From CityAM:
LOWER rates of home ownership are set to cost the government an extra £8bn a year in housing benefit, a think-tank said this morning.
Once today's generation of renters retire, there will be 3.45m pensioners claiming housing benefit by 2060, the Strategic Society Centre (SSC) has calculated. In today's prices, these claimants will cost the state £13.45bn a year – around two and a half times the size of the current £5.32bn bill for housing benefit...
And thus the cycle of debt, rent and taxes is perpetuated. Today's workers are forced to pay inflated rents because of Housing Benefit as well as the higher taxes to fund that Housing Benefit; landlords just collect the Housing Benefit, that's their pension, innit?
But one man's pension is another man's poverty. With more retired tenants in future, the Housing Benefit bill and hence the taxes to pay it will be even higher, so future workers will also be forced to pay higher rents and will then end up claiming Housing Benefit themselves when they retire, landing the generation after that with even higher taxes and rents until one day a handful of people own all the land and collect all the rents, as well as a goodly chunk of tax revenues via the system of land subsidies (Housing Benefit, CAP payments etc).
Which is what some people refer to as "Feudalism".
Wednesday, 27 June 2012
Another nice little Home-Owner-Ist time bomb for future generations to sort out...
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28 comments:
"Today's workers are forced to pay inflated rents because of Housing Benefit"
How so? HB only inflates the rents of properties available to claimants of HB, not all properties for rent (as you demonstrated many posts ago).
"hence the taxes to pay it will be even higher, so future workers will also be forced to pay higher rents"
Come, come, Mark, have you forgotten your Ricardo? Higher taxes means less post-tax income, means less money available to pay rent means lower rents.
AFAICS, there are two main problems facing people on housing benefit when they want to rent: deposit and insurance. Because they generally can't get a deposit together and, even if they can, most insurance companies won't insure the property if a HB claimant lives there (even if the HB claimant is only a lodger), they have to rent off specialist landlords, who hike up the rent because they know that the council will pay for it.
Now, if HB was scrapped and instead the LA rented property and sublet it, the LA could deal with the insurance and deposit issues and at the same time control the rents to prevent the positive feedback put into the system by the present system of HB.
B, as to your first two points, I was hamming it up a bit, but the overall effect is as I said.
As to LA's renting homes from private landlords and putting their own people in, a lot of them do that, some of my landlord friends reckon it's a nice little earner and on crappier homes, brings them in more cash than if they looked for their own tenants. And what's good for the landlord is bad for the taxpayer. More council housing is the way forward - the one government service for which there is huge demand and which can be run at a small profit.
I'd say that was more like Rome than feudal. Maybe they are the same.
Caesar - banks (top rent receivers)
Senators- govt handing out privileges to mates and themselves (secondary rentiers)
Equestrian Order - civil service and middle class, serfs supporting the above (tertiary)
Slaves - tenants and mortgagees. (fucked)
Forgot this bit: Agreed on council housing. I am engaged with Bracknell on this idea:
UK councils lend large sums of money to the banks.
Oxfordshire County Council, for example lends £27m (long term), £140m (short term) and more.
The average interest rate paid to The Council is about 1.1% per annum.
Home buyers in Oxfordshire borrow large sums of money long term from the same banks, paying interest to the banks of about 5.0% per annum.
The banks are collecting the difference in interest rates.
If the Council used its £27m to pay off some home buyers debts, in exchange for a rent charge on that amount, both parties could gain
substantially.
£1m a year to split between them.
An LVC (rentcharge) is the perfect solution.
Put the growing surplus into more council homes.
RS, yes of course it's more like Rome but most people are unfamiliar with the Roman economic system.
"some of my landlord friends reckon it's a nice little earner and on crappier homes, brings them in more cash than if they looked for their own tenants."
Yeah, that's the big snag with the idea: it makes life easier for the bureaucrats if they are generous with the rent offered, as they don't have to try too hard to find properties to rent, plus they can do their landlord mates a favour. However, no system designed to save taxpayers money will ever work if the people administering it don't give a shit.
Building more council houses is a good idea, but politically it's not going to happen, because so many of the working council house tenants have bought their houses, leaving the remaining houses inhabited largely by people on the dole, seen politically as scum. Also tenants are now seen as losers who can't get it together to buy somewhere. Put the two together and you have a massive politicomedia bias against council housing. Councils renting privately gets round this problem: the fact that the ones that do it often don't do it well is no argument against it; many LAs have terrible housing services too.
