EACH time a new plan is announced, particularly by a chancellor, applying a systems analysis lens is crucial.
In this post, I will use a very basic systems analysis approach to provide insights into the effectiveness of encouraging and supporting the private sector to build more homes. Will it solve the housing crisis?
Obviously, building some more homes is likely to fail to fix the multiple problems we have in the housing sector. To cover only a few of those issues: hundreds of thousands of homes that are in disrepair, a low number of jobs close to where many of the homes are, our housing stock being among the least energy efficient in Europe, the peculiar position that people’s homes are the default investment option in the UK, the lack of appropriate homes (homes that people want, rather than what is on offer), the lack of a roof over everyone’s head and how expensive housing has become.
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So, the first question must be: what one of the multiple problems in the housing sector is the Labour government trying to solve?
I am not sure. Are you? Here is what we know.
Rachel Reeves (above) confirmed that Labour planned to oversee (not build) 1.5 million homes in England during the parliamentary term. This “target” is roughly 300,000 new homes each year. Last year, 231,100 new homes were built in England. Less than 3% of those homes were for social housing. So, the plan is to build an extra 70,000 new homes each year, with 97% of them private-sector homes. This is hardly a groundbreaking policy. And I have no idea what this would hope to achieve.
In increasing the target, Rachel Reeves has suggested what system designers call a “parameter change”. She has moved the numbers up slightly, hoping this will greatly impact the system (the English housing market). This is the type of intervention that centralist policymakers usually do. So, what impact does this type of change actually have?
Donella Meadows, one of the founders of systems analysis, said that probably 99% of our attention is on these types of changes. The thing is, “there is not a lot of leverage” in parameter changes. In other words, these changes have little impact on the overall system.
Parameter changes are at the bottom of Donella’s list of 12 effective leverage points. Unfortunately for those who wish to see a significant change in our economy, most policy suggestions, such as increasing housing targets, the tax rate, or the debt to GDP ratio, have little impact on the overall system. This revelation – that these changes have little impact –opens up a world of potential transformation in our economic systems. If only policymakers and mainstream economists would be willing to listen.
Using system thinking, we can confidently suggest that a parameter change like Reeves's will have little of the desired effect on the system. It is not a leverage point.
Systems design provides further insight into housing policy. And this is a fascinating story. In 1969, the system analysis founder Jay Wright Forrester published a “classic” urban dynamics study. He concluded that the less subsidised the city's low-income housing is, the better off everyone is – including those on low incomes. Counterintuitive, right? Well, that often happens when looking at a complex system.
The report was released when the US built massive subsidised low-income housing schemes nationwide. The nation, in unison, shouted: “We need more affordable homes.” Forrester was the only dissenter, and as you can imagine, he was not very popular at the time! But guess what? He was right. Projects started to be torn down only a decade later.
The reason? No-one analysed affordable housing as a complex system. Policymakers simply took the logical and intuitive leap to build more homes. So why didn't it work? Forrester’s brilliant student Donella Meadows explained in her seminal paper “Leverage Points”: “Without equivalent effort at job creation for the inhabitants, (more subsidised housing) severely disrupts a city’s employment/housing ratio, effectively increasing unemployment and welfare costs and despair.”
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Rachel Reeves's plan to support private developers to build 1.5 million more homes is typical neoliberal, narrow-minded planning. It lacks any awareness of how this complex system will likely respond. Of course, our new Chancellor is not alone in taking this approach. We see it at every level of government, in every business and across our society. We are all prone to chasing the silver bullet.
Neoclassical economists perpetuate the fantasy that the housing market – perhaps one of the most complicated complex systems in the UK – can be influenced by the odd parameter change. A system analyst would look at Rachel’s plan and suggest that upping the targets will have little impact and could even make things worse. As Donella wrote about these types of interventions, they may “systematically worsen whatever problems we are trying to solve”.
So, the answers? Do your research and at least attempt to understand the impact of your decisions. Donella Meadows reckons system designers need months, if not years, to understand the dynamics of a complex system. This is an uncomfortable truth.
But the main takeaway is to ignore neoclassical economists who draw very simple linear connections. Sometimes, what seems the most obvious is exactly the wrong thing. Policy is a lot harder than most people think.
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