Housing Affordability and Affordable Housing Policy CAI Wenjie

Housing Affordability and Affordable Housing Policy CAI Wenjie Room 513, College of Public Administration Email: wenjiecai@hust. edu. cn

Contents § Housing on the Public Agenda § The Concept of Housing Affordability § Affordable Housing Policy

1. Housing on the Public Agenda 1) The Role of Housing § A shelter for human beings – physical settlement, ontological security § Locus of social life – social interaction and segregation, employment opportunities – urban planning § Asset Accumulation – housing price appreciation, supplement to social welfare provision § Housing Externalities – public health, education, crime

1. Housing on the Public Agenda 2) Features of Housing Prices § Harder to determine § Subject to speculation § Closely associated with the financial system – “redlining”

1. Housing on the Public Agenda 3) The Rise of Housing Problems § Late 19 th century and early 20 th century, European countries: public reaction to the problems of poor housing conditions § Post War times: housing shortages § Recent years: housing affordability problems and associated financial risks

2. The Concept of Housing Affordability Are housing affordability problems equally shared between consumers?

2. The Concept of Housing Affordability Who is more likely to be affected by a housing affordability problem?

2. The Concept of Housing Affordability 1) Housing Affordability in income and price terms The Ratio Approach § 19 th century: “rule of thumb” § Expenditure-to-income criteria § Housing price-to-income ratio

2. The Concept of Housing Affordability 1) Housing Affordability in income and price terms The Ratio Approach § Advantage: simple and straightforward § Disadvantage: cannot accurately depict housing affordability situations of different households – arbitrary?

2. The Concept of Housing Affordability 1) Housing Affordability in income and price terms The Residual Income method § Non-housing expenditure as an important consideration § The concept of shelter poverty

2. The Concept of Housing Affordability 1) Housing Affordability in income and price terms The Residual Income method § Defining necessary non-housing costs? § The meanings of housing need? § Select appropriate income and housing costs indicators

2. The Concept of Housing Affordability 1) Housing Affordability in income and price terms What does the Residual Income method tell us? § The response of income-constrained households in adjusting their housing consumption expenditures to suit their needs for housing expenditure and non -housing items. § The concept of trade-off

2. The Concept of Housing Affordability 2) A broader concept of housing affordability When failing to fulfill housing needs at an affordable costs? § Excess housing expenditure § Trade-offs between housing needs and nonhousing needs

2. The Concept of Housing Affordability 2) A broader concept of housing affordability Housing Accessibility § The extent to which the consumer has access to essential facilities that characterize their daily lives. § Time and costs spend on travel between these facilities

2. The Concept of Housing Affordability 2) A broader concept of housing affordability Housing Amenity § Example of poor amenity: lack of running water, sewer toilets and baths… § The Chinese experience

2. The Concept of Housing Affordability 2) A broader concept of housing affordability Housing Adequacy § Statistics New Zealand (2004): affordability; suitability; habitability; tenure security; freedom from crowding and freedom from discrimination § Tenure security: housing type, recent housing history, housing tenure and formal title of the housing property, legal status of the occupancy and tenure of the land on which the housing is built, subjective satisfaction and stability assessment of housing

2. The Concept of Housing Affordability 2) A broader concept of housing affordability Examples of trade-offs between affordability, accessibility, amenity and adequacy § Sydney: outer Sydney areas to achieve better housing affordability but worse accessibility to work § Australian states (NSW, Queensland, Vic): move to less desirable areas, housing of lower quality or smaller size

Why do we need to discuss housing problems? We want to solve it with public policies.

3. Affordable Housing Policy 1) Why affordable housing policy is needed? Housing is important BUT it does not mean that government intervention is necessary How about THE MARKET?

3. Affordable Housing Policy 1) Why affordable housing policy is needed? § The downward filtering theory § Upward filtering/gentrification § Finance/information redlining

3. Affordable Housing Policy 2) Affordable housing policy strategies (1) The housing policy response § The intricacy of the housing system itself – more complicated institutional settings § Housing provided with government assistance – the “wobbly pillar”?

