Sunday, 12 March 2017

Embracing disruption - why our approach to housing and transport regulation has to change

On the face of it, it's a good news story. Clever architects in Alabama have reimagined the house so it can be built for just $20,000. They're only small, not really so very different from that icon of American living space, the trailer, but these houses do represent some sort of progress.

Until of course you speak to a city planner, a banker, an insurance company. Then there's a problem:
"The most daunting problems aren't brick and mortar problems, they're these network and system problems that are threaded together and all intersect in the built environment," he says. "We're able to attack all these problems simultaneously—when we see a lever over here and wiggle it, we can very clearly see the implication it has on other systems down the road."
The barrier to, in this case, housing affordability isn't the prosaic task of building a home but rather the collection of systems, regulations, controls and vested interests that have grown up in our sophisticated societies. All of those systems of control exist for a good reason - in the case of housing they make sure that what's built is safe, doesn't harm neighbours, protects heritage and has regard to the environment. Looking at building codes (or regulations as us Brits calls them - for once using a longer word than US bureaucrats) each element, whether it's about wiring, pipes or the depth of foundations was purposive, put there to ensure safety or quality. The problem is that these codes are (because to work they have to be) inflexible - if it says something has to be 3-5mm then it has to be 3-5mm even if technology now means it only has to be 1-1.5mm.
"They're built more like airplanes than houses, which allows us to have them far exceed structural requirements. ... We're using material much more efficiently. But the problem is your local code official doesn't understand that. They look at the documents, and the house is immediately denied a permit simply because the code officials didn't understand it."
The issue here - and it's a significant one given the current rate of technological change, much of it disruptive - is that regulatory reform is a slow and painful process filled with all sorts of obstacles. It took the UK government three years to conduct a review of housing standards that didn't even touch the core of building regulations (although it did prevent local councils dreaming up their own 'tougher' regulations especially around environmental standards).

None of this is to suggest that regulation isn't a good idea but rather to recognise that technological change moves faster than regulatory reform and that often the barriers to that reform are as much about protecting the current systems (and those who profit from them) as they are about ensuring safety and environmental protection. Although I've been talking about housebuilding, the same issues apply to other targets of technological disruption such as taxis, hotels and retail distribution - the regulatory environment is captured by the business and their public sector 'clients'.

Here's an example from Barcelona:
Like other big tourist destinations around the world (for example Berlin and San Francisco), Barcelona is struggling to cope with the influx of millions of tourists each year, many of them staying in short-term rental accommodation, which the local authorities say causes community strife, encourages speculation, and prices locals out of the city by driving up housing costs and limiting the supply of homes for rent.
Pretty straightforward - the city government in the Catalan capital is acting to prevent that community strive and guard against unaffordability. It isn't anything to do with collecting taxes or protecting the interests of existing providers. After all there's a housing shortage in Barcelona?
Barcelona has 283,155 vacant homes, 11% of the total, and 311,653 rented homes, 17.8%, while the defaults on leases have grown by 22.7% compared to the previous study, to stand at an average of 12,897 euros.
So, while rents in Barcelona are sky high and they're clamping down on Airbnb, there are quarter of a million empty homes. This isn't to have a go at Barcelona but rather to illustrate how protecting systems (precisely what that city's left wing mayor says she isn't doing) results in protection of existing interests - in this case hotel owners and landlords of high-priced city centre property.

Our problem is that what we already have in place - in its widest sense, infrastructure - is either vulnerable to digital disruption or else prevents that disruption taking place. And because the regulatory systems track that infrastructure and are difficult to change, other places without such constraints (or with autocratic governments) are able to move more quickly. Worse still, and this is very evident in housing and transport, those profiting from the existing system - or persuaded by politicians that its loss will harm them as we've seen in Barcelona - agitate for extending regulations to capture or prevent disruptive technology.

The new technologies - all that disruptive digital stuff especially - will eventually succeed because they meet consumer demand for things such as cheaper travel and accommodation. What's missing from our regulatory response is a preference for embracing that disruption. Instead, we seek out reasons not to allow a $20,000 house, a cheaper and safer form of taxi or a flexible low-cost means to stay in otherwise unaffordable places. And, as those empty homes in expensive Barcelona attest, our housing markets are crying out for disruption. All our zoning, building codes and planning rules act to prevent this change - making the land, the materials and the labour more expensive and forcing us to spend further billions in incentives and subsidy to stop the whole thing falling over again.

In Bradford we've acres of inner city 'development' land that's mostly just sitting there mouldering. We know there's demand - one local organisation had over 200 enquiries for a handful of new build properties for sale (but no buyers as once you've paid for the land and built the house the price is too high) - but the way we build and the cost of land makes it uneconomic. New approaches such as that $20,000 Alabama house or the prospect of 3D printed homes could work on this land if we purchased it and cleared it - perhaps that would be a better use of Community Infrastructure Levy and affordable housing commuted sums that sticking it into the existing system of housing development.

To make this work - and to make future transport systems work too - we need to design flexibility into regulatory systems allowing greater discretion for individual regulators. We also need to stop doubling-down on failed systems whether it's Barcelona's approach to holiday lets or Palo Alto's crazy planning system. The first question should be 'does this make most people's lives better' not 'can I find someone who doesn't like it' and to create regulations to match when the answer to that first question is 'yes'.


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