Thanks to house price crash
Although this blog was supposed to be about decision theory I easily get distracted.
How can decision theory help us make better planning decisions?
Consider a typical local planning authority making or updating a spatial strategy, how much of housing goes to rural areas, and how much to urban, which urban areas and which directions of growth for those? A phrase I often here in consulting with such authorities is of a ‘seemingly infinate number of options’ – or words to that effect.
This is a good example of the ‘paradox of choice’ otherwise known as ‘Analysis Paralysis’. In decision theory terms being overwhelmed by the size of the potential decision tree of potential choices. Chess players even have a term for it – kotov syndrome.
In one ancient “fable” recorded by Aesop The Fox and the Cat, the fox boasts of “hundreds of ways of escaping” while the cat has “only one”. When they hear the hounds approaching, the cat scampers up a tree while “the fox in his confusion was caught up by the hounds.” The fable ends with the moral, “Better one safe way than a hundred on which you cannot reckon.”
A good example is the popular ‘waterfall’ model used in software development:
As Wikipedia says
‘analysis paralysis typically manifests itself through exceedingly long phases of project planning, requirements gathering, program design and data modeling, with little or no extra value created by those steps. When extended over too long a timeframe, such processes tend to emphasize the organizational (i.e., bureaucratic) aspect of the software project, while detracting from its functional (value-creating) portion.’
Imagine ‘software’ here was replaced by ‘plan making’? The big problem with the government advice post 2004 on how to deliver development plans was that it imposed this flawed and discredited waterfall model on planning when the rest of the project management world was abandoning it. A model that forces you back – often to stage 1 – each time you hit a problem. A model that forces – ‘paralysis by analysis’ gathering ever more evidence – rapidly getting out of date – to put off the dirty day of difficult but necessary decisions.
Barry Swartz in his popular 2004 Book ‘The Paradox of Choice’ argues that eliminating consumer choices can greatly reduce anxiety for shoppers.
Its like in the movie ‘Moscow on the Hudson’ where the Robin Williams character (a russian in the soviet era) has a nervous breakdown when seeing the choices available in a supermarket.
But we dont have to restrict freedoms, providing we take decisions with what is termed ‘rational ignorance‘. It is irrational to educate ourselves about something if the cost of doing so is more that the benefits of making the choice. Noone rationally spends there weekend reading the latest edition of ‘What Chewing Gum’. Its a good example for economic wonks of opportunity costs and the disutilies of labour.
The work of Gerd Gigerenzer has shown not only that making decisions on the basis of full rationality is impossible – their is never enough time or information but that instead decisions made on ‘gut feelings’, in an uncertain world, are very often better choices. He and his colleagues have shown that simple rules frequently lead to better decisions than the theoretically optimal procedure. For example his researches show that people asked in the street typically outperform stock market analysts when asked to name stocks to back – why is this? See Gut Feelings: The Intelligence of the Unconscious (2007)
Gerds argument is that we use simple rules – what are known as hueristics – fast and frugal rules – to make these decisions. What is more we have evolved huersitics in order to interact with our environment.
To illustrate this argument in training sessions I throw a small rubber ball to a member of the audience and shot ‘catch’ then I ask them to rationally explain how they calculated where to move their hands. We have rather evolved an inbuilt spatial awareness, an awareness to think spatially, but almost all of our education and training is training us not to think and act spatially.
Of course if the heristic is badly formed and not tested it can easily lead to extinct by instinct making a rash and fatal decision based on hasty judgement.
Let me suggest a simple hueristic for plan making
‘Take 500-1,000 homes, allocate them directly next to your largest settlement on the road with the greatest spare road capacity and outside a flood risk area and european/nationally protected habitat’
Now this heuristic is not universally true but I would posit that 75% of authorities will eventually include a core strategy allocation of this order, but it is precisely this 500-1,000 homes that generate the vast majority of controversy even though the eventuall allocation is inevitable – the only real question is when
Why not include public transport access in the rule – for the simple reason that outside the largest urban areas the majority of trips will be made by car, so even if a location has for example a station then the determinate issue will be spare road capacity – a good example is the arguments for growth in the Ipswich policy area, where such arguments have ruled out major development at some accessible locations.
My argument then is to start with the tough choice and work backwards, expanding a simple primary decision rule only so far as it is necessary to rule out reasonable alternatives and so far as ‘rational ignorance’ does not kick in in terms of gathering further evidence. Such simple iterative rules are a good example of agile project decisions.
It is possible to expand this fast and frugal rule to deal with issues regarding the second largest settlement and the rural /urban split etc. etc. Ill do this in a future post.
Not content with helping create a banking crisis, calling the Greeks and Portgugese lazy, despite all the evidence, and balming the Irish for being too competitive, her government recently blamed the Spanish for the deadly european ecoli outbreak – although the real culprets were locally grown beans.
Perhaps Angela ‘Multi-cult’ Merkel will soon realise there is no European problem that cannot be made worse by her patronising attitude to other cultures.
Southern Europeans work more and longer than Germans, a study published by French bank Natixis said on saterday , debunking recent comments made by Chancellor Angela Merkel that workers in debt-mired Greece, Spain and Portual are lazy.
Williiam Rees-Mogg in the Mail on Sunday – thanks to House Price Crash.
“There have been some assurances that this system would be reformed by the Coalition, but the reforms have not yet been detailed or adopted. The Government appears to be deterred from taking action due to fears that the new measures might cause house prices to fall. Yet the damage has probably already been done to people aged 20 to 45.
