competing with one another by offering suppliers a slightly higher price for a house than was the case in the market initially. This has two effects; first of all, the higher price induces more supply, and secondly, the higher price lowers demand. This means that the “excess demand” in the market that existed initially falls as a consequence of competition between rationed purchasers. Naturally, this process of competition will continue until prices have been bid upward sufficiently to ensure that demand and supply are equal. At this point, no-one is rationed and excess demand falls to zero.

Of course, this process can be reversed.  Imagine that at the existing price the supply of houses exceeds the demand. Now it is the producers of houses who are “rationed” – not everyone who wants to sell a house at the existing price can. As before, these potential sellers start competing with one another by offering purchasers a slightly lower price for a house than was the case in the market initially. This has two effects; first of all, the lower price induces less supply, and secondly, the lower price raises demand. This means that the “excess supply” in the market that existed initially falls as a consequence of competition between rationed sellers. Just like the previous case, this process of competition will continue until prices have been bid downward sufficiently to ensure that demand and supply are equal. At this point, no-one is rationed and excess demand falls to zero (Landsburg, 2002; ch.7).

What are we to make of this analysis from economics? Economics helps us to understand how prices are determined. They are determined by the forces of supply and demand operating through the mechanism described above. But can this give us some insight into the concept of “affordability”? Not really. The notion of “affordability” is one that does not make sense within the discipline of economics. This might be a weakness of economics, but it might also be that the concept itself is meaningless.

Let me explain. In economics, the equilibrium price of housing (also known as the “market” price) is the price that is desirable from a social point of view. It can neither be too high or too low. Provided that the housing market is a so-called “competitive” market then the equilibrium price is the one that society ought to want (Landsburg, 2002; ch.8). How does economics reach this surprising conclusion? It does so from noting that at the equilibrium price, all gains from trade in the market are maximised (Landsburg, 2002; ch.8). In other words, despite claims that economics is a “positivist” subject, it is committed to a specific normative theory of good (Hausman and McPherson, 1996; Ch. 1 and 8). That theory says that what is socially desirable maximises the gains from trade. What does this mean?

Let us return to the excess demand example mentioned above. Imagine that at the initial market price, purchasers of houses are “rationed” – not everyone who wants to buy a house at the existing price can get one. It is simple to demonstrate that at this price, the increase in price needed to induce producers to build just one more house is strictlyless than what potential purchasers would be willing to pay a producer in order to build that house (Landsburg, 2002; ch.8). Given that this condition is satisfied, it is always possible for a mutually beneficial trade to occur between a potential buyer and a potential seller. 

To illustrate this, imagine that a producer of houses (a builder, say) needs the price of houses to rise from ¿¡100,000 to ¿¡118,000 in order to find it profitable to build 11 houses as opposed to 10. If there is a situation of excess demand in the market whenever the price of a house is ¿¡100,000 then it is always possible to show that the maximum price someone would be willing to pay in order to induce the producer to build the additional house is strictly greater than ¿¡118,000. If that price is, for example, ¿¡150,000, then the two parties can trade to their mutual advantage. Imagine that the potential buyer offers the producer a price of ¿¡125,000 in order to build the house. This is a price the producer will happily accept. He or she would have built the house for ¿¡118,000 but instead gets ¿¡125,000 – the producer is better-off by ¿¡7000. Economists say that “producer surplus” rises by ¿¡7000 (Landsburg, 2002; Ch.8).  Similarly, the buyer gets the house for ¿¡125,000 but was willing to pay ¿¡150,000 for it. The buyer is better-off by ¿¡25,000. Economists say that “consumer surplus” rises by ¿¡25,000 (Landsburg, 2002; Ch.8). An important insight from economics, as seen in this example, is that mutually advantageous trade is possible. Trade is not necessarily a zero-sum game.