3. Affordable Housing Policy 2) Affordable housing policy strategies (1) The housing policy response

3. Affordable Housing Policy 2) Affordable housing policy strategies (2) Examples of affordable housing policies Policies operating in the consumption sphere § Contributing factors for housing affordability problems: demographic factors and household income § Income subsidies: v Renters – housing vouchers, rent rebates, rent allowances, tax credits v Home owners – housing grants, income tax concessions

3. Affordable Housing Policy 2) Affordable housing policy strategies (2) Examples of affordable housing policies Policies operating in the consumption sphere § Advantages: more choices, avoid over-concentration of low income households, more tangible § Disadvantages: policy effectiveness depends on housing market supply, high income households may benefit more

3. Affordable Housing Policy 2) Affordable housing policy strategies (2) Examples of affordable housing policies Policies operating in the exchange sphere § Contributing factors : price/costs and mortgage finance provision § Policies: v Renters – rent control v Home owners – housing price control, provision of mortgage finance (housing provident fund, direct public finance provision), provide mortgage finance insurance

3. Affordable Housing Policy 2) Affordable housing policy strategies (2) Examples of affordable housing policies Policies operating in the exchange sphere § Advantages: may relieve housing pressures in short term § Disadvantages: discourage housing supply and maintenance, may exacerbate housing shortages

3. Affordable Housing Policy 2) Affordable housing policy strategies (2) Examples of affordable housing policies Policies operating in the production sphere § Contributing factors : production costs § Policies: v Direct public housing construction v Reduce production costs: tax concession for developers v Increase access to means of production: planning strategies, housing development finance provision

3. Affordable Housing Policy 2) Affordable housing policy strategies (2) Examples of affordable housing policies Policies operating in the production sphere § Advantages: when housing supply is insufficient, fulfill special housing needs § Disadvantages: not sure whether lower housing costs will benefit consumers, restrict housing choices, crowding-out housing market supply, effectiveness of planning strategies, over-concentration of low income consumers

3. Affordable Housing Policy 3) Chinese affordable housing policy (1) Policy background Housing reforms § Poor housing condition § Great financial burden § Development of related industries § Insufficient incentives for individuals

3. Affordable Housing Policy 3) Chinese affordable housing policy (1) Policy background Increasing housing costs – outcomes of housing reforms § Stop welfare housing provision § Introduction of market mechanisms § Housing affordability problems § Work units bought housing on the market

3. Affordable Housing Policy 3) Chinese affordable housing policy (1) Policy background State land ownership system § Government has the fundamental control over housing development activities § Directly influence developer’s operations § More easily to achieve public financial investment § Better managing entry and transfer of affordable housing

3. Affordable Housing Policy 3) Chinese affordable housing policy (1) Policy background Production-side housing assistance – affordable housing § Administrative method for land supply § Developer construct housing § Entry requirement for consumers § Limit developer’s profits

3. Affordable Housing Policy 3) Chinese affordable housing policy (2) Policy contents Housing construction § Free land provision § Concessions for taxes and charges

3. Affordable Housing Policy 3) Chinese affordable housing policy (2) Policy contents Policy requirements § Restrict target groups: means-tested policy § Restrict housing transfers: cannot be sold within five years of purchase, pay land costs in resale § Restrict housing space: around 60 m 2 § Restrict developer profits: 3%

3. Affordable Housing Policy 3) Chinese affordable housing policy (3) Policy challenges Regarding policy benefits § Total construction volumes § Housing location

3. Affordable Housing Policy 3) Chinese affordable housing policy (3) Policy challenges Regarding policy requirements § Define target groups § Housing space: 80 -90 m 2 are more common § Incentives for developers

Suggested Readings § Hulchanski, J. D. (1995). The Concept of Housing Affordability: Six Contemporary Uses of Housing Expenditure-to-Income Ratio. Housing Studies, 10(4), pp. 471 -486. § Thalmann, P. (1999). Identifying Households which Need Housing Assistance. Urban Studies, 36(11), pp. 1933 -1947. § Stone, M. E. (2006). A Housing Affordability Standard for the UK. Housing Studies, 21(4), pp. 453 -476. § Stone, M. E. (2006). What Is Housing Affordability? The Case for the Residual Income Approach. Housing Policy Debate, 17(1), pp. 151 -184.

Suggested Readings § Barton, S. E. (1996). Social Housing versus Housing Allowance: Choosing between two Forms of Housing Subsidy at the Local Level. Journal of the American Planning Association, 62(1), pp. 108 -119. § Beer, A. , Kearins, B. and Pieters, H. (2007). Housing Affordability and Planning in Australia: The Challenge of Policy Under Neo-liberalism. Housing Studies, 22(1), pp. 11 -24. § Landis, J. D. and Mc. Clure, K. (2010). Rethinking Federal Housing Policy. Journal of the American Planning Association, 76(3), pp. 319348. § Lawson, J. and Milligan, V. (2007). International Trends in Housing and Policy Responses. AHURI Final Report No. 110, Melbourne: Australian Housing and Urban Research Institute.