With the final ONS consultation on measuring well-being due to end in January 2012, we looked at the existing results and felt the need to ask – is there really anything that matters more than housing? If anyone says anything other than yes, then they would be emotively right, but the figures suggest they might be wrong. Here are some of the reasons why.
The recent release of data gathered by the ONS on measuring well-being outlines the main themes that people across the country said mattered most:
- Health
- Relationships; including family, friends and a sense of connectedness to a community
- Work; in particular, having a job, sufficient income, a sense of financial security and job satisfaction
- Environment; in particular access to good local green spaces
- Education and training
- Fairness and equality
- How time is spent; a good work / life balance, time spent outdoors and engagement with cultural or creative activities
- Quality and availability of local services; health care, education and transport
- Belief and religion
- Government; the importance of democracy, in particular accountable and trustworthy politicians
- An overall importance on family, friends, health, financial security, equality and fairness
Jil Matheson, National Statistician
Clearly, from these findings, very few of the 30,000 – 40,000 people who joined the debate equate housing as being something that matters most. As a consequence it was not a sufficiently prominent issue to justify inclusion in the chief National Statistician’s report on the initial ONS findings on developing measures of societal well-being (1).
The ONS is now preparing to ask an ongoing household panel of people several subjective questions to assess their positive and negative experiences, which will then be used to capture how society is doing.
The four overall monitoring questions that are to be included as part of a range of other questions on well-being are:
- Overall, how satisfied are you with your life nowadays?
- Overall, to what extent do you feel the things you do in your life are worthwhile?
- Overall, how happy did you feel yesterday?
- Overall, how anxious did you feel yesterday?
The panel of respondents will be asked to provide an answer to each of the above from 0 (‘not at all’) to 10 (‘completely’).
Irrational Economics
So the initial consultations did not pick out housing as a prominent issue for people, what can be wrong with that if a careful and thorough process simply asks the question, what matters most to you?
Having had the opportunity to question Jil Matheson and Sir Gus O’Donnell at a recent launch of these initial findings, the ONS has done nothing less than faithfully record the feedback of the nation, yet it seems at odds with observed behaviour.
This is where the potential for policy making can sometimes go awry – what people say they want and what they actual do can be completely at odds. So asking people what they value is one thing, but observing what they do is always a good insurance strategy.
This was a lessoned learned by economists all over the world in 2002 when Professor Daniel Kahnerman, a psychologist, was awarded the Nobel Prize in economics by a distinguished panel of economists.
Kahneman and a former research colleague, Amos Tversky who died before the Nobel Prize was awarded, pointed out to economists that for centuries they had presumed people act rationally when they formulated assumptions, recommendations and complex mathematical models to help them predict future events and purchasing behaviour (2).
In reality people tend to respond or act irrationally and emotively, even in defiance of what seems logical to many observers, such as economists. Kahnerman’s Nobel Prize led many to suggest that economists had been doing it all wrong, all along, which answered the age old question as to why economists can never agree on anything despite all of them using the same data.
To complicate things, keeping track of what matters to people is made especially difficult because we all change our minds and priorities over a lifetime, as this interim finding (which does explicitly measure housing) from the OCED demonstrates:
(OECD, Better Life Initiative)
The work of Kahneman and Tversky (also a psychologist) has subsequently spawned a whole new area of economics, called behavioural economics, as economists hurriedly began reading psychology books to try and figure out why people say one thing, but mean another, and why they find it difficult to behave as financial models predict they should.
Housing
Unlike expenditure on other essentials, housing costs can vary dramatically across the country and across time. It can also be a fixed element of many household budgets that causes the most problems and anxieties when times get tough. Research has shown that being anxious about losing one’s job is directly associated with anxious thoughts about housing (3).
A brief look at any household expenditure (4) will identify housing costs as one of the most significant outlays, along with transport which can be dictated by housing location. Unlike food which can be relatively constant across the country, housing costs can vary considerably depending on location and supply constraints.
But as a share of overall monthly expenditure, food has remained relatively stable or fallen over the last forty years, adjusting for inflation and increases in household incomes, while housing expenditure has risen sharply as a proportion of household income, again adjusting for inflation, over a similar period.
But unlike other essential costs, housing plays a major factor in determining long-term health because of its link to social mobility, as the ONS has previously reported:
“A large part of physical and mental well being is attached to a person’s home. The choice of housing – whether to buy or to rent, and whether to rent privately or from the social sector – depends in part on someone’s financial situation, which in turn partly depends on their experience in the labour market. Collectively, this search for adequate housing also has significant impact on the labour market and the macro economy. For the majority of households, housing accounts for a big part of their monthly outlay, affects their geographical mobility…” (5).
This may underpin the notion that the importance of housing is just taken for granted in peoples minds and it is unconsciously presumed that there is no direct need to draw it out when asked about what is important in life.
Housing Underpins The Economy
The way housing costs are incurred by individuals or public bodies can vary considerably which makes it difficult to compare household expenditure on housing; for example, buying is more expensive upfront, but cheaper than renting into retirement. But by any measure, housing is a major cost and it can be a significant consideration on most peoples minds, from the location of good schools; to crime levels; to feelings on trusting one’s neighbours; to access to transport and general amenities; and as a measure of social status.
Housing crosses and directly impacts on so many domains on well-being that it is difficult to know where to begin. However, ask anyone how important a roof over their head is; the importance of the quality and standards of housing; and what lengths they would go to ensure a secure home, and the answers would reveal a variety of direct relationships between housing and their daily actions.
