Urban Dynamics in a Complex World: The spatial dynamics of housing

Our research will explore why households sometimes choose to own the home they live in and why the rental market may fail to provide an adequate and reasonably priced alternative. As household ownership choices are inherently dynamic (an owner can enjoy benefits from their house in the present and on into the future) and are frequently influenced by location decisions (roughly equivalent rental properties are not always in the same location), we will bring together for the first time a dynamic model of housing tenure choice with an explicit detailed geographic environment. This will enable us to develop a combined understanding of how urban/suburban housing patterns and household savings, mortgage and homeownership decisions jointly influence each other.

This research requires three important elements: 1) high quality data on the size, location, quality and price of houses and rental properties, 2) sophisticated models of household housing choices, 3) high performance computers and software.

The first part of our project will employ restricted-access data from the English Survey of Housing and from the Land Registry to develop a high-resolution picture of owner-occupied housing, rental housing and the prices of both. Data with this rich detail on the housing market has only recently become available. Using this data, our research will provide a highly detailed look at the availability of both rental and owner-occupied housing and allow us to analyse what factors are the most important drivers of house prices and rents.

The second part of our project will build computer models of households to study how households make choices about location, house size and quality as well as about savings and mortgages. The models we will build require advanced computational techniques and high performance computer clusters to simulate and analyse how economic factors, demographic factors and changes in the housing market affect household choices and household welfare.

The final part of our project will combine this analysis with information about the supply of housing and government housing policies to study how the housing market and the economy as a whole will respond to large changes in the economic environment. We will use the models we have built and tuned to real data in order to assess the implications of various real-world policies, such as: the "bedroom tax", the effects of mortgage subsidies (e.g. the current government's "Help to Buy" scheme), and issues relating to gentrification.

Our research will explore the interconnected nature of house prices, homeownership and urban-suburban location decisions. This research will shed dramatic new light on a wide range of policy issues including: 1) Why have house prices in the London area been growing much faster than the national average? 2) Is there a bubble in London and in the UK? 3) How do different housing policies like the "Bedroom tax", "Help to Buy" and "Right to Buy" affect the housing market, inequality and welfare? 4) How will changes in planning restrictions affect housing supply and homeownership rates? Many stakeholders are highly interested in each of these policy issues and we will seek to engage with them as our project develops.
In 2013, we staged a conference at IFS (http://www.cemmap.ac.uk/cemmap/event/id/816) with participants from the Bank of England, the US Federal Reserve, HM Treasury, DCLG and others at which many of these issues were discussed. We plan to interact further with these groups as our research progresses. We plan to continue informal interactions, to publish briefing notes and to present results at seminars, on our website, at conferences and to stage a follow up conference at the IFS in 2015 with participation from each of the above groups. More details of how we propose to engage with users are provided in the "Pathways to Impact" attachment to the full proposal.
To give further idea about how the groups listed above will benefit from our research, we discuss a few examples in turn.
Policymakers at the Bank of England and at central banks in other countries are actively worried about housing bubbles in London and the UK and in other regions of the world. Our research will help shed light on the forces that lead to explosive house price growth in some areas but not others. It will also enable policymakers at these institutions to better measure and understand how house prices and growth in prices vary both within and across cities. In addition, it will explore the effects of mortgage subsidies on house prices, household welfare, and inequality.
HM Treasury and the Homes and Communities Agency (among others) devise and implement various policies related to housing subsidies. Local Councils and housing authorities (e.g. the National Housing Federation) want to better anticipate how local housing needs will be affected by national policy changes. Various transportation stakeholders like National Rail or Transport for London want to anticipate how changing demographics and migration or changing transport infrastructure like Cross-Rail will affect the demand for mass transport within and outside of urban centres. In addition, many public policy groups and NGOs are actively involved in local housing issues and will benefit from new insights produced by our research. We plan to disseminate our research to these groups through our website and through our publications. We will also seek to engage policymakers as participants in a 2015 housing conference.
ONS researchers and real estate researchers are highly interested in accurate measurement of house prices, rental prices and house price indexes. Our research will improve measurement of the levels and changes in house prices and rents both at the average level and at the upper and lower ends of the housing markets. We plan to prepare a report for the ONS and others on the implications of our results for measuring house price indexes and monitoring the housing market.
Researcher in many other disciplines are interested in how the built environment interconnects with households' homeownership and location decisions and how these all affect urban life (e.g. Sociologists, Urban Planners, Architects, and Geographers). We will seek to engage these researchers by presenting our work at interdisciplinary conferences and workshops (such as through the London School of Economics' Cities Programme). We will also seek to involve them in our 2015 conference.