Tuesday 3 March 2020

Homeys and Faux Libs talking crap, as per usual.

From City AM:

To combat the problem of housing affordability, the mayor will advocate creating a private rental commission to implement and oversee rent controls and to establish a register of landlords to "name and shame rogue landlords".

However, free market think tanks and London's house builders have thoroughly rubbished the idea, with many arguing that increasing housing supply is the only way to deal with unaffordable rents.

Rico Wojtulewicz, head of housing at the National Federation of Builders's House Building Association, said a cap on rents could hurt the construction industry.


Clearly nonsense.

Let's say Khan caps London rents at half current levels, so rents in London are now the same as in and around (say) Leeds. Is there new construction happening in and around Leeds?

Yes. There is still a profit to be made at Leeds rent levels, and land with planning in
Leeds still has value. So there will still be profits to made by building in London.

Rent caps would only reduce new construction if the cap was so low as to make construction unprofitable, even if land with planning were free.

"[House builders] with projects in the pipeline could suffer, as rent caps may push down land prices, leaving many who have already purchased land, with unviable projects," he said.

Tough, what they paid for land, or what it was worth before the cap is irrelevant to future decision making, it is a sunk cost. They would only slam on the brakes if they had a reasonable expectation that the caps would be scrapped (and in the UK, that is a reasonable expectation).

And as he says himself, land prices would fall, which would encourage construction.

Dr Kristian Niemietz, head of political economy at the Institute of Economic Affairs, labelled Khan's stance "Trump-style knee-jerk populism".

"Rent controls have never worked anywhere," he said, "If Sadiq Khan had any interest in solving London's housing crisis, he would focus on the supply side."


He's a floppy haired Faux Lib who is too stupid to accept that agglomeration benefits will cancel out added supply. In the absence of a total ban on people moving to London, we'll have X more homes and X more households and they cancel out. London just gets a bit bigger (and more expensive), as it has been doing for centuries.

And rent controls clearly do work - see below.

Chris Norris, director of policy at the National Landlords Association, said implementing rent controls would crimp investment within the housing sector.

"Rent controls cap the price a landlord can charge, but not the costs they will incur meaning that as the cost of providing homes increases so will the losses landlords are expected to make," he said, "Landlords will have no choice but to take their investment elsewhere, making it harder still for households to access the housing they need."


Clearly nonsense.

The only significant cost that landlords have is mortgage interest, and that's only some of them. They did leveraged speculation and lost the gamble. That's life. All other landlords will still be earning money, just less than before - or else there would be no landlords in Leeds.

Whether or not Khan realises this, the effect of rent controls (in the UK at least) is that landlords sell up to first time buyers-cum-former tenants, or people buying new homes to live in, not to rent out. That makes it *easier* for households to access the housing they need, i.e. homes to own.

Rent caps are a crude form of land redistribution, but clearly it worked in the UK for most of the 20th century when such controls were in place. The result was a huge rise in owner-occupation levels and we were all happier for it.

14 comments:

Staffordshire man said...

The only significant cost that landlords have is mortgage interest

Is there not an opportunity cost?

Mark Wadsworth said...

SM, but it cancels out. If prices fall, then opportunity costs falls by same amount.

Lola said...

But but but. Rent caps failed in New York....

Mark Wadsworth said...

L, different country, different rules. We know what happened in UK and that would happen again. This is practice not theory.

Blissex2 said...

«In the absence of a total ban on people moving to London»

The issue is as always the concentration of jobs in the London area by huge public subsidies to attract businesses to the London area; mostly in the form of infrastructure, but also immense direct subsidies to industries like finance and property that are concentrated in the London area.
Because jobs are why “people moving to London” happens, not the beautiful beaches, not the sunny and mild climate, not the relaxed and laid back lifestyle.

«Rent caps are a crude form of land redistribution, but clearly it worked in the UK for most of the 20th century when such controls were in place. The result was a huge rise in owner-occupation levels»

People buy houses because they want to be rentiers enjoying the 50-70% per year net compound returns that come from buying on 20 times leverage a speculative asset that is guaranteed by the government to double in price every 7-10 years and those gains are not only work-free, but also tax-free.

And the governments of the past several decades have thoroughly rigged the "free" markets to achieve that because in the last 1970s one of the radical-right think-tanks published a study showing that even at the same level of income voters who own property, have investment pensions, travel by car, are much more likely to vote for right-wing parties than voters who rent, use public transport, have defined benefit pensions.
This has meant that the governments of the past decades have tried to undermine council housing, public transports, DB pensions, and increase home ownership, car travel, investment accounts.

«and we were all happier for it.»

