Saturday, 22 April 2017

Reader's Letter Of The Day

From yesterday's Evening Standard:

Developers on rely [sic] high house prices

Regardless of how liberal planning laws are, developers will cap their output at a level which does not lead to any significant falls in prices [Letters, April 18]. If they can sell new homes to wealthy overseas investors, then so much the better.*

This is not a housing crisis — it has been deliberately engineered. After 1945 UK housing policy was to limit rents, protect tenants, cap house prices indirectly by capping mortgages at two-and-a-half times earnings and ensure a ready supply of social housing. This led to a rapid increase in owner-occupation, the nigh-extinction of the landlord class and a small and stable banking sector. This was eventually reversed.

London First may call for more houses to be built but the backers on its website — banks, large landowners and property developers — are the very people who will do anything to ensure that rents and prices in London stay sky-high.

These people know full well that simply building more homes in itself solves nothing.

Mark Wadsworth​, Young People’s Party.

* They edited down my original opening paragraphs which explained the more subtle point:

Real-world evidence shows us that rents and prices in every country in the world are the highest in the largest cities. When more people will move into the new homes, this means a larger pool of potential employees and customers for businesses, which in turn means more job, leisure and social opportunities, all of which lead to yet a self-reinforcing cycle of even higher rents and even higher prices.

Real-world evidence also shows us that - regardless of how liberal planning laws are - developers will cap their output at a level which does not lead to any significant falls in prices. If they can sell the new homes to wealthy overseas investors who will leave them empty or merely collect the rent from younger workers, then so much the better. If prices show any sign of dipping, then projects are simply mothballed.


Bayard said...

"Developers on rely high house prices"


Mark Wadsworth said...

B, their typo, not mine.

Steven_L said...

Nice one! But do you reckon Mr Osborne will continue to publish your letters?

Mark Wadsworth said...

SL, ta and that surprised me as well. Perhaps Mr Osborne is doing precisely f- all and is just collecting payment for what he did while Chancellor?

DBC Reed said...

Rather disappointed in this: I thought it was somebody new on the scene until I got to the end. I was amazed that this newcomer had independently arrived at all the right conclusions and expressed them so well.
Great letter!

Lola said...

What DBCR says.

Derek said...

Yup, excellent stuff. Even in the cut-down version!

Ralph Musgrave said...

There is a major problem with the idea in that Evening Standard letter: it implies there are a hundreds of local cartels set up by builders in each locality designed to artificially inflate builders' profits. Indeed, it's not just the author of that letter who subscribes to the "cartel theory": the theory seems to be widely accepted e.g. in academic papers on the subject.

The problem is that far as I know there has never been any evidence of, or prosecutions relating to the above alleged restrictive practice. If hundreds of cartels do in fact exist, I'd expect two or three of them to drop a bol*ock every year and fail to keep their meetings secret.

Or perhaps there is evidence of those meetings and I've missed it????

Bayard said...

RM, where does Mark mention builders? AFAICS he is talking about developers, aka land speculators.

Graeme said...

Ralph, if you look at the annual reports of the house builders, the meme is there. House inflation is not due to the builders. Seven times as many homes get traded every year as are built. So new builders constrain supply for profit

Contact YPP said...

DBC, L and D, thanks.

RM, I just look at the world as it is.

Please click link 3 "The one to ten ratio" in the sidebar.

Have you never read a newspaper article saying that builders have mothballed a project because prices are flat or falling? You see them every times prices are flat or falling. That is what happened in 2008-09, developers just laid off all their subbies and waited for prices to rebound. So the one to ten ratio was maintained.

I have never said there was any sort of collusion, that is entirely unnecessary to achieve this end result.

I trust you realise that land owners are not really in competition?

Mark Wadsworth said...

G, ta for back up.

Dinero said...

You don't need collusion and meetings for effects that are similar to that from a cartel. Just a restricted number of similar minded people with the same goal and information.

Steven_L said...

The problem is that far as I know there has never been any evidence of, or prosecutions relating to the above alleged restrictive practice.

The house builders all colluded unlawfully to maintain blacklists of trade union activists. This was a proven under the table unlawful conspiracy. It would suggest the industry is dodgy.