For a Market-led Revolution in Urban Housing
Patrik Schumacher, London 2018
Published in: adf architectsdatafile 03.18
1. You have said some fairly startling things on social housing in the past couple of years, is it partly designed to provoke people out of their comfort zone or are you totally serious?
The suspicion that my comments were just meant as provocation or were just a publicity stunt had been raised before, therefore it’s important to me to make my motivation clear from start. I am indeed totally earnest and honest about what I am saying and proposing. This does not mean that I am absolutely certain. I am using the debate to explore ideas and are willing to receive and consider serious push back. Debate is collective deliberation. However, my comments about privatization and social housing were met with disbelief and disgust, by many, although I also received a lot of encouragement. I might face similarly divers reactions here. Unfortunately I also had to suffer invective and defamation.
These reactions seem to be due to the feeling that my propositions offend a very precious set of values – universally shared values and longings that I do neither want to offend nor challenge – namely a deep sense of human solidarity and a longing for a better world for all. To contribute to the adventure of humanity’s progress is also my ultimate motivation, not only for sometimes sticking my head out over the parapet, but of all my professional and discursive strivings. I hope we can all agree that if we want to have a real, frank and open political discussion - a discussion about the common weal – we must grant and attribute to each participant in the public debate this commitment to universal human flourishing. To give truth a chance at all we need to avoid ad hominem attacks and see each other as honest, unselfish truth seekers, even in the face of unusual contributions. Defamation must never substitute for argument.
2. Are your comments regarding allowing the market to decide on the best density in the main a reaction to the worst ills of government planning?
Capitalism was and is the great prosperity engine behind all the material freedoms of modern life. The liberalisation of China demonstrates this daily, but Europe has, tragically, switched off this engine. Europe, including the UK, is stagnating. The average annual productivity growth over the last 10 years was just 0.1%. This is a scandal, considering all the progress in science and technology.
I attribute this to a quasi-socialist, stifling political interference in the economy. Architects, engineers and the construction industry have leapt forward in terms of productivity in the last decade, but our gains have been wasted elsewhere. Housing is one of our most essential and most cherished commodities. The housing market is therefore rightly one of our biggest markets, but unfortunately it is also one of the most politicized markets, suffocating under quasi-socialist political interventionism. The loss of societal prosperity is here enormous, not only due to the poor housing provision, but further due to its stifling impact on all economic activities. Productivity growth is the key to all our aspirations.
Concerning urban densities: Our communication intensive new economy depends on continuous professional networking and thrives best in large, dense urban clusters. We all feel it in our bones that we must join the central networks and that our careers are incompatible with living cut off in the provincial, suburban locations, and we are willing to spend an increasing proportion of our income on being located centrally. At the same time the London urban fabric remains incredibly low density, e.g. compared to Paris, due to planning restrictions fuelled by nimbyism.
3. Did you mean what you said about ‘abolishing all forms of [government-led] social and affordable housing’? How can you be sure the private sector would build the right amounts and quality in its place without quotas?
Nothing is certain but consider this: How can we be sure that the private sector delivers fresh croissants, coffee and orange juice and myriad other delights according to individual preferences onto billions of breakfast tables every morning? All this happens without any quotas! The 19th century, the era of laissez faire capitalism, delivered all those beautiful urban asset we still thrive in better than in what 20th century government planning delivered. Read ‘The Death and Life of Great American Cities’ by the libertarian thinker Jane Jacobs and her comparative appraisal of market grown cities versus governmental urban planning.
4. Why would the private sector build in areas which were not financially attractive for it to do so, despite there being a clear need for affordable homes?
In a free market society, a real need expresses itself in market demand which in turn inspires supply. The greatest fortunes are earned through the supply of mass markets, without any subsidies. Supply competition keeps prices competitive. Our affordability crisis must be attributed to supply restrictions. Nobody is disputing this. Where I diverge from the mainstream is that I do not believe that subsidies are the answer while restrictions are kept in place.
How then, without subsidies, will those with lower incomes be housed? By urban entrepreneurs who will tailor economic products for this market segment, if the government gets out of the way. If McDonalds or KFC can deliver delicious eating out experiences, and easyJet can deliver air travel convenience to this income group, then a Taylor Wimpey should be able to deliver decent, truly affordable housing, but only if government withdraws and let’s this market get to work. Arbitrary, politically imposed density and land use restrictions and especially arbitrary space standards - minimum unit sizes, room sizes etc. - have to be abolished and entrepreneurial creativity must be allowed to tailor solutions to various life styles and income groups. There is no need to infantilize people via paternalistic in kind subsidies, especially once entrepreneurial initiative is unleashed.
