If you want to see cognitive dissonance in action, watch the Conservative party try to develop popular housing policies without contravening its loyalty to developers, landlords or free market fundamentalism. says Matt Wilde in the Guardian.
However, he goes on, in true Guardian fashion, to produce an example of a housing benefit claimant paying an exorbitant rent for a grotty flat as evidence that the rental market has failed and that rent controls are the only answer before trotting out the following (unsupported) untruth.
But (the smallness of the pre-Thatcher rental market) was largely because most people could either afford to buy or had access to council housing, so there simply wasn’t a great demand for private rented properties. That demand had to be artificially created – largely to the benefit of wealthy investors, certainly not in favour of the state or the tenants.
If you want to see cognitive dissonance in action, read The Guardian on anything to do with housing. They are quite capable, as above, of completely ignoring how the housing market actually works, while producing their pet theories as to how it can be made to work better. They completely ignore that the bottom end of the rental market, which is dominated by social housing and housing benefit, works differently to the rest of the market. At the bottom end, as Mr Wilde points out, social housing rents kept private rents low: why pay a lot for a privately rented flat if you can get a council flat for less, but also, as he fails to mention, the positive feedback of housing benefit inflates rents in the private sector ( 1. the level of HB is set by the the average rent demanded -> 2. the average rent demanded is set by what the tenants can afford to pay -> 3. what tenants can afford to pay is set by the level of housing benefit they receive -> back to 1.) If HB was capped at the sort of rents that Generation Rent are suggesting,
The campaign group Generation Rent argues that a living rent should be no higher than 30% of the average income, and propose that controls could be set according to council tax bands. By capping rents at 50% per month of the home’s annual band, they would be brought more in line with people’s earnings.
then landlords would be forced to lower their rents to that level or have empty properties.
That, and more social housing, would sort out the bottom end of the market. As to the rest of it, why should the government intervene to help out relatively wealthy middle class tenants?
Sunday, 22 October 2017
Cognitive dissonance in action
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14 comments:
The second paragraph you quote is broadly accurate.
One of your sentences appears to be split in two.
Yes. Sort out the HB feedback loop and largely you're done. After all 'all subsidies return to rents'. It's easy to calculate as well. Look at what Council would charge - that is the building only rent, excluding the location premium - and that's it.
"One of your sentences appears to be split in two."
Which one?
"The second paragraph you quote is broadly accurate."
I would dispute that. My own experience was that very few people rented because there was almost nowhere to rent. Since under the rent acts then in force, it was nigh-on impossible to evict a tenant or raise the rent, most people weren't prepared to run the risk. I used to live two doors down from a tenant whose weekly rent had been fixed at ten shillings and the landlord had not managed to raise it in the intervening years. He was simply waiting for the tenant to die.
Also I dispute that the demand was artificially created. When the Tories changed the rental legislation, the immediate effect was that a lot more rental properties came on the market. That was increasing supply, not demand. The demand was already there. I suppose Mr Wilde is referring to the Great British Council House Sale, but that was politically motivated, to break up what the Tories saw as Labour fiefdoms and to bribe voters with state money into voting Tory.
Bayard. Right to buy was definitely the tories trying to build their constituency. Thatcher was very clear and straight about that. It was (is) probably the largest transfer of wealth ever.
The quote cleverly repeated as text.
B, I meant the sentence, half of which appears before the GR suggestion and half after, but maybe that was deliberate.
As to the second paragraph, it is correct. What they don't mention is the fact that the smallness of the private rental market was due to unfavourable treatment of landlords via rent controls and tax system - which is what kept prices down if you wanted to buy (which they do mention). In the overall context, I don't think that this is a fatal error.
Agreed that it is silly to say that demand was 'artificially created', what happened was that 'pent up supply' of BTL landlords looking for an easy buck expanded when rent controls were scrapped and rental income was taxed at lower rates than earned income, at the same time their incomes were guaranteed via HB. But it was definitely cynically and deliberately created as a result of Homey government policies, and is there really such a big difference between 'cynically and deliberately' or 'artificially'??
"but maybe that was deliberate."
It was.
To re-examine the claim in question:
"But (the smallness of the pre-Thatcher rental market) was largely because most people could either afford to buy or had access to council housing, so there simply wasn’t a great demand for private rented properties."
Firstly, the smallness of the market was not because of lack of demand, it was because of lack of supply, (a point you acknowledge, agreed), error one. Secondly, most people couldn't "afford to buy", they never can. As you and I know, prices pretty accurately track the availability of money, i.e. affordability. Things like MIRAS demonstrate that as soon as more people can "afford to buy", prices go up until they no longer can. Thirdly, renting a council house was only an option for those at the lower end of the market. Admittedly, for a trendy left-wing Guardian writer, that may be "the market", nothing else exists, or ought to exist, but that doesn't make him any the less wrong.
