When mathematics meets technology, the algorithms which use Big Data and machine learning can have any number of exciting applications, potentially offering instantaneous solutions to protracted problems.
The fact that policymakers are attempting to weave them into their decision-making processes is an encouraging sign – but the new algorithm developed by the UK’s Ministry of Housing, intended to determine which regions most need new affordable housing, is an illustrative example of how, no matter how high-tech the solution, the thinking behind it has to be sound.
Dubbed a “mutant algorithm” by its critics, the mathematical formula cooked up by UK policymakers appears to disproportionately disadvantage northern parts of England in favour of their southern counterparts.
Although aimed at enhancing the prevalence of affordable housing, the algorithm may actually be exacerbating the issue due to the biases of its creators. Coming amidst a global pandemic when unemployment is on the rise and the inequality divide continues to deepen, it’s half-baked policies like this one which demonstrate just how inadequate government plans to address the housing crisis currently are.
North neglected in favour of south
The algorithm’s aims are laudable enough. Created with the goal of identifying a specific target of new homes needed per region across the country, the algorithm prioritises demand and affordability above all else. While these might intuitively sound like reasonable propositions, analysis conducted by planning consultants Lichfield and the Local Government Association (LGA) reveals that the formula contains fundamental flaws which grossly skew its conclusions.
For starters, the government is aiming to drive down house prices by creating a surplus of supply, rather than focusing on the affordability of the new builds themselves or the percentage given over to social housing.
Although there is some distorted logic to that thought process, such an approach primarily benefits investors with enough capital to develop available land and landlords with the capability to buy and rent it. Add in the fact that the algorithm completely ignores each region’s acreage of available land and a perfect storm is created, in which the only ones capable of sheltering under an umbrella are the already wealthy.
What’s more, the government’s formula has not factored in England’s geography, meaning the north of the nation is actually being told to reduce its housing output despite rampant demand. Whereas places like London, Brighton and Dover would be expected to ramp up construction (by 161%, 287% and 294%, respectively), the northeast would be instructed to build 28% fewer houses each year.
Given that Manchester’s fastest growing sector is the construction industry – estimated at over £4 billion in value – such a move could cripple the local economy.
Manchester may be one of the worst affected areas if the algorithm is implemented as is – but it’s far from the only region set to suffer. Indeed, as many as 70 Conservative MPs have voiced their concerns over the policy, with many of them having done so in private Zoom meetings with the Prime Minister.
A crisis compounded by Covid-19
Such a backlash within his own party will surely unsettle Boris Johnson, but it’s hardly one which should surprise him. The British housing system has been broken for years, with government benefits flowing almost directly into the pockets of private landlords (£23.4 billion in 2018) and a recent report highlighting that, on a net basis, all new homes built between 2005 and 2015 went to a buy-to-let landlord rather than a first-time buyer.
The rising cost of houses, coupled with a slump in salary increases, meant that the situation looked bleak for those aspiring to clamber onto the property ladder even before the outbreak of Covid-19. In February, a BBC Housing Briefing found that over half of all 18- to 24-year-olds still lived with family and 18% of 25- to 34-year-olds did the same. The report also estimated that the shortfall in housing amounted to over a million new homes.
Since the pandemic has made its presence felt, that outlook has only become more depressing. In Q2 of 2020, the UK suffered its biggest slump in GDP on record, falling by a staggering 21%. The Chancellor Rishi Sunak has attempted to stall the collapse with temporary measures such as furlough support and business loans (both of which are nearing their end), as well as inject some impetus into the UK housing market with a stamp tax holiday through March 2021.
The government is already facing pressure to extend this holiday, as delays in mortgage and other related service threaten to drag out well over 300,000 ongoing transactions beyond its expiry date – at which point prospective homebuyers would no longer be eligible for it.
While these steps may have led to house prices rising by 1.8% in July and 2% in August, the focus clearly seems to be on buttressing real estate values rather than assisting the first-time buyers for whom it is now even more difficult to access the market. In the face of the second wave, however, they won’t be enough to sustain a market now facing its second collapse in the span of less than a year.
Meanwhile, the measures have done nothing to help the 150,000 individuals who saw their transactions put on hold due to a government-imposed hiatus on property deals in March. An estimated 30% of those lost their exchange deposit (worth an average £23,000) and will not be able to recover it after mortgage lenders pulled out of deals, effectively putting paid to their homeowner aspirations – perhaps definitively.
Sensible solutions needed
With all that in mind, it’s easy to agree with the Chartered Institute of Housing (CIH), who have warned that the government is entirely unprepared to deal with the fallout from coronavirus and how it will affect millions of Britons struggling to keep a roof over their heads. Instead of propping up a system that generates wealth but exacerbates inequality, the Conservatives must take a radical approach to reforming how the housing market works.
In practical terms, this could involve forcing investors to increase the percentage of their developments earmarked for social housing, disincentivising private landlords from expanding their empires, increasing funding for local authorities and ensuring that everyone – regardless of where they live, what their employment situation looks like or how they have been affected by the pandemic – has quality accommodation in which to hang their hat.
To achieve those goals, it’ll take more than the mathematical precision of an algorithm; it’ll take a realignment of priorities and a much-needed reality check for those tasked with creating such formulas in the first place.