The oligopoly of housing. Why the RIBA has a responsibility to create new funding systems in architecture.
Industry constructs Architectural projects. However, In the current market economy, the architecture reflects a fundamentally imbalanced system. Architects focus their services solely on the demands of clients with access to significant capital. As their motivation, clients aim to compound existing wealth and do this using leveraged credit leading to the creation of financially extractive buildings. The industry narrative is to accept this project framework as immutable and to operate in a state of determinism. As a result, architects don’t have the incentive to solve the needs of people living on land and in the housing that they design, concretising wealth inequality as an acute spatial form.
Though the current system prioritises assets for the owner, the flip side is that space becomes a liability to renters. Housing expenses are the most significant expense for the average British citizen and are the primary cause of wealth inequality. The U.K. has the most considerable inequality gap among all G7 countries; the average income-to-property price ratio is 1:8, representing the most significant gap in housing access since 1830. In plain language, architecture’s activity and inactivity over the last hundred years have been complicit in more than doubling material poverty in real terms. Exacerbating the most severely imbalanced financial scenario the country has seen in over 100 years.
Architecture’s grand professional narrative is the intellectual backbone of the construction industry, and practitioners draw similarities to doctors and lawyers as status. Because of this, there is an assumption from a broader society that they actively put forward the frameworks that the construction industry practices. In contrast to these other professions, architects have forsaken their power over the industry they practice in, failing the users of the built environment in the process. Ultimately, now, architecture end users need protection from brutal exploitation driven by the domination of exploitative architectural clients, allowing financial exploitation of architecture end users. It’s in this context that the RIBA’s policies can be seen as failures.
What is the reason for this catastrophic political failure? And why does the RIBA shirk responsibility? Undoubtedly the income model for architects is the cause, as well as the personal perception of the RIBA’s role in the broader economic system and the client models it promotes.
‘A lot of the problems in architecture are the terms and conditions of the finance that we use to build are already predetermined by the time we start the role as architects.’ ‘The methods of money production in society today are profoundly corrupting in ways which would matter to everyone if they clearly understood them; the essence of this debate is; who should be allowed to create money, how and at whose risk. ‘-J self.
There is a widely held assumption that Architects shouldn’t have sway over monetary or fiscal policy, but this leaves scope for opportunists from other backgrounds that think they, in contrast, automatically should have that right. Whoever understands and can leverage the banking system has an ultimate say in shaping the city. This person is what architects often call a client. A centralized client typically lacks an understanding of the city and a fragile section of society and its voices. Its motivations are elsewhere. There are very few ways of financing architecture other than the client model.
Disengaged institutions
Architectural historian Flora Samuels puts the reason down to disengagement. She notes that in the last 60 years, the U.K. hasn’t seen a single architect as an M.P. The result is that representation in parliament has been stagnant for several decades. With it, the influence to direct spending towards social architecture projects and areas of need such as housing has been undirected. This disengagement forms itself around the RIBA’s vision of market totality and a stance of non-intervention. Any proposal to install a significant funding body for architectural services has been unsuccessful. It reeks of defeatism.
Why? And when did the RIBA assume this stance? The positioning exists because the United Kingdom pronounces itself as an open market economy that determines the prices of goods and services in a free price system. Austrian economists like Freidrich Hayek promoted these ideas at the London School of Economics (1931–1950) and the University of Chicago (1950–1962). Hayek argued that the deregulation of capital markets and laisses fare economics would bring ‘the end of serfdom’; this approach famously influenced the policies and narrative that defined Margeret Thatcher’s policies, underpinning her political career.
Importance of the architectural industry
Thatcher believed that the government had no business deciding one industry was more important than another and, therefore, deserving of help’ and in this framework, she significantly reduced the housing supply from the state, which was ultimately never replaced. In addition, she introduced competitive fee scales to architects, Which meant work from the market, and the state decimated the pay for architects.
Income has stagnated as a result since the 1980s when adjusted to inflation. But the ‘big bang deregulation of 1986 and the financial markets facilitated a derivatives trading boom. However, these regulations did little to deregulate; instead, they shifted the control from one central entity to another, characterised by aggressive market fluctuations and a high code to preserve loose lending for those with existing wealth.
Architects prioritise low Public funding and the austerity narrative.
But despite the Thatcherite policies being over 40 years old, architects still need to reestablish any routes for public funds. Little progress has been made in establishing a public funding body within labour and conservative economic frameworks. Whereas institutions like the Arts Council still give up to 100 million yearly to artists, many areas benefit from consistent government spending; the social architecture sector relies on bending itself unrecognisably for funding from the arts to enable even the most minor projects.
The perception and narrative touted are that government spending is low, and there is no chance for architects to access money. Whereas the reality is that Government expenditure reached an all-time high of £1.1 trillion during Covid. The most significant leap of government spending in the shortest time in over 70 years. Within this framework and long before, many Industries effectively lobbied for government support to access enormous amounts of fiscal sponsorship.
To give an example of the scale of funding loosely available for other sectors, the government’s failed Track and Trace programme alone eclipses the gross domestic product of all of the international RIBA members by over twenty times. For the exact cost of a single app, you could bankroll all architects practising in their entirety for years. Imagine, this could potentially support a construction boom that would provide economic stimulation to drive the country out of the recession and make it a great place to spend it. The narrative that government spending on architecture is impossible is fudge.