5. London has failed to build the affordable housing it needs – half of the 30,000 built in 2016 was built in 2007, where do you put the blame for this?
I blame the planning system and nimbyism, as well as space standards, but also the affordability impositions themselves which discourage development.
Paradoxically, the affordability system contributes to rather than alleviates the affordability crisis, as I’ll explain below.
But let me first point out that the rationing of homes via the affordability system implies a misallocation of residences. Any rationing forgoes the market rationality that always allocates resources to those who - from the standpoint of society’s total social production - best utilize them. This is a crucial point to grasp. For the sake of society’s total productivity, and thus for our collective future prosperity, central locations should be allocated to those who’s productive lives are most enhanced by being thus positioned, i.e. those who operate at the centre of our network society, joining breakfast network events before work, as well as business dinners, drinks with colleagues, exhibition openings, professional lectures and other evening networking events after work. It should be obvious that, from the standpoint of society as a whole, such workers should not be spending their time in extensive daily commutes, cut off from the essential networking, while for other categories of workers on a nine-to-five routine the commute does not distract from the worker’s productivity. In a free market, workers would compete for locations. More productive workers that contribute more to the total social product will be able to out-compete less productive workers, especially if the former are willing to spend a larger part of their income on a central location because they, and only they themselves, know it enhances their career, productivity and income. The rationing policies of local councils ignore these vital economic facts. So two factors – the individuals’ productivity and the importance of central residential location for the respective individuals’ productivity – interact in determining the allocation of residences to workers in such a way that this scarce resource of central residences is most efficiently allocated, in the interest of society’s overall prosperity. However, if unit sizes are no longer restricted, and density restrictions are lifted, then all urgent centrality demands can be met irrespective of income. Any interference with this market allocation process implies a relative reduction in overall prosperity, i.e. we are all much poorer due to these infringements.
Despite this insight of economic science into the efficiency of market resource allocations, known for over 200 years, political interference in the market process remains endemic in many arenas, especially in the housing sector where rationing has, to a considerable extent, supplanted market allocation. The whole system of so called “affordable housing” constitutes a massive interference with market processes that costs our society dearly, and is one of the contributing causes of the whole affordability crisis it is intended to alleviate. It does so only very superficially, while in the final analysis, i.e. if one thinks through the chain of economic effects beyond the first trivial conspicuous but deceptive fact that some people receive houses at artificially suppressed prices, it makes housing on average less affordable.
Sadiq Khan seems intent of ramping up “affordable housing”, i.e. housing rationed according to political prerogatives, to 50% of all new housing provision, thereby making the remainder - which has to cover the subsidies - all the more unaffordable. No wonder that the income eligibility threshold is ramped up continuously also. A vicious cycle.
By subsidizing the residences of privately employed “key workers” we only allow their salaries to be lowered, thus benefitting those who use their services. This might often be people who could, would and should pay more for these services. By subsidizing public sector “key workers” we are further privileging a pressure group that seems already comparatively privileged. This is not only inefficient, but also unfair. Like most subsidies they do not at all deliver what they claim, namely to help those most in real need.
6. How far have you developed your ideas on market-led social housing, it is currently more of a reaction to top-down status quo or are you ready to apply a model in practice?
We are working on radical densification concepts with creative entrepreneurs like Reza Merchant from the Collective and Crispin Kelly from Baylight.
7. Can you give any examples of ‘bottom-up’ social housing schemes that have worked well in terms of density?
One example is “The Collective” which uses a regulatory loophole to offer a very innovative, affordable and attractive rental “co-living” product in London, far away from the imposed space standards. The individual apartment units are just 10 sqm, i.e. one fourth of the required minimum! However, there are plenty of shared dining kitchens, living rooms, there are gyms, pools, gaming rooms, there is free co-working space, a restaurant with a terrace on the canal and a programmed lecture hall. A great, truly affordable offer, delivered by an entrepreneur unleashed from the standards that now freeze all spatial innovation.
Any arbitrary political use or density restriction, as well as unit size impositions, imply a loss of prosperity, in the final analysis not so much for the land owners and developers, but for all potential end-users who would have chosen to utilize the site and building. Since everybody’s choices are restricted, everybody is poorer. And this relative “poverty” is already evident before we even consider the loss of productivity engendered by forcing the productivity engine that is London to grow much slower and much more spread out than would want to. Urban density supports social density, urbanity, walkability. The current restrictions condemn too many to stunting suburban isolation.
8. What do you think of the idea that greater density is often preferred by residents in certain areas, as prices go up – should they be given more say?
