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Subsidised housing in the twenty first
century? Professor Christine Whitehead London
School of Economics and Cambridge Centre for
Housing and Planning Research University of
Cambridge Hong Kong Convention and Exhibition
Centre Wanchai Hong Kong 18 March 2009
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What is the issue?

• In almost all countries government plays a major
  role in housing through regulation, taxation
  and subsidy and sometimes direct provision
• The government in Hong Kong has, since the 1950s,
  been
• heavily involved in providing subsidised
  housing and is seen as an exemplar for other
  countries
• The most obvious comparator is Singapore, where
  government has also been heavily involved, but
  has used rather different financial arrangements
  which have resulted in higher levels of
  owner-occupation
• Yet surely housing is like other goods which can
  be provided at prices which reflect the value of
  the resources it uses?

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The Questions

• Why are governments so involved?
• What forms of involvement make sense in different
  contexts?
• Why were large social housing sectors developed?
• Why are these large social sectors being
  dismantled?
• Should Hong Kong be different?
• What makes sense into the future?

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The Principles Why subsidise housing the case
against

• You might expect that in a rich society, housing
  could simply be provided by the market in
  response to demand
• Housing can be seen as quite a simple product
  meeting basic needs anyone with reasonable
  income might be expected to buy it themselves
• Housing takes a large proportion of average
  income but not as much as say leisure activities
  and we do not subsidise leisure activities
  directly
• Equally everyone needs housing but everyone
  needs food and we do not subsidise food directly

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The Principles the case for subsidy

• Housing actually meets a wide range of needs,
  including security, stability and access to
  employment and services
• It is a complex good whose value may therefore be
  difficult for individuals to assess
• The market often fails to provide effectively
• The distribution of income (and wealth) is uneven
  so poorer households cannot compete in the market
• Good housing benefits the community and the
  economy as well as the individual household

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The Principles what type of subsidy?

• If the problem is income distribution is it
  better to provide income subsidies rather than
  subsidies to the supply of housing and to direct
  provision?
• Simply economic theory says income subsidies are
  better - because they give people choice so they
  can gain higher value from a given subsidy and
  the market can respond to consumer demand
• But both more complex theory and practice suggest
  the answer is not so straightforward market
  failures and distributional objectives may be
  better addressed by supply side assistance

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The Principles Why subsidise provision rather
than people?

• Easier to target assistance to relevant groups
• Easier to achieve minimum standards
• Easier to do politically
• Easier to implement particularly if have control
  over land and its value
• Potential benefits of scale and therefore better
  value for money?
• Increased benefits to urbanisation
  environment/environment

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Hong Kong A Special Case for Supply Subsidies?

• Public ownership of land makes it easier to
  allocate land for social housing and to use land
  values to subsidise housing
• The physical constraints of a city state mean
  that densities must be high and provision must be
  mainly in the form of apartments requiring high
  quality management
• Housing has to be integrated with infrastructure
  provision where government plays the core role
• Potential economies of scale in providing
  additional services
• Lack of income related subsidy structures
• But issues of whether the public sector is the
  most efficient provider?

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The Practice the growth of social rented housing
in Europe

• Why large social sectors in many European
  countries?
• Historically no capacity to implement demand side
  subsidy systems but emphasis on minimum
  standards to limit external costs of poor housing
• In Northern Europe, in particular, housing has
  been part of the contract between individuals and
  the welfare state a decent home for every
  household at a price within their means
• Post war need for large scale construction
  programme which could only be done on public land
  and by directing resources to housing provision
• Nowadays large scale government intervention
  needed to achieve regeneration and neighbourhood
  management

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The decline of social rented housing across Europe

• From the 1970s, increasing emphasis on
  alternative forms of tenure
• Growing aspirations among households to become
  owner-occupiers
• Increasing capacity to do so because of
• (i) rising incomes and,
• (ii) increasing availability of mortgages
• Governments needs across Europe to cut public
  spending and to use assets more effectively
• Initiatives in many countries to transfer
  ownership and investment to the private and
  independent sectors - often with the help of
  subsidy so government less directly involved in
  provision and management
• Shifts from supply subsidies to income related
  subsidies

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The current role of social rented housing in
Europe three groups of countries

• Northern European countries still with large
  social sectors available to most households
  where social housing treated equally to other
  tenures
• Countries where social housing has declined and
  is now seen as being particularly for poorer and
  more vulnerable households so acting more as a
  residual sector
• Countries which traditionally had large social
  sectors but where the stock has been heavily
  privatised in one way or another by transfer to
  owner-occupation to other landlords or to
  private investors

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Housing Tenure/Size of Social Sector in Europe
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Access to social rented housing in Europe

• In practice access to social housing depends upon
  availability and upon rents and attractiveness of
  the social housing
• In those countries where access is quite general
  there are EU concerns about the impact of social
  housing on competitiveness
• In most countries there is a move more towards
  housing those in housing need and on vulnerable
  groups but once accepted households can usually
  remain, even if circumstances change
• In countries where little social housing
  available some limited moves towards
  reinvention of social housing

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Who is excluded from social housing?