Any chance of City AM explaining why this is not a perfect example of home owners imposing a heavy burden on everyone else? No new building and no policies to reduce under-occupation = massive welfare bill or mass poverty and crime if you throw those who can't afford housing under the bus
B, agreed about wild prejudice against council housing. Except from those on the waiting lists or those in actually in it.
M, City AM are Home-Owner-Ists. They prefer to blame the "soaring Housing Benefit bill" on "the lazy and feckless who aren't prepared to get on the housing ladder".
More council housing is not a good idea.
Building ALOT more housing (and ending immigration subsidies) is.
SB, there are lots of people who say that, but if you put knee jerk dislike to one side and look at actual facts and figures and so on, you come to the conclusion that council housing is the best kind of housing.
"But one man's pension is another man's poverty."
No. You are thinking of it as a zero sum game. But if people weren't allowed to have pensions, they would not save as much: they would spend their money on consumption goods rather than capital goods, and pensioners and non-pensioners alike would be worse off.
Non-pensioners do benefit from the existence of more capital in the economy, even if they have to pay rent to use it. This is shown by the fact that they pay rent to use it.
True, they would be better off at first if they could steal it all -- a one-time tax -- but there are no one-time taxes, and future non-pensioners would be worse off.
JJ: " if people weren't allowed to have pensions, they would not save as much: they would spend their money on consumption goods rather than capital goods, and pensioners and non-pensioners alike would be worse off."
Oh come off it. Nobody said that you aren't allowed to have pensions. The productive economy is NOT A ZERO SUM GAME. If people spend more in 'stuff' then that's income for the people who make 'stuff' and it increases the value of shares which people own in Stuff plc.
And the people who make 'stuff' will be well concerned to accumulate capital to enable them to make more 'stuff'.
Household SAVING and formation of CAPITAL by businesses are two separate topics which have quite different objectives.
But land ownership is NOT part of the productive economy, it is if anything a negative sum game, because those people who live off rents have no need to do anything productive.
And land is NOT CAPITAL.
Please don't deliberately confuse these things and then accuse me of having done so.
Er no.
Council housing is by far the worst kind of housing.
JJ, I explained why "household saving" is entirely different to "capital formation/invesment by businesses" here.
Households do not choose between "spending on consumption goods" and "spending on capital goods" they choose between "spending now" and "spending later". It's businesses who make the choice between "spending on capital formation" or "not spending on capital formation".
The amount which businesses are prepared to invest in new capital is by and large a function of how much they expect consumers to spend on their products.
So if all households started "saving" like mad then there would be no investment by businesses in capital assets.
Simples.
SB, you're wrong. I can't be arsed explaining it to somebody with residual Home-Owner-Ist instincts, for a dozen reasons you are wrong.
Er you're the one with residual statism!
Homes are best owned. Land is best to tax. Do nothing else. It's you who have the problem with special interests, state meddling with children and housing!
SB, no, there is one thing where the "free markets" have failed most spectacularly, and that is anything to do with land use, especially housing.
Fair enough, we are agreed on LVT. The normal private tenant pays LVT to HMRC and the buildings rent to the landlord (or he pays both as one total amount to the landlord, and the landlord is then responsible for paying the LVT).
And a social tenant pays LVT to HMRC and the buildings rent to the local council, or maybe he pays the whole lot to the council and the council hands over the LVT to HMRC (same thing).
So you have some sort of grudge against people renting buildings from the council. What's the problem? Why is this any different from businesses or households renting buildings from Crown Estates?
Owning land and buildings is so simple, it's something that not even the government can run at a loss, and some people would prefer to have a landlord who's not going to suddenly rack up huge mortgage arrears and have the house repossessed and so on.
Renting from the government wouldn't bother me in the slightest, it certainly simplifies a lot of bickering over the split between the rental value of land and the rental value of the buildings, you just pay one total amount as rent and that is the end of the matter.
And because the council can own hundreds or thousands of homes in one area, they are more likely to do repairs to common areas than lots of individual landowners who don't care about the common parts, like roads or parks and so on.
"Owning ... buildings is so simple, it's something that not even the government can run at a loss"
Oh really?