How does this relate to the idea that the equilibrium price is the socially desirable one? It does so in the following way. As the excess demand in the market is gradually eliminated through upward movement in prices, the scope for mutually advantageous trade between buyers and sellers shrinks. Remarkably, when the excess demand for houses vanishes and the market is in equilibrium, no more mutually advantageous trades are possible. The price that would induce a producer to build an additional house is equal to the maximum price someone would be willing to pay for it – neither consumer surplus nor producer surplus can rise if this trade takes place. At the market equilibrium, all gains from trade have been realised and no more are possible. Economists refer to this state as one of “economic efficiency” or “Pareto efficiency”. (Landsburg, 2002; Ch.8).

The above analysis is the main reason why economists (admittedly with some caution) advocate the use of free markets. If a market is competitive then it will produce on its own devices an equilibrium that is socially desirable (if one accepts the principle of economic efficiency). Adam Smith referred to this general idea (albeit in a different context) as the “Invisible Hand”. He said

“Every individual…generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention” (Smith, 1776; p.243).

Smith’s idea is that people acting in their own self-interest may produce unintended consequences which, surprisingly, can serve the social good. In the example above, individuals through competition with one another push the market price towards its equilibrium value, and this value is socially desirable. However, to do this was not the intention of the individuals involved. They were just competing with one another and trading with sellers for their own private benefit.

How does this analysis help with the problem of “affordable housing”? From an economic point of view, affordability is a meaningless concept. It is simply not a social objective for things to be affordable, rather the government should seek to promote competition in the housing market and then leave the market to its own devices.

This conclusion of economics is striking and quite at odds with other perspectives on this problem. I will argue that affordability is an important problem, and that something fundamental is missing from the economic approach to housing. Within economics what is missing is some notion of “equity”, or a concern for how the gains from trade are distributed across different people. To illustrate this point, imagine that the equilibrium price of a house in a competitive housing market is ¿¡200,000. Then those who are willing to pay ¿¡200,000 or more for a property will get one, and the situation will be efficient from an economic point of view. However, this might not be the “ethically appropriate” way to allocate houses to people. The reason is fairly obvious. What someone is willing to pay for anything is constrained by their income. A rich person might be willing to pay more for a house than a poor person, but this does not mean that it is better that the rich person gets the house as opposed to the poor person. This is sometimes referred to in economics as the “equity-efficiency” trade-off. This is the idea that less efficiency is the price we have to pay sometimes if we want to ensure a more equitable distribution of goods across people (Landsburg, 2002; Ch.8). Policies designed to promote affordable housing fall into this category. The people who will gain the most from them are people on low income, who cannot guarantee that they will be allocated a house through the market mechanism.

3.1.c How is the Problem of Affordable Housing Addressed?

Various policy initiatives have been introduced to ameliorate the problem of affordable housing in London. These will be discussed in this section. These policies and whether they have a positive impact upon the community will also be evaluated in this section. 

One such policy  takes the form of Section 106 of the Town and Country Planning Act 1990 (which became operative in 1947 (Jackson, J., 1963; p.18 ), which seeks to address the problems which may arise in relation to affordable housing and the provision of local services (Monk, S. et al., 2005; p.24-27).  Where a major developer wishes to obtain planning permission for a development in a given area, it is the case that such developments will put pressure on local services such as schools or hospitals this Act seeks to ensure that some of the cost of such developments are borne by the developers who wish to develop the area (Monk, S. et al., 2005; p.24-27). Section 106 of this statute therefore provides that agreements may be reached between local planning authorities and developers in relation to planning permission, where the developer is required to make financial contributions towards the local services in the areas where the planned developments are to be built (Monk, S. et al., 2005; p.24-27). However, this statute has been criticised, especially by Kate Barker (2006; p.11), as being in drastic need to reform to make it more simple and certain. The Barker Review also recommended in relation to Section 106, that it be ‘scaled back’ to address the direct impacts of developments (Barker, 2006; p.11).

Also, Housing Associations in London such as the Keystart Housing Association, Tower Homes, Metropolitan Home Ownership and London Str