Tuesday, 24 July 2018

Oh the irony...

AFrom here: IEA launches Breakthrough Prize – £50,000 for your 2,000 word idea to solve UK’s housing crisis:

Richard Koch – the benefactor and supporter of the Prize – is a British author, speaker, investor, and a former management consultant and entrepreneur. He has written over twenty books on business and ideas, including The 80/20 Principle, about how to apply the Pareto principle in management and life.

The Pareto Principle is handy shorthand for many things, but let's not forget that it is based on the fact that "Essentially, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population."

Apart from that bit of irony, the whole thing is a travesty, it's like asking Houdini to get out of a strait jacket... without moving. Every premise is false, every statement a platitude and the questions are all (mis)leading questions:

Competitors will be asked to propose a single policy initiative which would:
• Increase the number of houses built so as to markedly reduce the housing shortage in this country (this can be reduced through increased rental or ownership).
• Increase the number and proportion of property owners in the UK.

i. There isn't a housing shortage in absolute terms, as a nation we've got 25 million spare bedrooms. Or as Blissex pointed out on an earlier thread: there's plenty of housing but the jobs are in the wrong places.

ii. Home builders have a profit maximising level of output, which is broadly speaking one new home for every two additional people in the UK. Unsurprisingly, and being fair to the construction industry, they have been building this many on average, even over the last ten or twenty years.

Why on earth do people who claim to understand free markets and capitalism think that "a single policy initiative" will encourage them to build more than this, thus depressing their own profits? (You aren't allowed to mention LVT, of course, but even that would not particularly increase overall construction rates).

iii. As to the second bullet point, private landlords acquired more homes over the last twenty years than were built. It requires government intervention, like restricting interest relief of charging landlords 3% extra SDLT to reverse this trend. (But you aren't allowed to recommend any sort of government action, oh no, that's not "market based").

Jacob Rees-Mogg said:

“Building more houses and supporting home ownership are the two great challenges for Conservatives. A property-owning democracy provides one of the most stable and prosperous forms of society. Its erosion denies people their reasonable life’s ambition."

Sure, until the 1970s, Conservative and Labour governments alike increased owner-occupation rates. They allowed lots of new homes to be built and discouraged landlords from snapping them up (rent controls and punitive taxation of rental income). Labour tended more towards building social housing, which kept a lid on private sector rents, but there was an overall consensus.

That social-democratic principle was gradually binned in in the 1980s and 1990s and now we have full-on Home-Owner-Ism - the aims of which are ever more expensive housing owned by fewer and fewer people. In other words, shifting back to the concentration/inequality which Pareto observed.

Mark Littlewood, Director General at the Institute of Economic Affairs said:

“Market-based policies have the power to dramatically change the economy and society for the greater good... it is time politicians looked beyond Brexit, to the pressing domestic issues of our time – arguably the most pressing of which is the cost of housing.”

T'was only government intervention and regulation which kept prices low until the late 1990s (s21 HA 1988 was changed in 1996-97 to allow no fault evictions, which threw the match on the bonfire which they had been building since abolition of Schedule A taxation of imputed rents on owner-occupied housing in 1963). "Market-based policies" had little to do with it.

Richard Koch said:

“In the twentieth century, home ownership went from one in ten Britons to seven in ten – a terrific achievement in extending a real property-owning democracy. And in the 1980s, Mrs Thatcher enabled millions of people whose families had never owned a home before to get on the property ladder. Today that’s just not possible.

Sure, home ownership increased rapidly, what these "free market" wankers never mention is the obvious corollary, that private landlords were nearly wiped out. That was the key to all this; eliminate the landlords and owner-occupation increases automatically.

And Thatcher could only "enable millions" to become owner-occupiers by flogging off the nicest third of social housing to higher earning tenants at big discounts. I fail to see how one government giving away assets accumulated by previous governments is a "market-based policy". This couldn't have happened if those previous governments had not adopted the distinctly "non-market based policy" of building all that social housing in the first place.


Ralph Musgrave said...

“Why on earth do people who claim to understand free markets and capitalism think that "a single policy initiative" will encourage them (house builders) to build more than this, thus depressing their own profits?”

Answer: if the “initiative” consisted of relaxing planning controls, the totally ludicrous cost of land with planning permission would decline, which would make it profitable for builders to build more homes – i.e. their profits would not decline.

As for the idea that covering more of the UK with concrete is hardly desirable all I can say as a former BNP member is: I did warn you.

Mark Wadsworth said...

RM, you keep making this claim about cost of land being a function of planning. It's quite simply not true.

And the country is not going to be concreted over any time soon. Please don't drag in the topic of (understand) immigrants into this, that's a distinct problem. Intra-EU immigration is fairly small numbers and no harm done.

Mark Wadsworth said...

... the IEA's whole knee jerk reaction to high house prices are that local councils/nimbys are to blame, which is hokum.

Mike W said...


In the face of the whole thing being a travesty: Silent Protest.

Note Banksy got himself rejected by Royal Academy. https://www.bbc.co.uk/news/uk-england-bristol-44446806
Call yourself George Paininthearse.Not a clever anagram, I know, but designed so they can figure out it's you.

1/Copy and paste http://www.if.org.uk/2014/07/01/housing-crisis-what-housing-crisis/ (I assume it can hit the wordcount)

Let us all know the grounds they reject LVT lite on.

2/ Staple the expected rejection by IEA to above doc, and send the whole thing over to the Labour Party.

Let us all know the grounds they etc, etc... Wash and repeat :)

Ben Jamin' said...

