The Home@ix Formula for "The Housing Crisis"

Lets Have it right "We have a crisis of affordability and allocation".

The Home@ix Formula for "The Housing Crisis"

Lets Have it right "We have a crisis of affordability and allocation"

“Evidence of a real housing shortage is absent. A real shortage would

show up as overcrowding nationwide. People would be walking the

streets in the hope of finding a room. Room prices would be high, and

there would be no empty houses. We have a crisis of affordability and

allocation. People are borrowing eight times their income to get on

the housing ladder yet there are 700,000 derelict houses, 500,000

second homes, and hundreds of thousands of pensioners homes with at

least three bedrooms spare. The overheated Spanish housing market

shows that rapid building programs do not cure price bubbles.”

Dr Adrian Wrigley, Writing in The ecologist 2008

This is a work in progress the concepts are a real reflection of the Dynamics at play in the Housing Supply question but the rigour of the Proof is not in anything close to a final format. It is very much close enough for Government Work, which sadly is part of the problem!

Roger G Lewis , CEO of Home@ix

Mathematical Proof for Updated Home@ix Formula

To construct a mathematical proof for the given formulae, we will start by defining each term and then derive the final comprehensive accounting identity step-by-step.

Definitions

1. Affordable Market Supply (AMS): AMS=HM×P×AR×D×T×PVC+HS

2. Where:

   • 𝐻𝑀HM: Housebuilding Market

   • 𝑃P: Proportion of HM dedicated to affordable housing

   • 𝐴𝑅AR: Absorption Rate

   • 𝐷D: Diversity of housing types and tenures

   • 𝑇T: Effectiveness of the direct-to-consumer model

   • 𝑃𝑉𝐶PVC: Planning Value Capture

   • 𝐻𝑆HS: Affordable Housing Stock

3. Affordable Housing Need (AN):

4. 𝐴𝑁=𝐻𝐷+(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶×𝐹)+𝐻𝑆−𝐴𝑀𝑆+𝑁𝐶𝐶

5. Where:

   • 𝐻𝐷HD: HomeMaker Effective Demand

   • 𝐹F: Fast-tracking affordable homes

   • 𝑁𝐶𝐶NCC: New Circuit of Credit Creation

Proof

We start by expressing the Affordable Market Supply (AMS) using the provided formula:

𝐴𝑀𝑆=𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶+𝐻𝑆

Next, we substitute this expression into the formula for Affordable Housing Need (AN):

𝐴𝑁=𝐻𝐷+(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶×𝐹)+𝐻𝑆−𝐴𝑀𝑆+𝑁𝐶𝐶

Now, substitute the expression for AMS:

𝐴𝑁=𝐻𝐷+(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶×𝐹)+𝐻𝑆−(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶+𝐻𝑆)+𝑁𝐶𝐶

Simplify the expression:

𝐴𝑁=𝐻𝐷+(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶×𝐹)+𝐻𝑆−𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶−𝐻𝑆+𝑁𝐶𝐶

Combine like terms:

𝐴𝑁=𝐻𝐷+(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶×𝐹)−(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶)+𝑁𝐶𝐶

Factor out the common terms 𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶:

𝐴𝑁=𝐻𝐷+(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶×(𝐹−1))+𝑁𝐶𝐶

This is the final formula for Affordable Housing Need (AN), which incorporates the New Circuit of Credit Creation (NCC) and other factors affecting the supply and demand for affordable housing.

Conclusion

Thus, we have derived the comprehensive accounting identity for Affordable Housing Need (AN) as:

𝐴𝑁=𝐻𝐷+(𝐻𝑀×𝑃×𝐴𝑅×𝐷×𝑇×𝑃𝑉𝐶×(𝐹−1))+𝑁𝐶𝐶

This formula takes into account the HomeMaker Effective Demand (HD), the proportion of the housebuilding market dedicated to affordable housing, the absorption rate, diversity of housing types, effectiveness of the direct-to-consumer model, planning value capture, and the new circuit of credit creation.

My Intention in setting out this proof is to encourage examination of the reasons that the Problem of finding an affordable home has got steadily worse over the Past 40 years.