People buy houses not because it is a good option in itself, as ownership is a huge hassle and quite inflexible and if there was a good and cheap rental market it would be much more convenient to leave all issues to specialized letting businesses, and have better freedom to move to look for better jobs, or to upgrade as families expand or needs change.
But then fewer voters would be committed to voting for rentier parties.

mombers said...

In the absence of rent controls, how about right-to-build / right to squat / right to sleep in a park? The supply of housing in your area is fixed, you are forced to participate in the rental market unless you can rustle up hundreds of thousands of pounds for a deposit and even then you're paying way over amortised build costs in most parts of the country.

Mark Wadsworth said...

B2, your first two points are largely true but those are different topics. I disagree with your final point. It's a cultural thing in the UK.

M, those are third best options. Best LVT, next best rent and mortgage caps, then those.

Lola said...

B2 - I think the house-owning-gerrymandering started before Fatcha, but she really got it rolling. It is said that the council house sales at a discount - aka right to buy - was the greatest wealth redistribution ever. Now I know that we can argue about housing being wealth.

Mark Wadsworth said...

L, "the council house sales at a discount - aka right to buy - was the greatest wealth redistribution ever"

Yes, from taxpayers to banks and landlords. I'd always side with the taxpayers.

Blissex2 said...

«People buy houses because they want to be rentiers enjoying the 50-70% per year net compound returns» «People buy houses not because it is a good option in itself, as ownership is a huge hassle and quite inflexible»
«your final point. It's a cultural thing in the UK.»

Well, there is the cultural thing that in this country the landed gentry and upper class have always been the masters, but that happened in most of the world. In the UK lots of people were quite happy to rent council housing when property prices were not booming.

There is much hypocrisy in this country about "owning your own home", that is just political sugar coating to make it looks like a cultural/sentimental issue, when for most people it is all about greed. Consider that when G Brown kept "Right To Buy" but cut the discount to 10% then council house sales fell to very low levels, and when G Osborne increased it to back to 70% sales they boomed again.

Conversely consider the "buy your home" madness in Ireland and Spain and other countries that happened only when their government engineered a house price boom as big as that in southern England. Home ownership for example is much higher in mediterranean countries because of cultural factors, and in east European ones because of recent history:

https://www.statista.com/statistics/246355/home-ownership-rate-in-europe/
https://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate

But in the UK most people are quite utilitarian about housing, they just want the big, fast, work-free, tax-free, capital gains; you surely read the "Mail" and "Telegraph" and they always discuss houses as speculation, not "culturally" (even if housing is also a "status symbol", but that is so in every country). The same in Australia:

http://www.smh.com.au/nsw/buy-property-in-sydney-and-youre-pretty-well-set-for-life-housing-minister-anthony-roberts-20170224-gukm56.html
«"This is about fairness, and this is about enabling people to get into the Sydney housing market," said Mr Roberts, speaking at the launch of a new apartment development at Olympic Park. "Once you are in the Sydney housing market you are pretty well set then for the rest of your life," said Mr Roberts.»

This candid statement by a less hypocritical australian is centred on “pretty well set then for the rest of your life”, not "owning your home".

L fairfax said...

Is it true that Thatcher wanted to sell off council houses to harm the unions - not to increase homeownership?
The idea (no idea if it is true) that a Labour council will not evict someone behind on their rent because they are on strike, but a building society will evict someone behind on their mortgage because they are on strike.

Bayard said...

LF, as far as I could see, it didn't go further than council house tenant = Labour voter, home owner = Tory voter. I'd doubt if it was much more sophisticated than that.

Blissex2 said...

«Is it true that Thatcher wanted to sell off council houses to harm the unions - not to increase homeownership?»

As I wrote in the late 1970s “one of the radical-right think-tanks published a study showing that even at the same level of income voters who own property, have investment pensions, travel by car, are much more likely to vote for right-wing parties than voters who rent, use public transport, have defined benefit pensions”. but mortgaged workers also indeed are more fearful of being unable to pay the mortgage if they strike. But then in 2008-2009 a large number of mortgagees stopped paying and the New Labour and Conservative governments instructed banks to show "forbearance" for years because they were tory voters.

«it didn't go further than council house tenant = Labour voter, home owner = Tory voter»

A relevant quote from an indisputable source:

http://www.conservativehome.com/thetorydiary/2014/03/how-thatcher-sold-council-houses-and-created-a-new-generation-of-propertyowners.html
“There were even prophetic council house sales by local Tories in the drive to create voters with a Conservative political mentality. As a Tory councillor in Leeds defiantly told Labour opponents in 1926, ‘it is a good thing for people to buy their own houses. They turn Tory directly. We shall go on making Tories and you will be wiped out.’ There is much of the Party history of the twentieth century in that remark.”

Bayard said...

"They turn Tory directly."

Thanks for confirming my hunch.