Policymakers require continually updated, customer-oriented indicators that define exactly what is going on and highlight the costs, benefits and risks of taking combinations of corrective action to fix the housing problem, via a collaborative programme of change.
Focus on Quality
Companies often use quality techniques to improve their competitiveness in a market. I believe these methods can be applied to the market itself.
By applying this methodology we get a different perspective. The subjective opinions and priorities of builders, lenders and private sector landlords become irrelevant. Instead we begin to focus on the customer, what they want and how they can best be served.
Quality techniques are quantitative. In addition to establishing customer requirements and using these to benchmark priorities, they will allow us to define how well the UK is doing compared with other countries with whom we have to compete in terms of retaining our brightest young people. This will also provide valuable insights into our options.
These methods are designed to manage large strategic programmes of change over time, involving disparate policymakers and stakeholders, who may have different and conflicting priorities and agendas. It follows they are ideal for resolving our housing problem.
There are always costs of not acting to resolve customer requirements. Quality experts use tools to quantify this Costs of Quality to establish the case for change.
Defining the Customer
With respect to defining the housing market's customer, we need to distinguish between homebuyers and homeowners. Homebuyers are customers while homeowners are not.
Homeowners have completed the transaction. They have put a roof over their heads.
Homeowners may want their property to rise in value, but even with prices rising in line with background inflation, they will be hundreds of thousands of pounds better off than a private sector tenant. Rising prices favour homeowners but disadvantage homebuyers. Given the benefits to the taxpayer and the economy, policymakers should favour homebuyers.
Establishing the Costs
As discussed, delays and exclusion from homeownership are symptomatic of the housing problem and a £1 trillion cost is the tip of the iceberg, when one considers the resulting increased demand in state benefits. A Cost of Quality analysis allows us to examine why.
Let's consider the resulting consequences of tenants having less money to spend and save.
Underlying demand for housing benefits in the private rental sector is already rising fast. This demand will soon reach tens of billions of pounds per annum. The government is capping these benefits, but this will have a no effect on the number of tenants and the higher rents they have to pay. So capping will displace the Cost of Quality elsewhere.
Of greater concern must be an aging population of millions of private sector tenants. Each will be hundreds of thousands of pounds worse off in terms of savings and pensions. There are now over ten million private sector tenants and this number could double over the next five years. A significant percentage of these will never own their own homes.
On retirement they will find it difficult to pay their way. Their state pension will not cover private sector rents, so demand for housing benefit will undoubtedly increase. With fewer savings they may qualify for free social services care and if they later need residential care the state will have to pay for this too, as they will have no equity in their home.
The retired population is expected to double by 2050 and someone retiring then is 31 today and likely to be experiencing delays and exclusion from homeownership. The total cost to the economy and the taxpayer will probably be several trillion pounds overall.
Why the Market is Not Self-Correcting
Given that the long term consequences of current trends are damaging to homebuyers, the taxpayer and the economy, we must consider why the market is not self-correcting.
The parties that benefit most from the dysfunctional market, including builders, lenders and private sector landlords, are not adversely affected by the dysfunctional market, while those that are adversely affected, the homebuyer and the taxpayer, have no direct influence.
This is the root cause of the housing problem and the reason why the system is not a self-correcting free market. It never will be, unless this anomaly is eliminated. This is where the solution to our housing problem lies and where we must focus our attention.
It follows that the market will not become self-correcting without policymaker intervention.
Stakeholders must experience the discomfort of the dysfunctional market. This can be arranged by those controlling the levers of change, including the government and the Bank of England. They will then have a real incentive for fixing the housing problem.
To initiate a quality-based programme of change will require the full commitment of at least one government department involved in housing or the Bank of England. This commitment will begin with defining strategic objectives aimed at resolving the housing problem.