The problem was anticipated in this Bank of England research paper from September 1982

by E P Davis and I D Saville of the Bank's Economics Division, it argues that: • Now the banks have entered the housing market in a major way, the market for mortgages is more likely to be cleared mainly by interest rate movements rather than by rationing. • The recent sharp rise in mortgage lending reflects the removal of restrictions, allowing persons to increase their capital gearing, and probably does not reflect a significant rise in the demand for housing. • A substantial part of mortgage lending does not ultimately finance new or improved housing, but is available for the acquisition of other assets or other spending. • House prices are somewhat low in real terms, and may recover in the course of the next few years.

Report

Introduction

• This document aims to explore the complexities of the UK housing market, particularly focusing on the affordability crisis and the role of various stakeholders in addressing it.

• Key findings indicate an issue locked into a feedback loop which amplifies the problem, involving supply and demand dynamics, demographic changes, and financial mechanisms that impact housing affordability, and fail to address the axiomatic fact.

• “To Have enough affordable housing , as a society we have to build enough affordable homes”.

• The Present situation is that Affordable homes provision is tied to the volume of for sale full market priced homes through Land Value Capture policies tied into Affordable Housing provision by Developers through S.106 contractual conditions or Community Infrastructure levies.

Section 1: The Housing Affordability Crisis

• The UK housing affordability crisis is primarily framed as a supply issue, but demand-side factors are equally significant.

• Key Statistics:

  • In 2020, the UK's housing gap exceeded one million homes, with 8.4 million people living in unaffordable conditions (Source: National Housing Federation).

  • The average house price in the UK has increased significantly, outpacing wage growth and thus limiting access for first-time buyers.

• Core Issues:

  • Demographic shifts, including an ageing population and increased immigration, contribute to rising housing demand.

  • The role of cash buyers and the "Bank of Mum and Dad" exacerbate the challenge for younger, first-time buyers.

Section 2: Financial Mechanisms in the Housing Market

• The mortgage market has been a critical factor in the housing crisis, with tightening credit standards making it harder for potential buyers to secure loans.

• Citations:

  • "Mortgage lending practices of banks may have significantly contributed to the succession of crises since the 1980s" (Source: Starkey, 2018).

• Analysis:

  • The financialization of housing has shifted the focus from housing as a social good to housing as an asset class, impacting affordability and accessibility.

  • Policies like Help to Buy have been criticized for inflating prices rather than genuinely assisting buyers.

Section 3: Supply-Side Challenges and Recommendations

• The construction industry faces inefficiencies and a slow build-out rate, which hinders the delivery of new homes.

• Findings from the Letwin Review:

  • The absorption rate—the speed at which new homes can be sold without disturbing market prices—affects build-out rates. This is often influenced by the types of homes being constructed and market perceptions (Letwin, 2018).

• Recommendations:

  • Streamlining the planning process and investing in infrastructure to support new developments.

  • Encouraging innovation through modern methods of construction to increase efficiency and reduce costs.

Section 4: The Role of Policy and Governance

• Effective governance and policy frameworks are essential for addressing the housing crisis.

• Key Points:

  • Local authorities must engage with stakeholders, including lenders, to create a conducive environment for housing development.

  • The interplay between fiscal policy (e.g., stamp duty, MIRAS) and housing supply must be carefully managed to avoid unintended consequences.

• Conclusion:

  • A comprehensive approach involving all stakeholders—government, industry, and society—is necessary to tackle the housing crisis effectively.

Conclusion

• The research highlights that the UK housing affordability crisis is a complex interplay of supply and demand factors, financial mechanisms, and policy decisions.

• Addressing these intertwined issues requires concerted efforts to develop a sustainable and equitable housing market that benefits all stakeholders. `

The following Links are to more detailed Research reports written by Home@ix over the past 4 and a half years, they were summarised using Chat GPT ( Genius Bot)

From Homes for Heroes to Exponential Zeroes.

The Ending of the Long Monetary Expansion Cycle and a Brave new world of Housing Realism

Analysis links for UK property Market Segmentation.

UPDATE Memo from Rog Supply Chain

Home@ix Affordable Homes, A Framework of Understanding..pdf

The Home@ix Collaborative Origination and Procurement Engine

Let's break down the elements and create a comprehensive analysis that incorporates the concepts of money supply, mortgage lending, and the need for a new circuit of credit creation for affordable housing.

### Money Supply and Mortgage Lending

The money supply (M3) represents the total stock of money in the economy, which includes new mortgage lending. It's important to note that M3 is composed of various components, and new mortgage lending forms a significant proportion of it. This means that the availability of funds for mortgage lending directly impacts the overall money supply in the economy.

