Credit crunch lessons for the housing market

Published: 27 August 2009

Delegates from more than 40 countries are to meet in Glasgow next week to discuss lessons for the housing market following the credit crunch.

Delegates from more than 40 countries are to meet in Glasgow next week to discuss lessons for the housing market following the credit crunch.

The ‘Housing Assets, Housing People’ conference will be held at the Mitchell Library, Glasgow from 1 - 4 September 2009.

Conference chair, Professor Kenneth Gibb, Head of the Department of Urban Studies at the University of Glasgow will welcome more than 200 international delegates. He said: “The University of Glasgow has been at the forefront of national and international housing research for 30 years and we are delighted to be hosting this timely and important conference, as we try to learn lessons and share international experience about how communities, cities and nations with very different housing systems respond to the housing and wider economic crisis.”

“In Scotland and the UK, the housing sector has become intimately bound up with the performance of the broad economy and individual economic circumstances. The credit crunch has brought mortgage finance to a grinding halt, bursting the house price bubble and has spilled over into wider housing markets including the buy to let sector. It has also made private finance much harder to borrow for housing associations, hampering government attempts to build more social housing”.

“However, unlike previous housing market downturns, Government in Scotland and the UK have pursued a range of policies to mitigate the consequences of recession and market downturn (e.g. repossessions). What they have not done is move beyond addressing symptoms of the crunch to consider challenging the long term causes of underlying market volatility and the root problems of the housing sector. “

The conference will hear from five keynote plenary speakers from the UK, US, Japan and the president of ISA RC 4.

Professor Dennis Keating (Cleveland State University), President of ISA research Committee 43 said: “This ISA RC43 conference is our first in five years. As we meet, the global economic crisis continues, while many countries including my own and the UK, for example, have seen their housing industries remain in distress. Many homeowners and renters, as well as lenders and homebuilders, have suffered the consequences of the bursting of the housing bubble, with governments trying to stop the bleeding.”

“Presenters at this conference will be analyzing the causes of these crises, their impacts, and responses that will hopefully not only address the symptoms but also the causes. Given the role of institutions and financial firms in the United States in contributing to these problems, I hope that these discussions will contribute to a better understanding of how to avoid such terrible difficulties in the future and to provide affordable housing wherever it is needed.”

Dan Immergluck, Georgia Institute of Technology said: “The U.S. subprime crisis was the result of an increasingly direct connection between global capital markets and U.S. homeowners and neighbourhoods, with little mediation, restraint or regulation. There was little concern with the consequences that high-risk lending might have on local communities and their residents; the focus was on promoting liquidity at all costs, in order to promote transaction-related profits and the financialisation of the economy.
“One major effect of the subprime crisis - and the larger mortgage crisis it spurred - has been the piling up of vacant, foreclosed homes in many U.S. neighbourhoods, especially in older central cities as well as in newer, outlying suburban and exurban communities”
In his paper he describes the scale and scope of this problem and the policy response to it in the U.S.

Professor Chris Hamnett (Kings’ College, London) stressed three points: “In the years up to the credit crunch in autumn 2007 many mortgage lenders largely abandoned their previous sensible lending policies and began to expand their business by lending very high multiples of income and high loan to value ratios, often to borrowers who self certified their income or to buy to let landlords. In addition, they increased their wholesale money market borrowings to do this, and some even took on sub-prime loan portfolios from marginal lenders and lent to commercial developers. This has proved to be a disaster, not just for Northern Rock and Bradford and Bingley, but many smaller building societies.

“Secondly, when the credit crunch hit and wholesale funds disappeared, many lenders were left very exposed. It has become clear that many of them engaged in what can be seen in retrospect, to have been reckless and irresponsible lending. They are now paying the price for this, along with the British taxpayer, which have had to help bail out or rescue several of these institutions.

“Thirdly, It is crucial that, in order to prevent this happening again, mortgage lenders need to be subject to much closer controls over the nature and scale of both their lending and their mortgage books and their funding.”
Yosuke Hirayama (Kobe University, Japan) summarized his views: “The current global financial crisis has provided a strong additional blow to Japan's traumatic experience of extraordinarily prolonged stagnation after the bursting of the bubble at the early 1990s. This has challenged the sustainability of Japan's 'homeowner society', involving a decline in the security of housing assets, turbulent ups and down in the urban housing market, increased inequalities between generations in terms of home ownership opportunities and a shock increase in homeless people”.

Professor Susan Smith, University of Durham said: “Housing systems in the English-speaking world are riddled with financial risk and inequality. Yet responding to the 'credit crisis' is primarily about mitigating debt, and restoring 'business as usual' for lenders and borrowers. This paper considers an alternative approach, and asks whether policy makers have the appetite or imagination to embrace it.”

Professor Duncan Maclennan, Director of the Centre for Housing Research at the University of St Andrews, said: “That governments, whilst doing so much to stem financial collapse and recession, have hardly begun to rethink how they will deliver more effective housing policies that they can afford for the future.’

“There is a danger that as soon as the economy shows signs of recovery we will simply start the long wind-up of the next boom and bust; the next cycle, like the last, will distort economic and social outcomes for us all, damage growth and competitiveness and ultimately trap the poor.

“The recent boom and bust was extreme but not novel; there have been five damaging price instability cycles in Britain and Scotland since the early 1970’s. Tax arrangements for land and housing, that still favour affluent households, encourage that cycle. The absence of price stability, and of similar tax breaks for rental investment, means that growth in market rental provision has relied on relatively inefficiently managed and financed buy-to-let provision.

“Social housing investment is also now set to fail to meet growing needs targets, not just as public budgets will be pressured but as governments in Edinburgh and London begin to lose the impetus for housing system reform that has seen non-profit and private finance solutions deliver better housing outcomes in all parts of the UK.

“Times have changed and new pressures need new solutions.”

Housing Assets, Housing People - an international housing research conference on behalf of the International Sociological Association (ISA) Research Committee 43 (housing and the built environment).

The conference has received valuable support from a range of sources: the Scottish Government; Northern Ireland Housing Executive, Joseph Rowntree Foundation, ISA, Glasgow Housing Association, Chartered Institute of Housing, Scottish Federation of Housing Associations, Glasgow City Council, Taylor & Francis, Housing Studies Association and Emerald.

Further information:
Professor Ken Gibb, Head of Urban Studies,
University of Glasgow Tel: +44 (0) 141 330 6891

Martin Shannon, Media Relations Officer
University of Glasgow Tel: +44 (0) 141 330 8593

First published: 27 August 2009

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