Monday, 18 August 2014

Public and private sector residential construction

We have now established beyond reasonable doubt that the so-called home builders, Barratts, Taylor Wimpey and the like are nothing of the sort, see e.g. here and here.

The construction is carried out by subcontractors and Barratts et al are a cartel of land bankers who dribble a few new homes onto the market each year in order to realise part of the value of their "investment portfolio" (as Taylor Wimpey describe their land bank) without depressing its overall value.

The official stat's for completions in public and private sectors show that private sector completions have averaged 167,000 a year since 1960 (once austerity had ended and the economy was going again); and until Thatcher more or less shut down construction in the public sector in 1980, an average of 167,000 new units of social housing were built.

It's actually difficult to pin down the role of NIMBYs in all this (as despicable as their motives usually are); they are clearly behind the fall in construction of social housing, and the biggest cheerleaders for selling it off at huge discounts, but it's doubtful whether they have any influence on how many homes the land bankers dribble onto the market.

11 comments:

Lola said...

Now, that is the best and most succinct analysis of the house supply issue that I have seen. Well done.

'Of course' LVT (or even a 'land bank tax') could go a long way to sort this out by making it not economically viable to hoard land. The thing is, I am not convinced this is just - or in its first principles - a 'not building council houses' problem. It remains a tax / rent seeking problem.

Mark Wadsworth said...

L, no, the number of plots used by the land bankers probably has nothing to do with 'not building council houses'.

In any event, 167,000 units a year is just about enough to cater for long term average population growth (if the new homes weren't just so small and pokey).

Lola said...

MW. I think I mis-explained myself.

I agree that land banking has nothing to do with the collapse in council house building. Logically it should not.

I was trying to work out whether LVT would capture the economic rent enjoyed by land bankers. I think it would.

Also. So if 167K units is enough to cater for population growth, why are land prices (aka house prices) rising? It can't be to do with supply.

DBC Reed said...

@L
Strangely enough a tax on land banks was proposed by Chris Huhne about time he went into Coalition Cabinet.

Mark Wadsworth said...

L, you were perfectly clear.

"I agree that land banking has nothing to do with the collapse in council house building. Logically it should not."

Agreed.

"I was trying to work out whether LVT would capture the economic rent enjoyed by land bankers. I think it would."

Yes of course, but it would not affect actual real construction one little bit, builders will just knock off a year or two's LVT from their ultimate selling price when deciding how much to bid for building land.

"why are land prices (aka house prices) rising? It can't be to do with supply."

It's not. It's because we aren't comparing like with like.

House prices used to be three times income because prices were depressed by rent and mortgage caps (and a little bit of Schedule A tax or Domestic Rates).

The old tax and regulation system has been abandoned and interest rates appear to be permanently low, so house prices have adjusted up to a 'new normal' of six times income.

I suspect that they will stay that high for the foreseeable future.

Lola said...

MW
Yup. That was where I was heading. Ta.

Lola said...

DBCR The Libdems do seem to understand LVT, except they see it as an extra tax. That rather lets them down AFAIAC.

Mark Wadsworth said...

DBC, tax on land banks is the easy target (and in any event far preferable to s106 agreements etc), but let's go for the hard targets :-)

A K Haart said...

The most interesting post I've read in ages. Would such a cartel come anywhere near to being illegal?

Ben Jamin' said...

@ A K Haart

All landowners are members of the "cartel". Perhaps renters should take out a class action?

@ MW

Would a gathering of NIMBIES be a cumulus?

Mark Wadsworth said...

AKH, an excellent question. If it were supermarkets colluding to push up the price of fags (which is official government policy anyway) then yes.

But even if the land bankers were caught colluding, their excuses would be
a) It was the NIMBYs stopping us, sir.
b) We didn't want to concrete over the Hallowed Green Belt, sir.
And they would be let off.

BJ, yes, a cumulus nimbus, brilliant.