Saturday, 9 September 2017

Duncan does Car-Owner-Ism

By @duncanstott:

We could plan cars in the same way we plan houses. Roads are congested, so let's have a planning system to control the number of new cars.

Government would do an objectively assessed car need to set the maximum number of cars that should be built for the next fifteen years. Sadly it's hard to predict what the future holds, so it's likely that the government gets its objectively assessed car need wrong.

Now car builders no longer build as many cars as it can sell - it maximises the value of its car building permits by slowing production. A car shortage slowly emerges. The price of cars no longer depreciate with age. Instead the scarcity value of a car dominates its price.

The car loan industry does well from this. The scarcity value of cars they secure lending against means they offer bigger loans to buyers.

The majority of households are car owners, but the rising price of cars means younger people are really struggling to get on the car ladder. The government recognises more needs to be done to help young car buyers. So they launch a scheme called 'Help To Buy'.

Some older car owners can't understand why young people complain so much, because they managed car ownership through hard work and saving. But car owners also lobby against more new car permits being issued, because it will surely increase congestion [and hit their car value].

Meanwhile left-wing economists point out that plenty of car seats are left empty most of the day, so there isn't really a car shortage. 

What we really need is a quota of new car permits to be 'Affordable Cars', where cars are rented out at 80% of the market rate. No that's not radical enough. What we really need is for councils to be building low cost cars for socially deprived groups.

Anyway, back to the main car market. The most expensive cars are the best built old cars, which also have a vintage beauty. Everybody loves how there are still all these quaint vintage cars around, unlike the modern rubbish the car builders churn out these days.

Maybe if car builders were to build beautiful cars like they used to, there'd be more approval for more new car permits being issued?

Meanwhile, a period of low interest rates has made car loans more affordable, but this new debt sent car prices soaring. Unscrupulous lenders handed out car loans to families who couldn't really afford it, then repackaged the debt for the derivatives market.

Great minds think alike.


Bayard said...

Didn't the government do something like this after the war?

"Now car builders no longer build as many cars as it can sell - it maximises the value of its car building permits by slowing production."

Given that the big housebuilders have ten years' supply of building plots, the so called "scarcity" of permits is hardly an issue here, therefore it must be more profitable for them to operate as they do regardless. Hence it follows that, if that model would be more profitable for the car industry, that is what they would already be doing.

I think it's more down to barriers to entry and lack of competition in the housebuilding world.

In any case, we know that the whole idea that prices are high because of a shortage of new builds is a myth dreamt up by the housebuilders to increase the supply of land and government subsidies for them. I have just read an article where the author both claims that high house prices are due to a lack of supply thanks to government policy since WWII and then goes on to state that house prices follow an 18-year cycle despite the fact that planning policy has remained remarkably unchanged since it was first brought in. Sod it, I'm going to do a post on that.

Bayard said...

"* There will never be 'enough' roads. Once you build one, people will adjust their travel patterns and use it up. Ergo it's just a question of striking a balance somehow."

Glad to find someone else who acknowledges this.

Mark Wadsworth said...

B, I thought most people (apart from politicians) accepted the "build it and they will come" view?

Everybody must have seen this with their own eyes. They build a new road, a new railway line, give it a few weeks or months and it is just as busy as if it had always been there, without a noticeable fall in traffic on the old routes.

Piotr Wasik said...

Excellent (but it makes me angry); both texts - I missed the 2010 one originally.

I wonder however if typical faux lib will not arrive at a (wrong) conclusion that the reason for the whole mess and distortion was the initial government intervention to limit number of cars built, by introducing equivalent of planning permissions. Won't the faux libs just see what they are trained to see?
Government interventions create artificial restrictions, which restricts supply which raises prices. I know it has been discussed here dozens of times, that builders hoard 10 or 20 years worth of land plots that is already permissioned. I know how to read the text but I am already converted. Preaching the converted is easy.

Steven_L said...

He missed the bit where the government decide who to hand out the permits to. Presumably the various manufacturers submit drawings of their cars to the local council. And residents can agree or object to the various designs based on how good or bad it makes their choice car look, but citing environmental reasons instead?

Mark Wadsworth said...

PW, Duncan also subscribes to the mainstream idea that house prices are all about supply.

SL, and that.

Ben Jamin' said...

LVT ie road pricing would sort out congestion, just like it would sort out housing issues.

Supply of capital ie cars and houses obviously not the problem.