People in this age group have already had the misfortune of being pushed into a life of debt – and the situation can only get worse. …This situation has been made worse by the fact that the Government has turned university fees into an additional type of mortgage, secured against future careers rather than bricks and mortar.
We should worry most about the first-time buyers. The market will have to return to an acceptable level before this group will be able to buy. That could happen naturally if a higher proportion of what used to be called ‘white land’ was to be released from the planning system…
The present situation has become intolerable. The best the Government could do now is set a target of 260,000 houses a year to be built and sold – and at an affordable price and at a profit to the developer.”
The risk is the botched pickensian planning reforms have had such a counterproductive effect – as outlined in the devastating house of commons select committee report – that they have slowed down house releases, because of abolition of RSSs and because of the botched reform processes, I write about here, causing NIMTO cllrs to sit on their hands and deliberating slow down/game the system. Mr Mogg see the devasting ‘Planning Vacume’ commons select committee report.
The draft ‘Presumption in favour of sustainable development’ in the National Planning Policy Framework will which I write about here is flawed because either
a) the botched reforms will simply lead the government to allow an appeal-led free for all relaxing protection of the countryside – as Osbourne/Cabel want, or
b) If an appeal-led system is unacceptable, which it will be politically in the shires, then you cant have a plan-led system without up to date 5 year housing supply targets. The government is intending to abolish the means by which such targets were set without any replacement in place.
The result is that targets are out of date – which means that local authorities have set ‘moritoriums’ on new housing because old local plan targets are met, even though they are years out of date and underestimate need. A good example is Stratford-on-Avon. The disruptions to plan making since the 2004 act have meant that many old areas of white land/strategic reserves have been eaten up, and new areas have not been put in place.
Too many local authorities are claiming that they dont need to release any new sites because the sites in their ‘developable’ sites in the Shlaas arnt any longer because of the recession!!!
Perhaps though Mr Rees Mogg should have a word with his son – as he said in January
‘Eric Pickles deserves to be the toast of Somerset. Since coming to office his department has saved the green belt a…The last government had intended to build more than 20,000 houses and would have ruined villages such as Whitchurch and Newton St. Loe. One of the Conservatives’ main campaign pledges was to abolish these top-down targets and allow local democracy to rule….These two decisions are emblematic of Mr. Pickles’ approach. He is willing to trust local councils…other public bodies under his control to make decisions for themselves. This is encapsulated in the Localism Bill …
There is a choice as to how government services are delivered. One is that it should be determined at a national level and delivered to specific targets with the local responsibility being administrative. The other is to say that local people can vote out councils who do not provide services that they want at a price they can afford. The drawback to the first is that a targets culture often leads to unintended consequences…
Should that Somerset development go ahead now Mssrs Rees Mogg – if not where should it go. The problem of course with abolishing targets is the ‘unintended consequences’ – allowing NIMTO cllrs to block new housing. No rural authority is ever going to choose voluntarily an extra 20,000 houses. Does Papa Mogg disagree with Baby Mogg on this issue?
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The general law that planners have tended to use is that the need for homes tracks household formation – if a demographic trend increases the need for homes it will eventually push up prices.
Hence plans tend to use demographic based models of household formation – especially those from the Department of Land Economy at Cambridge. In the absence of regional strategies, and any government steer with the NHPAU abolished the TCPA have usefully published their most recent findings
It also seems to be held as a dinner party law – a sign of logical trouble.
However it is only generally true. What a simplified narrative neglects is disposable household income gross of housing. Divorce and house prices are correlated but that doesn’t imply causation, indeed causation may be in reverse. The impact on prices may also be different at different pints on the income scale.
1. Divorce tends to rise as house prices fall.
A study by Essex University’s Institute for Social and Economic Research based its findings upon household questionnaires and property market trends. It found that a 10 per cent fall in house prices produces a 5 per cent increase in separation.
The study claims that money worries and concerns over falling into negative equity – when a homeowner’s mortgage is worth more than the property – puts strain on a relationship.
The institute reports that such stress is greater upon young couples with more debt and children at home.
Research from Savills in 2008 looked at the impact of an increase
“As house prices rise home owners undoubtedly feel wealthier and our supposition is that they also feel able to afford to get divorced,” Lucien Cook
The increase in larger homes coming for sale would have pushed prices down, but for smaller homes pushed prices up. Conversely for couples not yet on the property ladder rising prices acts as a positive incentive to not divorce.
2. Household Income Declines After Divorce
American research by page and stevens in 2002 suggests that household income falls by 40 to 45% in the six years after divorce. As many of us know divorce is expensive. The old wives tale that two can live as cheaply as one is not so untrue as household costs such as energy use and council tax can be shared.
3. Households may separate but they may not be able to afford to sell.
Immediately following the house price crash of 2007-8 house prices fell to their lowest level since 1981.
So there is a clear correlation between house prices and divorce but the direction of correlation is precisely the opposite as to what is popularly claimed – rising house prices increase divorce and falling house prices increase it.
There is also the effect on prices of divorced people reentering the household. The biggest effect being the impact on a rise in demand for small flats – and the buy to let boom. There is a tendency of ministers in speechs to blame the current oversupply in this sector on planning policy – but that was simply following the demographics on the assumption of ever rising prices. That demand is still there but in the form of ‘concealed households’ those that want to enter the housing market but are forced to share because of the recession. It was market forces that created the boom and bust not planning. Few property developers complained about not being forces to build more flats in towns during the buy to let boom. If anything most of them would have wanted 1o more storeys of the same if they could. Their real complaints were being asked to build flats for very large households – especially in London.
The backlash that could scupper Ryan – see swampland.
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