Residents should be locally empowered, and the politicians’ state power should be rolled back. London has a very low density. Immediately beyond the dense urban core – which could be further densified itself – we find carpets of two story terrace housing. I support John Myers’ YIMBY campaign and his key proposal to give individual streets the right to vote on giving themselves permitted development rights, to build upwards to a maximum of six storeys. This could work very well as most of these streets are owner occupied. Why should these centrally located low density suburban-style zones not be allowed to upgrade themselves to a Georgian-style urban density? The market will then tease out where these densifications would be most value enhancing. This would not only increase the beauty and liveability of these areas as many new urban amenities would come in the wake of this densification, but this would contribute to overall prosperity as this would convert millions of commuting hours to potentially productive working and networking hours.
9. Is the real problem with achieving the housing density needed to get to the numbers, not in the city centre, but in the suburbs where NIMBYs/planners’ political decisions hold sway?
The problem is not only the number of homes but also homes in the right locations, and this means as central as possible, ideally in walking distance to work places. But as I said above, there are many centrally located areas with suburban densities that should be targeted first and certainly would be targeted by an unleashed market process.
10. Do you think the ad hoc bunch of tall buildings in the City of London is an illustration of what can happen if the market’s allowed to decide – doesn’t it need some central vision or direction?
I agree that there is an aesthetic problem with the high rise cluster in the City of London. We find this urbanism of seemingly random agglomerations all over the world. I have termed this “garbage spill urbanisation”. It paradoxically produces a disorienting sameness out of too much heterogeneity. My solution to this is not more planning but the convergence and upgrading of the discipline of architecture towards a hegemonic parametricism that would be able to visually articulate the programmatic order that is now obscured under the stylistic cacophony. In terms of density, productive programmatic order and life process vitality the City of London is an exemplary success. It is here that the central prosperity engine of the UK economy has found its congenial place. That the creation of this most dynamic, high productivity urban cluster was at all possible is an accident of history: the preservation of the ancient political constitution of the Corporation of London that allowed the finance sector to shape its own space without being hampered by political nimbyism of residents. The Corporation understands this and has therefore wisely avoided to let residences and with this potential political trouble makers enter its territory. The prevention of politics trumping economics was an important factor. However, this also imposed its own costs: the avoidance of residences is not ideal, but indirectly also politically imposed.
A high productivity cluster cannot be centrally planned via land use restrictions. The entrepreneurial freedom of mixing land-uses is crucial for the vitality of the city. Only a creative trial and error process, guided by price signals as well as profit vs loss signals, can discover and optimize, at each individual site, the most value-enhancing use-mixes that best synergize with the particular urban adjacencies of that site. The planning bureaucracy lacks the requisite knowledge, as well as agility and the incentive to optimize. It is precisely these use synergies that motivate us to agglomerate in cities in the first place.
11. Could the UK move to a more rental based private sector model such as seen in Europe?
Yes, absolutely. The owner-occupier model has extended too far in the UK. The artificial house price development – and perhaps the scary inflation experience of the 1970s - has tempted too many into a one-sided, non-diversified reliance on home ownership as saving and retirement vehicle. This is not only risky, but has another disadvantage: it hampers locational adaptation and labour mobility. Saving and housing must be decoupled. They should follow their independent logics. The government should thus stop promoting home ownership (as well as, of course, stop running deficits with the prospect to use inflation to monetize its debt).
12. Is there a risk that market-led social housing would always work well for more affluent people in nice areas, but poorer homeowners could be excluded? i.e. social housing by definition has to be more about need than cash?
I disagree with your premise and with your conclusion. Markets cater very well to all priorities of any and all income groups. Productivity levels in the UK are so high in all sectors that anybody doing any regular work whatsoever can live far beyond the limits of any objective or biologically grounded concept of need. Our needs are culturally evolving and manifold, and becoming ever more individualised, even idiosyncratic. In my view it makes no sense anymore to try to fix “needs” bureaucratically via standards. The empty, free floating, boundless concept of need should be replaced by the economic concept of demand, i.e. effective demand backed up by income and willingness to pay. Markets should be set free to cater for all the individual demands that our society generates. That’s what they do. The question why there are some who seem somehow unable to work cannot be addressed in the confines of this interview.
13. Can architecture itself help solve the problems? If not, per se, can architects by being savvy master-planners working with developers?
Architecture can certainly be an important part of the solution once the space for entrepreneurial freedom has been opened up. Innovative developers will rely on creative architects to cast their inventive life style offerings into innovative spatial forms. That freedom is a precondition of innovative problem solving should be self-evident. And yet, we all too often want to play it all too safe and call for the state all too much to curb freedom and prohibit change. I would like to encourage us to risk more freedom. Theoretical insight into the self-regulation mechanisms of markets should lead us to trust that the market process will discipline and channel the entrepreneurial energies towards outcomes that maximize total societal value.
End.