Penfold Associates

This is not a detailed analysis of the causes of the recession or my pet panacea for putting the global economy right.  I am not really qualified to do either of those things and, judging by the news, nor are the vast majority of bankers, economists, politicians, regulators and sundry financial advisers who are willing to pontificate on those subjects.

What follows are a few observations from a planning, housing and regeneration perspective by someone who has witnessed previous economic downturns and the impacts of various reactions in those fields.

The current downturn is serious.  It started as a “credit crunch” caused by over-generous lending to what was euphemistically called the “sub-prime” housing market.  This led to a rapid fall in house prices on both sides of the Atlantic and a complete collapse of the global banking system when the extent of the developed world’s indebtedness was exposed.  A world-wide stock market crash came next with production and trade falling off across the world.  Suddenly people who had been warning about inflation just a few months before were talking about deflation.  Commodity prices (especially oil) which had been going through the roof were suddenly hitting record lows.  Announcements followed that various economies were “technically” in recession – most people in the real world already knew this.  Prospects for the next year or so look pretty bleak with economic confidence low all round the world, reduced or negative growth and rising unemployment.  Pundits are saying this recession is worse than the early 1970s and the sharpest since World War II.  When does recession become depression?

So what are my observations from a planning, housing and regeneration perspective?  I have three main points – the first is about home ownership, the second about quality, and the third about preparedness.

Home ownership – how far can it go?

With the sub-prime lending origins to this recession we have to ask how far governments and bankers can go in the future with encouraging ever higher levels of owner-occupation.

In the UK the political consensus has supported the trend towards home ownership for over two decades.  In recent years lenders have sold mortgages that represented ever-higher multiples of borrowers’ incomes.  US lenders appear to have been even more reckless.  Owner-occupation is accepted as the tenure of choice for the vast majority of households.  This seems to be true in Barbados as well with everyone wanting their “bit of the rock”.

But is this sustainable?  In the UK there has been a circular relationship between lax lending regimes and spiraling house prices in the period up to 2007.  It looks as if lenders will be more cautious at least for the next few years.  This puts pressure on government to see that more affordable rented housing is delivered.

It must be remembered, too, that paying a mortgage is not the only cost of owner-occupation.  Houses have to be maintained.  If you look around UK social housing estates today it is often possible to pick out the Right to Buy (RTB) owner-occupied properties simply because they are less well-maintained.  The rented stock has been brought up to the Decent Homes Standard but the RTB properties have been left behind with vital maintenance often neglected because the ageing owners cannot afford it..

Owner-occupation may not work for people on low incomes and people with uncertain and variable incomes.  It may be unpopular and going against the conventional wisdom to say this, but in any society at whatever stage of development there is probably a level beyond which owner-occupation cannot be taken without creating unacceptable financial risks (and the risk of homelessness) for the individual and the risk of declining standards of stock condition.

Quality

In previous recessions we have seen the quality of development decline.  This has applied at the broad level of planning and urban design as well as at the level of materials and finishes.  Development has been seen as a lever for economic recovery and desperate decision-makers have fallen into the trap of thinking “any development is better than no development”.

In the UK we saw out of town retail sheds developed at the expense of town centres and in locations that could not by any stretch of the imagination be seen as sustainable.  What town centre redevelopment there was tended to be of low quality.  It should surprise nobody that so many early 1970s schemes came to be redeveloped when only twenty or so years old.  This is not so much the pace of obsolescence as the penalty for poor planning and development in the first place.  It is also hardly sustainable economically or environmentally for physical structures to have such short lives.

In the housing field we have seen a number of housing market rescue “packages” in previous recessions.  Social landlords in the UK have been given short term funding boosts to offload developers’ distressed stock.  This eases the developers’ cashflow and (so it is argued) helps get the economy moving again.  The problem in the past has been that this stock is not necessarily fit for the social housing purpose.  Housebuilders aim to hit a target price in the market and do not have to think about long term maintenance.  They do not build the robust product needed for the rental market or consider life-cycle costs in the way that a long term landlord would.  My advice to UK social landlords is to look at the stock on offer as an opportunity to meet desperate housing needs but to be very careful about what they actually purchase.  Even with the new “Rent to Buy” models which assume that stock will not stay in the rented sector very long, recovery from this recession will not be rapid and when it comes purchasers will be discerning about what they put their own money and hard-earned mortgage into.

An aspect of low quality even in the boom years in the UK has been the wholehearted attempt to create a glut of small flats despite the proven need for larger, “family” units.  This was a trap that housebuilders and housing associations fell into but it was set by national planning policy that pushed increased production and higher densities without giving clear guidance on how these should be achieved in a high quality fashion.  Part of the result was “town cramming” – redevelopment of family housing and building on gardens in suburban areas with little regard to the area’s character, increased congestion or whether family houses were needed more urgently than the ubiquitous flats.  We all need to consider the long term consequences of our actions and avoid this sort of mistake in the future.

Preparedness

On a more positive note, the recession will not go on for ever.  It is important that we should all be ready for when the economy starts moving.

In the UK we have been going through a process of changing the development plans system without actually making much progress with getting the new plans approved.  The recession should not see a letting up in the pace of efforts to get the Local Development Frameworks and supporting material in place.  Tempting as it might be to say we need something simpler, it is vital to get the job done.  Plans need to be in place to make sure we get the right sort of development – and the right quality – in the right place when things begin to move again.

Developers also need to have their plans ready.  This is a big call for the private sector because it means spending money now when times are hard on things that may not come to fruition for several years.

In rapidly developing countries in the Caribbean and elsewhere the boom years showed that the planning system – legislation as well as planning policy documents – was not able to deal with the development pressures they faced. Now is the time to review those structures to make them fit for purpose by the time those pressures build up again.  Planning Acts may be decades old and based on UK models that have been overhauled two or three times in the UK since they were originally put in place.  Systems are needed which are more up to date but which are also more appropriate to local circumstances.  In small Caribbean islands the danger is that heavy pressure for tourism-related developments could lead to permitting schemes which are actually detrimental to the countries’ long term tourism product and to the environment.  It is easy to find examples of where this has been allowed to happen already.  Now is the time to make sure the legislation, policies and systems are in place to prevent the same thing happening again.

In the UK and the Caribbean the recession should also be used as an opportunity to make sure all the skills are in place for when things start moving again.  In the boom years various authorities declared there was a big shortage of planners, urban designers and people with other key skills in the development process.  The temptation to cut back on training these people needs to be resisted.  They will be needed again!

Kim Penfold