• In many European the lowest income households,
  and particularly migrants, are not able readily
  to access social housing
• The private rented sector provides for these
  groups with the help of rent allowances and
  sometimes with government support to suppliers
• In many countries income related support is
  available to all eligible tenants
• In most European countries tenants have long term
  security but there are often subsidies to help
  them move to owner-occupation

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Who is now living in social rented housing in
Europe?

• Lower income employed households especially in
  France the Netherlands and Scandinavia
• Older households who either were housed when they
  were families and remain in the sector or who
  face increasing need as they get older
• Single parent families who cannot afford
  accommodation elsewhere
• Vulnerable single person households including
  in particular those from care
• Increasing concentrations of female headed
  households and of ethnic minorities

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Demographics of Social Housing
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What additional roles does the social sector play?

• Social landlords increasingly seen as providing
  additional services
• Sheltered housing for older people
• Accommodation for those with special needs (those
  leaving prison or long term hospital care drug
  dependency young people asylum seekers etc)
• Neighbourhood management
• Regeneration
• Support in obtaining training and employment

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Broader Roles of Social Housing
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The provision of intermediate products

• Social landlords increasingly involved in
  providing other types of housing with lower
  subsidies
• The use of land values to subsidise affordable
  housing
• UK as a leading example through S106 agreements
  that both lower the cost of building and require
  cross subsidy from market housing
• Intermediate rental housing cost rents
  (sometime subsidised) for employed households
  often including key workers
• Low cost home ownership access to home
  ownership based on shared equity mortgages or
  part rent part own from social landlords
• Similar approaches to increasing affordability of
  home ownership in many European countries

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Major pressures on social housing in Europe

• Demographic trends notably older, smaller
  households and family breakdown
• Immigration and the needs of more mobile lower
  income households
• Increasing vulnerability of many social tenants
• Increasing problems of social exclusion and
  spatial concentration of poverty
• Financial constraints on social landlords both
  because of limited subsidy and the extent to
  which social landlords which are more and more
  dependent on private finance
• Increasing aspirations among tenants for higher
  quality housing greater flexibility higher
  quality neighbourhoods and for owner-occupation

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The changing role of social landlords in Europe

• Social housing the major target for urban
  regeneration across Europe
• Social landlords are seen as major providers,
  stakeholders and sometimes funders in large scale
  regeneration
• Social landlords increasingly required to
  allocate housing to a wider mix of tenants
• Social landlords are also expected to develop
  mixed income areas by selling housing building
  in market areas and privatising some of their
  stock
• Social landlord expected to take a leading role
  in addressing issues among their tenants and
  communities such as language skills financial
  awareness addressing problems of unemployment
  and worklessness

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The changing economic environment

• Concerns that owner-occupation at current levels
  is unsustainable and funding difficulties
  /larger deposits excluding first time buyers
• Also some of the benefits of owner-occupation in
  terms of flexibility and investment have
  disappeared, at least for the moment
• Recession is generating additional pressures for
  social landlords
• Growth in homelessness and vulnerability
• Slower transfer of households into other sectors
• Social landlords are expected to support new
  development in the absence of market demand
• Lack of funding from the private finance market
  because although low risk, housing associations
  provide low returns
• Are these problems short or long term? At this
  point who knows?

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Conclusions is subsidised housing required in
the twenty first century?

• The basic problems of market failure and
  mal-distribution of income have not disappeared
  indeed at the present time they are increasingly
  important
• Growing aspirations and incomes require higher
  housing standards for all
• This does not inherently mean social provision
  and ownership
• But many of the new roles for social housing are
  dependent on high quality and tenant oriented
  management
• - providing additional services for vulnerable
  households best organised by social managers
  (although often employing private providers?)
• -urban regeneration requires effective planning
  and long term involvement
• - neighbourhood management similarly requires
  long term involvement by owners

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Conclusions the relevance of European
experience to Hong Kong

• The evidence shows that the need for subsidy does
  not decline over time because increasing incomes
  generate the political will to provide higher
  standards for poorer households
• There are also growing needs to assist older and
  vulnerable households, especially in an aging
  society
• Whether this requires social provision depends on
  the efficiency of the system as compared to the
  market
• Hong Kong has a long record of involvement in
  housing provision and therefore has large scale
  capital assets available
• Hong Kong also has long experience of
  neighbourhood management
• The scale of public sector activity means that
  skills are concentrated in the sector

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Conclusions is subsidised housing required in
the twenty first century in Hong Kong?

• Even so there must be concerns both about the
  scale and the range of public housing provision
• The proportion of households assisted with very
  low rents means that many who could readily
  afford more are being subsidised and have no
  incentive to leave the sector
• There is an enormous unencumbered housing asset
  which is earning extremely low returns - rents
  are inadequate to sustain the sector effectively
• There are increasing concerns associated with
  mono-tenure estates especially as development
  moves further out
• A wider range of providers and tenures - may be
  necessary to help ensure innovation and
  efficiency
• A large subsidised social sector will undoubtedly
  remain in Hong Kong but it may need to reinvent
  itself to meet the needs of the new century