"what happened was that 'pent up supply' of BTL landlords looking for an easy buck expanded when rent controls were scrapped"
Er, no, there was quite a big gap between the introduction of uncontrolled rents (rent controls were never scrapped, there are still people enjoying controlled rents whose tenancies date back to the pre-Thatcher years) and the introduction of BtL mortgages. Once again, it is the supply of money that made the difference. Again, though, that doesn't address the essential point he denies, that the demand to rent was always there, he's just giving another airing of the Economic Myth that all tenants are frustrated home-owners.
B, we are splitting hairs here.
Until twenty years ago, most people could afford to buy and in this country, that is just a fact. Which is why owner-occupation rates rose steadily during the 20th century. Culturally, most people prefer buying to renting. That's just the way we are wired. It's the way I am wired. You are the only person I've met who insists otherwise.
As to the "smallness", most people only want to rent for a few years after they leave home (me included) and at that age, I never knew anybody who struggled to find something affordable. It might have been a bit of a tip, but so what? You don't mind so much until you get fussy at the age of 25 or so.
The gap is not as big as you think. Rent controls went out in 1988 (putting a hundred thousand old protected tenancies to one side). So rents increased. The next big change was in 1996, when no-fault evictions became much easier, which is why banks suddenly started doing BTL mortgages.
I know that for a fact, because in 1995 or thereabouts I asked a bank whether they would lend me money to buy the flat below me to rent out (the rent would have more than covered the repayments) and they said they'd never heard of such a thing. In 1999, I asked again and they were handing out BTL mortgages like confetti.
There's no magical 'supply of money' involved. The stream of rental income was already there, the mortgages are just the future rents capitalised into a single made up figure.
"Culturally, most people prefer buying to renting. That's just the way we are wired. It's the way I am wired. You are the only person I've met who insists otherwise."
Possibly because I am older than you and had parents and grandparents who were perfectly able to afford to buy, but lived in rented houses until they retired, my father doing so in the mid 60s. Apart from a few short sharp shocks, house prices have been rising consistently since then. The idea that houses always go up in value is hardwired into our brains now. Almost nobody alive can remember a period where house prices remained the same or drifted down for years. We are all of the "my house earns more money than I do" generation now. Under such circumstances it is totally unsurprising that people want to own, not rent. If we went back to largely static house prices and houses, with their maintenance costs, no longer "paid their way" in land value increases, then how many people would still be keener to own than to rent? It's more of an economic argument than a psychological one. I think the turning point was the introduction of MIRAS. That's when people started saying that, even if you only intended to stay in the house for a few years, owning was a better bet than renting.
"and at that age, I never knew anybody who struggled to find something affordable."
Are we talking pre or post repeal of the rent acts? Before the repeal, affordability wasn't a problem, as rents were controlled. It was availability that was the problem.
I would agree that the rental market then was smaller than it is now, but that wasn't for the reasons Mr Wilde gives, which was my point. True, before the BTL landlords upped the prices for everyone, houses were more affordable, but the huge rise in owner-occupation that took place in 60's and 70s had more to do with the availability of housing and the finance to purchase it than affordability: the unprecedented building boom was accompanied by an unprecedented rise in prices.
B, so there was a time when house prices stayed low and stable. Most people still bought rather than renting. As evidence by the fact that owner-occupation rates steadily rose during the 20th c.
As to MIRAS, you are way off piste with that. Historically, there was always an income tax deduction for mortgage interest, to match the notional Schedule A income. This deduction got less and less generous over the years, finally fizzling out in 2000 or so.
"the huge rise in owner-occupation that took place in 60's and 70s had more to do with the availability of housing and the finance to purchase it than affordabilit"
Not true. In absolute terms, the number of privately rented homes fell during the 20th century because landlords threw in the towel and sold to sitting tenants.
"Most people still bought rather than renting. As evidence by the fact that owner-occupation rates steadily rose during the 20th c."
Not really, take out all those people who inherited a house and the statement "Most people still bought rather than renting" only came true when more than 50% of the remaining households were owner-occupiers.
"In absolute terms, the number of privately rented homes fell during the 20th century because landlords threw in the towel and sold to sitting tenants."
In that case, where did the buyers of the hundreds of thousands of new homes put up in the 60's and 70's come from?
B, private house building has been 150 to 200 thousand a year since the 1950s.
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