Yet by the end of January 2012, the ONS will have completed it’s consultations on measures of well-being and we will likely have the following question themes being asked and reported upon on a regular basis, none of which make any significant investigation into the relationship between housing and how society is doing:
- Individual well-being
- Our relationships
- Health
- What we do
- Where we live
- Personal finance
- Education and skills
- Governance
- The economy
- The natural environment
These themes or “domains” and the initial measures will be used in discussions with interested groups and individuals to assess their potential as eventual indicators to measure the nations well-being.
A little flippantly, we asked Jil Matheson whether the Governor of the Bank of England would eventually use the ONS figures on inflation, GDP and well-being when assessing monetary policy – what would the Monetary Policy Committee do if there were ever a trade-off required between economic policy and ‘what matters most’ considerations according to survey results (for example raising interest rates to control inflation, where the rate change could lead to tens of thousands potentially losing their jobs and homes)?
The polite and well managed side-step answer was in fact the correct position, the ONS is an independent body that primarily collects data and presents it for the wider consumption of anyone wanting to use it, as will be the case for the measures of societal well-being.
As it stands, what matters most to society does not feature housing policy and therefore housing policy will have to be inferred against the ONS ‘what matters most’ surveys when government assessments are made on any future plans.
But why not specifically measure the importance of housing to society when it underpins much of the economy? Here is the case in point:
With the UK mortgage market at around 80 percent when compared against GDP, the current housing supply and mortgage constraints are causing seismic fractions in the wider economy and there are direct affects being felt across the whole of the middle to lower tier of the housing market.
(RICS, Chart Book, December 2011)
The lack of mortgage funding and high deposit requirements is keeping first time buyers locked into a supply constrained private rented sector, with a knock-on impact on affordability as rents have risen considerably since 2009. Allocating a greater share of income on rent reduces the amount of savings available for future purchases, pushing back plans to enter the housing market, and for many the point for starting a family.
(Hometrack, 2011)
The lack of any positive movement in the housing market is also preventing a wider group of people from trading up or down and house building has all but stalled because of the combined impact of all of the above, impacting on millions of jobs that revolve around or are reliant upon the housing market.
These housing related problems will undoubtedly cross several themes that the ONS are due to measure and they will impact directly on the responses the survey panel will provide, such as how anxious they feel or how satisfied they are with life? However, as the questions are currently formulated, none of the answers will directly pick out housing as a major contributing cause or issue to the survey panels state of mind.
A more direct approach would see questions such as; how secure do you feel about your home?; how anxious are you about paying your rent or mortgage?; or, is housing causing you anxiety? Answers to these questions would pick out specific issues around the most important expenditure outlays for the majority of the population.
The ONS does have more than one challenge to contend with in producing it’s new well-being index measures. One such constraint is the need to create a framework that can be used to meaningfully compare international levels of well-being and being too specific could be a barrier to achieving this goal. But what of the OECD which does measure housing in it’s ‘life surveys’ of what people value most, the results of which place housing near the top of people’s priorities?
Housing Strategy
There is nothing that matters more, at the moment, than alleviating housing supply constraints to positively impact well-being. This is because nothing matters more to people than having a roof over their head and feeling secure in their home; the challenge of which is an issue and activity the preoccupies a substantial amount of all our time, effort and money.
The recent housing strategy championed by the Housing Minister, Grant Shapps, and announced by the Prime Minister and the Deputy Prime Minister in November 2011, has owned up for the need to have a major increase in housing supply and transactions. In particular, it is pushing forward schemes such as the right-to-buy council homes and financial help with purchasing homes from developers as a way to increase national economic activity and to relieve the rising burdens of housing costs and pent-up demand, right across the housing spectrum (6).
Due to the significant proportion of people that have mortgages, reducing and keeping interest rates at near zero levels was a deliberate move by the Governor of the Bank of England and the Monetary Policy Committee to keep people in their homes and paying off mortgage debts owed to the banking sector that largely failed in 2007/08 and threatened to bring down the country.
This is because the Bank of England and the government already know that housing matters most. Just as it did after WWII when there was a boost in house building and the creation of new towns in the 1940s & 1950s that helped push the economy back in to life and gave families new hope and a greater sense of opportunity.
This was the time when Nye Bevan became Minister for Health and Housing, the same Minister who went on to create the NHS. Society as a whole benefited from the post war boost in house building and it facilitated economic growth for a generation, creating the era of the baby boomers along the way(7). Society continues to benefit from having the NHS. Having good health and good housing policies has always been important.
So perhaps there really is no need for the ONS to specifically measure peoples thoughts on housing and well-being, everyone already knows its importance? It would be nice if the ONS did, as it would reflect upon the central importance to society in having and supporting a healthy housing sector and a healthy house building industry.
But just to clarify, when people say that health, family, friends and happiness are the most important things in life they are, of course, right, despite what any figures might suggest.
Tell the ONS that housing matters, the consultation closes on 23 January 2012.
1. Beaumont (2011), Measuring National Well-being – Discussion paper on domains and measures, 31 October 2011, ONS
2. Kahneman, Daniel, and Amos Tversky (1979) “Prospect Theory: An Analysis of Decision under Risk”, Econometrica, XLVII (1979), 263-291, paper.
3. Meltzer et al (2010). Job insecurity, socio-economic circumstances and depression. Psychological Medicine, 40 , pp 1401-1407 .
4. e.g. Horsefield (2011), Family Spending, A Report on the 2010 Living Costs and Food Survey, ONS
5. ONS, October 2002, Labour Market trends, 523
6. House of Commons Communities & Local Government Committee, 14 December 2011 - Housing Minister 17.05-17.24 (~20 minutes)
7. New Towns Act 1946, Town and Country Planning Act 1947.
