Via pjg, at the Cato@Liberty 'blog:
The housing bubble was not universal. It almost exclusively struck states and regions that were heavily regulating land and housing. In fast-growing places with no such regulation, such as Dallas, Houston, and Raleigh, housing prices did not bubble and they are not declining today.
Remembering always that 'zoning' in the USA is still far more lenient than what we have in the UK...
Let's do the numbers - total UK household indebtedness increased by about £700 billion (i.e. roughly doubled) in the last decade. Assuming that the bulk of this was down to first time buyers, if they had been allowed to build new houses (build cost £60k plus £40k for infrastructure, parks, bits and pieces) on farmland that goes for a song (£5,000 per acre, so for £500 you'd get a handsome sized front and back garden), about 200,000 couples each year would have had to borrow £20 billion in total for a home on a nice new estate with other young couples; house prices would have stayed low and stable; and household indebtedness would have remained flat.
Don't forget that 2 million houses is only an additional ten per cent of existing stocks and, even if you include the additional roads, shops, schools etc would occupy about 0.5% of existing non-developed land. Sure, food prices may have gone up a smidge, but that's what farmers want, isn't it? And if food prices went up by as much as ten per cent (highly unlikely) your average first time buyer would still be better off by thousands of pounds a year. And ... we could reverse that ten per cent increase in one fell swoop by leaving the EU.
There, that's that all fixed. Next.
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16 comments:
Whilst I agree there, is still something in me that doesn't like it.
Have you every been to those places in the USA? I spent some time in Richardson, Dallas, and it was depressing. The (sub)urban sprawl went on forever; it was so depressing.
And before you respond I know the stats for how litte of our UK land mass is developed.
Well, yes, but the thing is ...
Without the involvement of gummint (local or national, take your pick) where do you get the roads, hospitals and schools? Who persuades the gas people and the lecky people to fuel you up? Who persuades the water people to wet you and drain you?
Those infrastructure decisions (and many more) have to be taken and paid for, someone has to decide whether it is money worth spending.
If you want to deregulate the planning process, a process that currently takes such things into account, you need to have a workable alternative system for ensuring you are not just building cold boxes in the middle of nowhere.
What is your plan? That roads, schools, drains, gas and lecky supply lines are paid for by the housebuilders? If so, how does that affect the cost to the housebuilders? Or that they are paid by someone else, gummint perhaps? If so, why should they be forced to do so if they don't believe the development is value for money?
And who says farm land would only go for agricultural prices if the farmer knows you plan to build? They're not all hayseeds, and their solicitors will ask you of your plans. What are you going to do, lie or tell the truth? If the former they can sue the arse off you once you break your word. As the law currently stands they can take every penny of your profit and legal costs on top. If the latter, the price goes up to reflect the value of the land to you not the value to them as a field of potential turnips.
Methinks you are in free lunch territory here.
GS, OK, you don't like it? How about Land Value Tax to ensure that existing homes in 'established' areas stay low in price so that first time buyers can afford them? It's one or t'other, I'm afraid. Or preferably both.
TFB, "where do you get the roads, hospitals and schools?" that's why I factored in an additional £40k average per home to cover the costs of that stuff. Don't forget that 80% of cost of schools or hospitals is salaries, only 10% relates to cost of buildings (10% 'other'). And maybe nurses, teachers and doctors are also starting a family and are happy to move to those areas because houses are nice and cheap?
Yes, farmers will 'milk' this. But as around any conurbation there is an equally large area that would make a suitable satellite town or village, the price would be bid downwards. Whether the farmer charges £500 or £5000 per plot is neither here nor there in the grander scheme of things.
Again, this is where we need the LVT 'stick' to supplement the 'liberalisation' carrot.
Imagine: the council just declares everything within 500 yards of existing built up area to be open for development and think about how people react - land values rise, so farmers have a high tax bill, until one of them cracks and sells off a few acres, new homes get built, demand is satiated, land values fall again, those farmers who held out for a higher price see their LVT bill fall again. Whichever farmer times is right makes the money.
That's how free market capitalism works.
