Wednesday, 26 June 2013

Rainfall causes droughts - shock

Tim Worstall didn't fully understand that report explaining the possible causal link between increasing rates of owner-occupation and later increases in unemployment.

He highlights one possible explanation - that if a private tenant loses his job in one area and can only find work elsewhere, he is more willing to move to find a job. The report itself pours some cold water on this by pointing out that the unemployment rate is lower for owner-occupiers than for tenants (which in turn can be explained by the fact that if you have a mortgage and lose your job, you don't stay an owner-occupier for very long...)

Nonetheless, there is a lot of truth in his following assertions:

What's required is a large and fluid rental sector. Maybe the Labour left has the answer: carpet-bombing the country with “affordable” housing. Sadly, this really means creating local council and housing association housing. And that's an even more illiquid market than the owned-housing one.

I did once press a housing charity lady very hard on the question of how long it took to move from one subsidised house in one local council area to another in another. I had to press hard because I don't think she really wanted to reveal the answer: somewhere between two and five years seemed to be that time span.


Which he then uses to draw a completely incorrect conclusion:

So if home ownership increases the unemployment rate by reducing labour mobility, then council housing must do so even more.

1. We are agreed that labour mobility is good for employment and that renting rather than owning is good for labour mobility, so a "large and fluid rental sector" must be A Good Thing.

2. And we are agreed - on the facts - that the waiting list for council housing is very long. The fact that disproportionately many social housing tenants are unemployed is possibly misleading, as this is self-selection. If you are unemployable/unemployed, you are more likely to end up in a council house than as an owner-occupier.

3. And why is it so long? It is not because local housing officers are so woefully inefficient, it is because there is not enough of it, and once you've got a council house, you play safe and stay where you are rather than go through the Hell of trying to get another one somewhere else.

4. So if we built enough* council housing, the waiting list would be days or weeks rather than years. The sector would be "larger and more fluid"

5. Hey presto - problem sorted. Lower unemployment, lower rents (even in the private rental sector) and one in the eye for the Homeys!

So his closing argument is like saying that "rainfall causes droughts". It doesn't. It's lack of rainfall which causes droughts, I think you'll find.

* Social rents usually do not include an extra charge for location value which private landlords rather unethically demand, they are set just high enough to cover actual costs. But council housing is anathema to the Home-Owner-Ist élite because they can't earn any more from it. So supply is severely constrained for political reasons and is outstripped by demand.

So in this context, "enough" means that the quantity is increased to match demand and/or that rents for the more desirable council housing is increased to dislodge a few unemployable people in potentially high employment areas.

As long the rents actually received more than cover the running costs (which they very much do, even if you knock off the large number of tenants living for free), how is this a bad deal for anybody? If you turn up your nose at the thought of living on a council estate, so what, nobody's forcing you to apply for one.

7 comments:

L fairfax said...

"4. So if we built enough* council housing, the waiting list would be days or weeks rather than years. The sector would be "larger and more fluid" "
Have you ever dealt with a council?
I have when selling a leasehold flat and I find it hard to believe the waiting list would ever be days after that experience.

L fairfax said...

"As long the rents actually received more than cover the running costs (which they very much do, even if you knock off the large number of tenants living for free), how is this a bad deal for anybody?"
Shouldn't assets earn the maximum amount possible?
Certainly councils take that view when it comes to parking charges so why not houses?

Mark Wadsworth said...

LF, of course I've dealt with councils, they aren't always the quickest off the mark, but so what?

As to your leasehold thing, that is a whole 'nother topic. I was talking about just renting a council house.

Simple fact is, you can now be on the waiting list for years, but that is not really down to the council (in the good old days, the waiting list was a few months or something).

The government does not necessarily do everything really slowly, passports and driving licences seems to work OK, doesn't it?

Mark Wadsworth said...

LF: "Shouldn't assets earn the maximum amount possible?"

I'm a land value taxer, so my view is the government's ONLY source of revenue should be land rents - but before we start whining about social tenants not paying for location rent, how's about asking owner-occupiers to stump up, that's a far bigger pool of rent to collect/tax.

Parking charges again is a different topic and has got to do with optimising use of scarce spaces and hence increasing overall footfall in shops.

Most parking fines are a bloody outrage of course.

. said...

Private landlords do not "unethically demand" location rents, people are willing to pay location rents, funnily enough. And this is shown by how many council tenants sub-let their rather nice locations.

You seem to love council housing to the exclusion of all else, when the required solution is more housing overall. And I think most people would strongly suspect that the private rented sector is far more flexible and efficient at balancing supply and demand than local authorities are.

My solution would be to increase "social housing", the private rented sector and the owner-occupier sector and the amount of total housing simultaneously by the taxpayer building high quality housing in large quantities and then selling some of it off and handing some of it to housing associations. You'd plan to build enough of it over time to shoot buy-to-letters' fox - no money on the table for them.

BE

L fairfax said...

"You seem to love council housing to the exclusion of all else, when the required solution is more housing overall"
Very true. Although better redistribution of housing is also good.
I used to know a pro single mum who lived in zone 3 London, madness when she could waste our money anywhere in the UK!

Mark Wadsworth said...

BE; "Private landlords do not "unethically demand" location rents, people are willing to pay location rents, funnily enough."

That's like saying "Kidnappers do not "unethically demand" ransom money, people are willing to pay it to get their loved ones back, funnily enough"

"You seem to love council housing to the exclusion of all else."

Good grief no! Vastly better would be full on LVT (and near-market rents in social housing) coupled with a Citizen's Income/personal allowance and low or no taxes on earnings etc.

Council Housing is just a sticking plaster, albeit a very good one, with or without LVT.

LF, I refer you to my comment above.