Submissions to solve the housing crisis, but only ones we already promote and agree with.


Lola said...

What defeats me is that they all keep coming up with one dimensional 'solutions' which do not recognise all the complex causes of the land price crisis. And as for thinking that the sale of council houses was a market solution? Well...?

Lola said...

Just to add, as some of you know, I work in the retail FS market and that includes mortgage arranging. I refuse, absolutely refuse, to get buyers involved in the insanity of mortgage income multiples of upwards of 5 times based on spurious 'affordability' criteria. It's madness.

Lola said...

I am not entirely sure that government actions like Schedule A taxation and council house buildings are 'interventions' as such.

The formation of the nation state comes about over time where a group of people evolve agreed values within a territorial boundary. By being finite those boundaries mean that land within them is limited. And the value of that land relates entirely to the work of all those citizens with those shared values. Yes Yes I know I know that history is a story of various warlords accreting ever larger territories, but without the help of the people they could not do that and make a success of it. So if we take the libertarian homesteading view what the nation state is is an assembly of lots of those homesteads with shared values.

This circumstance leads automatically onto the need for the two key functions of the 'state' - defence (of the Realm) and a system of justice (to keep one citizen safe from the predations of another). Both of these functions are essentially the defence of property rights, national and individual. So what is the least worst way that these necessary two state functions can be funded? What tax regime works best.

Well, it is obvious that this is some form of land tax.

As this is a location tax it to a degree automatically taxes highest those who occupy the most desirable locations within the nation state it follows it must be a progressive tax.

Next since the land in this nation state is a de facto monopoly of the state - the ultimate owner of that monopoly being the citizens - how can it be acceptable that a few citizens are enabled to enjoy more benefits from the land monopoly than others?

If you take away the location premium then house builders (I am ignoring commercial buildings pro tem) will have to compete on the qualitative standards of what they build when they compete in similar locations. That might mean that the standard setting and price control function of council housing is not required - as it has been to provide competition for tenants and drive up standards.

These are not 'interventions' as such. Just logical responses to a requirement to fund the protection of property rights.

Of course, all this presupposes that the nation state - if it has a monopoly of money (which I would not support) - makes sure that sound money is available to the citizen. And that it does not engage in various subsidy programs to special interest groups where these subsidies always end up in rents, aka land prices.

Therefore these (non) interventions (LVT) lead to less interventions overall.

Dinero said...

Regarding the word shortage , a relevant statistic would be the ratio of the number of houses for sale , to the number of people wanting and actively seeking to buy a house.

Mark Wadsworth said...

MW, the Labour party are just as Home-Owner-Ist as the IEA.

BJ, exactly.

L, that last comment was worthy of a post in its own right!

Lola said...

MW So I see!!

Striebs said...

Dinero ,

I think it would be a lengthy exercise to precisely define "supply" and "demand" in the housing market .

Presumably most people who are active in the owner-occupier market are both UK sellers and UK buyers at the same time .

BTL'ers are likely to be buyers without being sellers at the same time - except when there is a mad rush to the exit when the last 10 years goes into reverse .

People have short memories .

When there is a long upwards trend in house prices it is easy to people to convince (deceive?) themselves that housing is subject to the laws of simple supply and demand .

About the only thing which will challenge their entrenched belief is rapid price corrections of 30-40% on the way down !

Mike W said...


Labour will be just as bad. Yes that's what I guess, hence the bitter little joke at the end.

Unknown said...

Interesting comment that there are plenty of houses - just not where the jobs are.

This suggests a simple, instantaneous solution to the housing crisis: subsidize people to live in regions with surplus housing.

If you paid people 2-3k to live in an area where land prices are low in addition to any existing benefits they (or don't) qualify for regardless of any other income and savings and on top of existing pension entitlements, no strings attached - then the housing crisis could be solved overnight.

The additional money (both the 2-3k subsidy itself *as well as* other redirected income such as pension entitlements) would channel money into depressed economies in the north of england and wales create jobs, boost business and have a massive multiplier effect while taking pressure off the London housing market.

Ralph Musgrave said...

Mark, I'm baffled by your claim that the huge difference between land with planning permission and agricultural land has nothing to do with planning permission. Clearly agglomeration effects are significant in cities, but in more rural areas, if there were no planning laws, there would be no reason for any difference in the price of the latter two types of land.

Why is there no difference in the price of land to be used for growing wheat as opposed to barley or potatoes? Reason is that if land is classified as agricultural, no special permission is needed to grow wheat rather than anything else.

Mark Wadsworth said...

U, that sounds a bit like John McCone's 'countryside living allowance' :-)

Bayard said...

"Answer: if the “initiative” consisted of relaxing planning controls, the totally ludicrous cost of land with planning permission would decline, which would make it profitable for builders to build more homes – i.e. their profits would not decline."

The reverse actually. There is absolutely no difference between a piece of land without planning permission and a piece of land with planning permission (or with a good chance of the owner getting PP) but also with a restrictive covenant preventing any building on it. The effect of that restrictive covenant is to reduce the value of the land drastically. Remove the covenant and the value will shoot up in exactly the same way as the value of land shoots up when you get PP. The effect of removing planning restrictions would be exactly the same as removing a covenant. All land would then be worth what land with PP is worth now. So anyone in the market for building land would be no better off. The only beneficiaries from such a move would be existing landowners.

Mark Wadsworth said...

B, agreed. Why do these people realise that the planning system reduces the total value of all land? Scrap it, and the total value of all land goes up.