### Relationship to Absorption Rates and Affordable Housing Supply

The money supply is intricately tied to absorption rates in the housing market. Absorption rates, which indicate the rate at which new housing stock is absorbed by the market, are influenced by the availability of funds for mortgage lending. When there is a healthy flow of mortgage lending, it can lead to increased demand for housing, affecting absorption rates.

Furthermore, the supply of affordable housing is not only influenced by traditional factors such as planning value capture (PVC) at 35%, but also by the availability of funds for mortgage lending. The ability for individuals and families to secure mortgages directly impacts their capacity to purchase affordable housing, thereby affecting the overall supply dynamics in the affordable housing sector.

### Meeting Affordable Housing Needs

To meet the needs of affordable housing, it's essential to ensure that effective demand is placed into the hands of those in affordable housing need. This requires a holistic approach that goes beyond traditional mortgage lending practices. Instead, a new circuit of credit creation specifically tailored for affordable housing is necessary.

### Introducing a New Circuit of Credit Creation

This new circuit of credit creation for affordable housing is distinct and discreet, focusing solely on addressing the affordability challenge. Unlike traditional mortgage lending, this new circuit aims to provide credit without leading to an expansion of overall debt. It's important to emphasize that this new approach is not inflationary, and it can be designed to incorporate rent control measures and be tied to an affordability function in alignment with the free housing market.

### Limitations of the Free Housing Market

It's crucial to recognize that the free housing market has limitations in its ability to provide affordable housing. Land value capture due to absorption rates plays a significant role in shaping the boundaries of what the free market can offer in terms of affordable housing provision. This limitation underscores the necessity of a targeted and specialized approach to credit creation specifically designed for affordable housing.

### Financialization and Affordable Housing

The relationship between the free housing market and the stock of mortgage debt is fundamental to the overall money supply due to financialization. The financialization of housing production and the impact of mortgage debt on the broader money supply highlight the need for a distinct credit creation mechanism tailored to address affordability challenges.

### Global Implications and Solutions

This is not just a localized issue; it extends across the G7 nations and beyond. The affordability challenge in housing is fundamentally a financialization problem, rather than solely a planning or geospatial issue. Therefore, any advancements in solving this challenge require a clear and separate articulation of a new circuit of credit creation specifically dedicated to affordable housing.

In conclusion, by recognizing the intricate relationship between money supply, mortgage lending, absorption rates, and affordable housing provision, we can pave the way for innovative solutions that address the pressing need for affordable housing. A targeted and specialized circuit of credit creation can play a pivotal role in reshaping the dynamics of affordable housing provision without exacerbating overall debt levels. This comprehensive approach holds the potential to make significant strides in addressing affordability not only within individual nations but also on a global scale.

This analysis underscores the importance of reevaluating traditional financial mechanisms and embracing tailored solutions to tackle the complex challenges associated with affordable housing provision in today's dynamic economic landscape.

To create a comprehensive accounting identity using the provided terms from The Home@ix Formula and incorporating the insights from the Letwin Review, we need to integrate the relationships between the housing market, absorption rates, planning value capture, and the need for a new circuit of credit creation for affordable housing.

### Key Definitions

- **HomeMaker Effective Demand (HD)**: The effective demand for affordable housing.

- **Affordable Housing Need (AN)**: The total need for affordable housing.

- **Affordable Home Building (AB)**: The number of affordable homes being built.

- **Affordable Housing Stock (HS)**: The current stock of affordable housing.

- **Housebuilding Market (HM)**: The overall market for housebuilding.

- **Absorption Rate (AR)**: The rate at which new housing stock is absorbed by the market.

- **Planning Value Capture (PVC)**: The portion of value captured through planning, given as 35%.

- **Affordable Market Supply (AMS)**: The supply of affordable housing in the market.

- **New Circuit of Credit Creation (NCC)**: A mechanism to provide credit for affordable housing without expanding overall debt.

### Updated Home@ix Formula

#### Affordable Housing Supply (AMS)

Affordable Market Supply (AMS) = Housebuilding Market (HM) x P x AR x D xT x PVC) + Affordable Housing Stock (HS)

Where:

- **P**: Proportion of HM dedicated to affordable housing.

- **AR**: Absorption rate.

- **D**: Diversity of housing types and tenures.

- **T**: Effectiveness of the direct-to-consumer model.

- **PVC**: Planning value capture.

- **HS**: Existing affordable housing stock.

