Friday, 5 September 2014

Reader's Letter Of The Day

From The Evening Standard (5 September, page 56):

It was the postwar policy package of rent controls, higher property taxes  and easily available council housing that enabled Lammy's parents to buy a house for £6,000. It was inevitable that house prices and rents would rocket after Thatcher and Blair dismantled and reversed this.

There's much to welcome in Lammy's housing plans. If anything he is too timid. Why not cap private sector rents at 20 per cent below current levels rather than 20 per cent higher, saving billions in Housing Benefit and easing the strain on working tenants.

Mark Wadsworth, Young People's Party

13 comments:

Rich Tee said...

I didn't realise you were in favour of rent controls.

I am opposed to them even though I am a tenant (whose rent has just gone up again) because I agree with the economists who say free rents are a necessary market indicator.

My preferred option is longer term contracts and more legal rights for tenants, although I have given up that this will ever in Britain in my lifetime.

Bayard said...

"and easing the strain on working tenants."

Fine for those who are already renting, but not for those looking to find somewhere to rent. History tells us that rent controls make rented accommodation harder to find and, even at today's astronomical rents, rented accommodation is already hard to find in London, at least.

Mark Wadsworth said...

RT, I'm not in favour of rent controls, it's a poor second best to LVT, but better to have second best than nothing at all.

B, ah yes, but rent controls make it cheaper to buy somewhere (as you know from your own experience), and don't we Brits officially believe that Owner-Occupation is the best form of tenure (I certainly do).

DBC Reed said...

Not sure that Owner Occupation is the best form of tenure.The early Garden Cities had a system by which you bought the bricks and mortar house but paid a ground rent for the land it stood on, in many places supporting a mass of expensive leisure facilities.This is why Fred Perry who was brought up in a left-wing garden suburb in London got so good at many games.

Bayard said...

"B, ah yes, but rent controls make it cheaper to buy somewhere"

The prime mover for making it easier to buy somewhere is high interest rates, or more precisely, lower multiples of annual salary that the banks are prepared to lend as mortgages. If both rents and house prices are governed by what people can afford to pay, then they will tend to rise and fall together, but that doesn't mean that the one governs the other. If you control one and leave the other uncontrolled, then the other will still react to the underlying cause and be unaffected by the changes to the one.

Mark Wadsworth said...

DBC, owner-occupation is the nicest form of tenure, LVT is the best kind of tax, but LVT would tend to promote owner-occupation (it's less profitable being a landlord or land speculator).

B, yes, house prices used to be low and stable because of the double whammy of rent controls and mortgage restrictions. I've said that many a time. But it was a reader's letter, is all.

Lola said...

MW. No point buggering about with rent controls. You will dilute the LVT argument. Rent controls are an 'intervention', and history and practical experience shows that interventions, especially capping prices, always fails. Stick to the hoesty and unarguable logic and equity of LVT.
Every time in my life I have compromised on something of economic practicality or commercial it has been a mistake.

blissex said...

The two biggest enabling factors in zooming property and rent prices have been (explanations follow):

#1 Extremely loose credit policy, where debt is sold to anybody with a pulse as long as it is collateralized with property.

#2 The destruction of industry in the North, and immense subsidies to the building industry and finance in the South East, creating strong incentives for people to migrate from cheap-property areas to expensive-property areas.

As to #1, extremely loose lending standards were achieved in part by changing accounting rules to rate property as risk-free collateral, creating a vast debt-collateral spiral; and in part as Boyle says in his book "Broke" by the dismantling by the Thatcher government of the building society system and the lending "corset" system. They had been put in place to reduce the chances of debt-fueled inflation, but debt-fueled inflation (of property and City wages) was the policy of the Thatcher and Blair governments.

The same policies were copied much to the same effect in other countries, because they are politically desirable to buy votes for conservative parties.

As to #2, it is rarely remarked how important it is that despite massive boosting of the supply of debt, still the property bubble is largely limited to the South East, because government policy has been to pauperize the North and to enrich the South; in part by creating the conditions for Labour voting immigrants from the North to pay huge house prices or rents to Southern conservative voting incumbents. And ironically many of the jobs Northeners move to the South for are building jobs financed by rising debt. Rising debt that has been and will be nationalized, with the splendid effect that the profits of the booming debt will have gone only to the South, and the losses will be shared with the North.

blissex said...

As to the form of tenure, it turns out that without subsidies either way renting or owning are much the same, and in countries that are managed better it goes 50% or something like that.

The real reasons why owner-occupation has been so popular in the UK are two, related:

#1 Some think tank in the 1970 published a study that shows that voters that own houses, shares and cars vote Tory even if they are working class. Thatcherism!

#2 Therefore Rright-To-Buy. But it would not have had as much effect if the cost/benefit of owning vs. renting were much the same as they ought to be. It was wildly popular because owning in the South East for the past 20-30 years has been a one-way bet to massive tax-free capital gains. Owning a house is the only way that even working class people can speculate on asset prices going up using huge debt leverage ratios, and tax free on top, and wwith Right-To-Buy giving an instant tax-free capital gain because the the initial discount (which has been much increased by George Osborne recently).

The usual numbers for 2001 to 2011, which includes a huge "correction":

As to the form of tenure, it turns out that without subsidies either way renting or owning are much the same, and in countries that are managed better it goes 50% or something like that.

The real reasons why owner-occupation has been so popular in the UK are two, related:

#1 Some think tank in the 1970 published a study that shows that voters that own houses, shares and cars vote Tory even if they are working class. Thatcherism!

#2 Therefore Rright-To-Buy. But it would not have had as much effect if the cost/benefit of owning vs. renting were much the same as they ought to be. It was wildly popular because owning in the South East for the past 20-30 years has been a one-way bet to massive tax-free capital gains. Owning a house is the only way that even working class people can speculate on asset prices going up using huge debt leverage ratios, and tax free on top, and wwith Right-To-Buy giving an instant tax-free capital gain because the the initial discount (which has been much increased by George Osborne recently).

The usual numbers:

http://www.bbc.co.uk/news/business-19288208
«In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330»

In the South East that means a two-up-two-down terrace house, that has given £12,000 a year tax free to a working class owner who bought it in 2001.

That working class owner does not need trade unions, wage rises, good pensions; she only needs to vote every few years for the party who promise to fulfill her "aspiration" for massive tax free capital gains on her property, and low-interest remortgages to cash in her capital gains without having to sell her property.

Mark Wadsworth said...

B, to a large extent yes, but the interesting questions are what happened from 1945 to the 1980s and why that happened. The policies you list are merely the reverse of what was in place until the 1980s.

DBC Reed said...

The advantage of the garden city system was/is that minus the land element the houses would a) be very cheap b)not likely to inflate in value,( should by rights depreciate somewhat).
My fellow countrymen thought Jimmy Savile was a public benefactor and wonderful with children; they thought Margaret Thatcher was intelligent .They will always persuade themselves that any rise in land values belongs to them.

DBC Reed said...

This morning the FT is carrying a story that the CBI is getting on its high horse about the big drag high property prices are on the economy. God they're quick! Scoffing bolshies (like me) can no longer say these boring tight-fisted blowhards are not well and truly on the case.

Mark Wadsworth said...

DBC, yes.

DBC, again yes, fair play to them for pointing out that high land prices make life more difficult for business, but OTOH when they call for more new construction, does this mean just handing more monopoly rights to the land bankers?