So, should government policy or banking policy be changed?
As the central government manages fiscal policy towards architecture be changed, the Bank of England controls monetary policy by defining interest rates for borrowing. It operates in a call-and-response relationship with Whitehall, and they function in relational policy making. Since 2008 the central bank has adopted an exceptionally loose monetary policy, which increased the flow of easy credit. The FED, BOE and ECB implemented similar policies to stimulate the economy after the collapse.
In the 2008 Subprime mortgage crisis, people could borrow if they had low earnings, which caused an infamous property bubble and corresponding property crash. After this crash, new credit requirements were introduced, giving endless low rates to people with high salaries, a broken trickle-down economic idea accelerated by free credit. Persons with existing capital and privilege, who have held a high-paying job from 2008–2022, have been able to leverage their equity again and again with lower and lower borrowing costs. To gain unrealistically higher and higher yields from compound renting, owners buy housing and then rent it to evidence as income evidence for further lending.
These requirements for cheap credit accelerated capital growth into higher concentration within the existing rich and allowed particular properties to enter bubble territory. It is spinning off an upward price spiral for land and housing. The cost of buying and renting are higher and higher, yet real income growth stagnation in the design profession is stagnant despite inflation. This regulatory condition gave excessive capital power over labour. Increasing leverage and a lower fractional reserve mean market incentives become skewed. It results in the misallocation of capital for excessive speculation. This deregulation in some critical market areas is damaging; for example, it forces architects into building investment flats with low space standards. The current flat space standard is just under half that of the 1970s.
Negative interest rates and a broken supply and demand economics in housing:
Neoclassical economists would say that the policy of negative interest rates would solve the housing crisis. The circulation of money, tiered with a tight supply of housing, and high demand for housing, would stimulate a boom in the production of buildings — the market would organise its housing supply to respond to the housing demand. This is a false premise. Instead, the opposite has happened, the housing supply has tightened significantly, and more money changing to fewer properties at inflated prices. As a result, housing production has been relatively stagnant for 20 years, and when adjusted to factor in population expansion, the housing units produced per person are lower than ever.
As well as this, insurance companies limit standard construction to only particular forms of innovation, causing further systemic regulatory pressure to inhibit new market entrants. And in turn, determine the volume of architectural services demanded has fallen since the booming period of the 1970s.
Oligopoly and the RIBA’s complicit role in allowing this to continue.
Why is this situation allowed to continue? In a report by Parvin, Saxby, Cerruli and Schnider called a right to build, The market in the U.K. is an oligopoly where just six housebuilders make 95% of all housing. The credit and tendering processes are so favourable to the big six that almost no other competition can gain a foothold in housing. Insurance regulation also favours the Big Six, where nonstandard construction is unmortgageable; this limits significant progress in productive capacity leading to a state of non-price competition.
These big six have cornered trade agreements and tenders. They can take advantage of the lending and borrowing structure because of existing capital and revenue whilst having systems and lobbies to navigate complex tenders and planning permissions. Their network advantage leads to an economy of scale for material pricing, cornering the manual workers and contractors market and intellectually with bid writers, brokers and lobbies, and more.
The tight market creates unrealistic pricing in particular sectors that render services unaffordable. Anything, not brick built is deemed as ‘nonstandard’; this forces up insurance, lending, and borrowing costs. This Skewed pricing in novel places is a side effect of a market with highly controlled competition.
Stagnation from the Oligopoly
For 30 years, the construction industry’s production has remained relatively stagnant, which is unusual considering the high demand for housing. However, because significant growth has not occurred in response to the market, organisations may be exercising their command of the supply to form a price-making power. Reasons for this are manifold, but one primary reason is that supply remains predictably low and keeps house prices high whilst giving the impression of product differentiation and market competition.
The typology of the ‘Noddy house’, or the ‘luxury flat’ emerge from this financial condition. The noddy house is a colloquial term for a basic brick-built, template house prevalent in the U.K. There are similar space standards across all dwellings and copy-paste floorplans that require no input from an architect. It fits the most essential regulatory and insurance requirements but follows the bare minimum outlined in the approved documents.
Having this type of housing as the significant output in the last 30 years limits the input from an end-user and results in community stagnation, isolation, loneliness and car reliance. Its often marketed for an aspirational worker homeowner and is a product that exploits the desperation of people’s need to escape material poverty and confusion about the current economic system because of the extent of the oligopoly’s market control.
Evidence of an oligopoly means the time for the rewiring of regulation:
Raised barriers to entry, price-making power, non-price competition, the interdependence of firms, and product differentiation are all signs of an Oligopoly. In these conditions, prioritising the free market as the primary practice model proves fatal. In addition, keeping the architectural labour force away from design lowers space standards for end users and unfairly Increases rents and costs. Not to mention reducing the demand for architectural services, despite a clear and high need in real terms. Yet, despite these signs, the RIBA has prioritised free market evangelism rather than intervening as a market stabilising force and doing very little to shift or advance policy or promote new avenues of fiscal spending policy to create industrial change. This has to change.
The RIBA needs to create new funding systems for housing and architecture.
— Louis is a Social Architect who works with AB__ An experimental architectural organisation that exists to create the structures we need for a more equitable society. —