#### Affordable Housing Need (AN)

AN = HomeMaker Effective Demand (HD) + Housebuilding Market (HM)} x P x AR x D x T x PVC x F) + Affordable Housing Stock (HS) - Affordable Market Supply (AMS)

#### New Circuit of Credit Creation (NCC)

To represent the new circuit of credit creation, we introduce a term NCC which represents the credit specifically allocated to affordable housing without expanding overall debt.

### Comprehensive Accounting Identity

#### Final Updated Formula

AN= HD + (HM x P x AR x D x T x PVC x F) + HS - AMS + NCC

### Explanation

- **D**: Diversity of housing types and tenures. Higher diversity improves absorption rates by reducing market saturation.

- **T**: Effectiveness of the direct-to-consumer model. This factor reflects how well the Home@ix dashboard and CRM system enhance sales and absorption rates.

- **F**: Fast-tracking affordable homes. This factor ensures that affordable homes are brought forward to meet immediate demand.

- **NCC**: New Circuit of Credit Creation, representing non-inflationary, rent-controlled credit for affordable housing.

### Analysis of Money Supply and Mortgage Lending

#### Money Supply (M3)

The money supply (M3) is significantly influenced by the volume of mortgage lending. Given that M3 is composed of 0.75% new mortgage lending and the stock of money is also a similar proportion, we can see how closely tied the housing market is to the overall financial system.

- **Outstanding Value of Residential Mortgage Loans**: £1,675.8 billion.

- **Total Value of Mortgaged Property (Pre-Potential Fall)**: £2.9 trillion.

- **Loan-to-Value Ratio (LTV)**: 57.786%.

- **Potential Value of Mortgaged Property (Post-35% Fall)**: £1.875 trillion.

- **New Mortgage Lending as Part of M3**: 0.75%.

#### Impact of Absorption Rates

Absorption rates (AR) directly impact how quickly new housing stock, including affordable housing, is taken up by the market. A higher AR indicates that homes are sold and occupied quickly, which can stabilize or increase housing prices. Conversely, a lower AR can indicate oversupply or mismatched demand, leading to slower sales and potential price decreases.

#### Planning Value Capture (PVC)

Planning value capture at 35% represents the portion of the value created by new developments that can be reinvested into affordable housing projects. This mechanism can provide significant funding for affordable housing initiatives, but it alone is not sufficient to meet the entire affordable housing need.

#### Effective Demand and Affordable Housing Need

To meet affordable housing needs, effective demand (HD) must be placed into the hands of those in need. This requires a new circuit of credit creation that is distinct from traditional mortgage lending and does not expand overall debt levels.

### Incorporating the Free Market Limitations

The free market has a maximum limit to the affordable housing it can provide due to land value capture and absorption rates. The financialisation of the housing market means that the stock of mortgage debt is fundamental to the money supply. Therefore, a new credit creation circuit for affordable housing must be clearly stated and separated from traditional market mechanisms.

### Summary

This comprehensive analysis shows that to meet affordable housing needs, effective demand must be placed into the hands of those in need through a new circuit of credit creation. This circuit should be distinct from traditional mortgage lending and should not expand overall debt levels. By incorporating the limitations of the free market and the financialisation of the housing market, we can better address the affordable housing crisis not just in the UK but across the G7. This approach recognizes that the problem is primarily financial, not merely planning or geospatial.

Home@ix Affordable Housing Research on the Going Direct Mindap

#Moduloft Now Home@ix, The Affordable Housing Manufacturers. Defining the Terms of and Boundary Conditions of our Domain.

 AUTHOR:ROGERGLEWIS  PUBLISHED DATE:DECEMBER 13, 2020

Table 1 Net additional dwellings, England, 1991-92 to 2022-23^{[footnote 3]},^{[footnote 4]}

Financial YearNet Additional DwellingsPercentage change from previous

(Source: Building Research Establishment.)

From the above table of 2017 Data

In the United Kingdom there were 28,536,000 Dwellings with an average Dwelling size of 95SQM or 2,710,920,000 sqm or Errors pp 56/57 28,536,000 dewellings x 95sqm= 2,710,920,000 Sqm 29,180,071,800 sq ft 29 Billion Sqft

UK Housing Stock Total

29,180,071,800 sq ft 29 Billion Sqft

Utilising the Quantity Theory of Credit to Understand the Causes of the 2007 Financial Crisis

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