Speaking as a farmer I'm all in favour of the free for all! But I suspect that there would not be a massive boom at all. Given the huge prices (historically, if not at the moment) building plots make is almost entirely down to planning restrictions, wiping them out with a pen would wipe out the gains too. A few might get some big gains in early, but once the idea spread, prices would drop to not much above agricultural prices. So there would be little incentive to sell. I wouldnt bother if I was only getting ag value plus a little. I prefer to hang to to my land, thanks very much!
As for services, this would provide a classic 'market solution'. I bet there would be a lot more eco-houses built off grid under the free market idea than now, when developments all have the usual services on tap. Ground source heat pumps, turbines, solar panels, septic tanks with soakaways, private boreholes for water. There are many ways to do away with dealing with utilities if you have to. Its only because of the planning rules that we all end up with them.
We didn't always have planning restrictions and many of the most sought after houses were built with no controls whatsoever. People only choose modern rabbit hutch housing estates because thats all they can afford. Perhaps the free market might improve housing design better than gummint regulation?
S, " I suspect that there would not be a massive boom at all"
Of course there wouldn't be a massive boom/bubble (neither in prices nor in the number of new homes built). That's the whole point of the liberalisation carrot and the LVT stick, that's the best way to have a 'free market' in land, and in a truly free market there are no bubbles because gains get competed away.
I know that deregulation and laissez-faire brings such enormous
benefits that we are living in times of unparalleled prosperity but there are actually towns like Burnley and other old milltowns where there are plenty of empty houses. Liverpool has lost a third of its population since WW2.It might be a good idea to use LVT receipts to revive manufacture in these towns , which, since LVT would reduce people's payments on
housing, might find a ready home market,decreasing imports.
All this if it moves ,privatise it,has become very fashionable, like the previous Why bother? smoke a joint" reaction which preceded it and shares some characteristics with it.
DBC, it's stick and carrot. Seeing as LVT on these houses in abandoned mill-towns would be next to nothing, that would automatically attract people to them.
I don't actually think we need many new houses, we just need to use the ones we've got more equitably - but that's up to 'the market' to decide once we have the proper rules in place.
Artificial Shortage + Artificial Demand = Bubble.
DBC R,
With a LVT there is normally an implied Citizens Dividend (or income). for the area you describe, the LVT will be considerably less than the CD.
@AC1
Am not sure what an implied Citizen's Dividend is.Either you get some money or you don't.
If you are proposing a kind of reverse LVT where people in posh places pay for poor people to live in Burnley then this is a form of redistribution so extreme that I will have to have a cup of tea to get over the shock and think about it.
DBC, to the extent that we should have redistribution at all (I believe on balance that we should, but I'm not going to war over it) then why should it just be from working age to elderly; from workers to non-earners; from high income to low income; and from healthy to sick?
What is wrong in principle with having a bit more redistribution from property owners to tenants and a lot less from high income to low income etc?
I think anybody "just building cold boxes in the middle of nowhere" without water & lecy would have some difficulty selling them< We are used to builders being able to build any old rubbish & being able to sell it precisely because of the articoficial shortage.
Playing devil's advocate however may I point out that in Spain & Ireland, where building has been as unrestricted as the more liberal (in economic terms) US states the bust seems to be worse than here. This could be that the building industry went particularly OTT because they were reacting to the environment established under the previous restrictions, though it was quite a long boom, or that our media are simply lying to us - that there has been a lesser house price fall even though there may be more empty houses there. I simply don't know.
NC, agreed on Spain and Ireland, I struggle to reconcile this as well. However, them joining the Euro and having unusually low interest rates explains a lot of it.
The problem with Spain and Ireland is also a function of the flash to bang time ie the time taken from house prices rising to the construction industry getting its act together and starting to bring you units on to the market. Or more accurately how many units they have in the pipeline when the market signals that there is an over supply and their failure to see and respond to those signals.
Good point. So we should expect that fairly shortly after the normal building & selling time we should expect the market signal of nobody buying working through & prices in Spain & Ireland back into balance. Not in Britain where supply was rarely permitted & indeed when the lead time is longer because the most complicated bit about building houses is squaring the council before anybody lifts a spade.
An LVT => Citizens dividend is merely making the government a landlord and citizens shareholders.
It makes landowners pay citizens for the right to exclusive use.
It is not socialist redistribution although it is similar.
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