That's why council houses are so pretty and command higher prices than the stucco-fronted ones right next door. The councils had much better taste and commercial sense, so they hired better architects. Council estates are lovely places to live, partly because the councils maintain them so much better than rapacious private landlords.
JJ, I'm an accountant and former BTL landlord. I know about this stuff. Council housing more or less breaks even on a cash basis. Fact.
The true income is headline rents minus cash subsidy from central government (i.e. Housing Benefit). This is more or less equal to the running costs. The notional interest cost is naff all (because borrowing costs are very low and you'd have to factor in notional capital gains as well).
The so-called "subsidy" is merely because councils don't charge for the location value but in the absence of Land Value Tax, owner-occupiers and private landlords don't pay that either, so big deal.
If we had full-on LVT, then yes, some council rents would go up (i.e. in Inner London) if councils wanted to cover their costs, this is not A Bad Thing, but its chump change (TM Kj) in the grander scheme of things.
JJ, just because you (and lots of others) don't like council housing doesn't mean there aren't millions of others who do. The clue is that there are four million people on the waiting list.
I cheerfully admit that it's not meant for everybody, the point is to give people a CHOICE: pay high rents to a greedy grubbing landlord; pay high mortgage payments to a greedy grubbing bank; or pay low rents for something a bit naff to the local council.
I agree about all the LVT stuff.
But councils shouldn't be building the buildings.
"The notional interest cost is naff all (because borrowing costs are very low and you'd have to factor in notional capital gains as well)."
That doesn't mean it is profitable. The government should not have an interest rate: it is not capable of having a time preference/liquidity preference. The government should not borrow. The logic of the privates sector does not apply. If a private business borrows at one rate in an undistorted savings/loans market and invests in a business which makes a higher return (allowing them to pay back the loan and take their profit), this shows that society is better off/wealth has been created. But if the government borrows at one rate and does something that generates a revenue stream at a higher rate, enabling them to pay off the loan (it doesn't have to be a business enterprise, it could just be lending the money straight out again at a higher rate), it does not follow that wealth has been created.
To see why, in simplest case: imagine the government borrowed at 2% and lent out to private businesses at 5%. This would destroy the economy fairly quickly.
"The clue is that there are four million people on the waiting list." That doesn't have anything to do with the council renting them out at below market values? Not even covering the land rent, let alone the building rent?
People like council housing because it is cheaper than it should be. If there was an LVT, it would be clear that people only like council housing at the moment because the land component is subsidised, not because they like the buildings.
JJ, your musings on government borrowing are all very interesting and probably correct (I'm a fiscal conservative myself, unlike the Home-Owner-Ists), but is a bit off-topic.
The point is that CHOICE adds value in itself. If they only made blue jeans and somebody decides to make black jeans instead, then even if the cost of making the black jeans is the same and the selling price of black jeans is the same and the number of blue jeans sold falls by exactly the same as the number of black jeans sold, then on the whole, we are all slightly better off.
Look, I agree on councils in more expensive areas not covering the land rent* (it does very much cover the land rent in most areas), but the land rent not collected from social housing is a pittance compared to the land rent not collected from privately owned housing.
Tackle the big issues first, then the little ones :-)
* And I'd quite happily push up rents for social housing in Innner London.
"The point is that CHOICE adds value in itself."
But not if it is funded from taxes. I mean, the govt could increase taxes and spend it on producing a whole bunch of new products that no one wants.
P.S. "privates sector"? Oops.
JJ: "But not if it is funded from taxes."
Council housing isn't funded from taxes, it's funded from council rents (net of HB). And a lot of people do want it.
"That's why council houses are so pretty and command higher prices than the stucco-fronted ones right next door."
Once upon a time, in the dim and distant past before Maggie introduced the "Right to Buy", council houses were exactly the same as the ones next door. You could have a terrace and some house would be owned by the council and some privately owned, but these houses were the first to be snapped up by RTBers. Council housing today tends to be naff and grotty precisely because all the good ones have been sold off at a discount. Now there's a huge subsidy that those who dislike council housing rarely mention.
"The clue is that there are four million people on the waiting list." That doesn't have anything to do with the council renting them out at below market values?"
No it doesn't. If it did, the people on the waiting lists would have to be renting privately at market values. If you are renting privately, then you don't have a hope of getting anywhere on a council house waiting list, so it's pretty pointless being on one.
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