Wednesday, 16 October 2013

Home-Owner-Ists merrily jumbling legal and economic concepts

They'll pick and choose whatever suits them:

People who rent out their council homes to make money could be locked up for two years under new laws which come into force today. For the first time, sub-letting a council property is now a criminal offence with fraudsters also facing hefty fines.

OK, council and Housing Association tenancy agreements say that you are not allowed to sub-let; but so do most private tenancy agreements.

A private tenant has little incentive to sub-let because there's no money in it. If you are paying market rent and sub-let for market rent, there's no profit in it and a lot of hassle for you. Clearly, if a private tenant sub-lets, that is a civil offence and the landlord can terminate the agreement and evict the original tenant.

The Homeys then decide that council tenancies are a special case, and say that sub-letting is a criminal offence, which is a purely legal concept as there is no real crime involved, but hey, their gaff, their rules. The reason social tenants like sub-letting is because they can pocket the difference between the low social rent (about £80 a week) and the private rent (about £160 a week on average across the UK, call it £250 a week in London).

But the naughty social tenant's £170 a week (£9,000 a year) pure profit is no actual or legal cost to the taxpayer, he is getting the £80 a week official rent whatever happens, it is purely an economic or notional cost, i.e. in economic terms, you can view the £170 as a notional loss to the taxpayer of the rent he could be collecting.

Ministers are clamping down on the practice after discovering it costs the taxpayer £1.8 billion a year and clogs up desperately needed social housing.

When they say "it costs the taxpayer £1.8 billion a year", this is purely a notional cost, i.e. let's say that five percent of social housing is sub-let = 200,000 units @ £9,000 = £1.8 billion.

That notional cost is the same whether sub-letting is legal or illegal, it makes no difference. Notional costs are an economic concept, not a legal one.

But seeing as we have merrily segued from legal to economic concepts, what is the cost to the taxpayer of all the social housing which Thatcher and Blair sold off for cheap over the last thirty years? Average private rents across the UK are £160 a week and the taxpayer is losing all of that = £8,000 a year.

That's 1.5 million units @ £8,000 = £12 billion a year.

Hmmm, what's the larger cost to the taxpayer - £3.6 billion or £12 billion?

"Ah, but..." squeal the Homeys, "If you bought your council house, albeit at a huge discount, then it's yours to do with as you please. If people rent out their old ex-council house, that's not a cost to the taxpayer."

It's not necessarily an actual cost, no - but neither is [illegal] sub-letting of council housing, we established that.

But of course it is still a notional cost, and one four or five times as large.
For a rich seam of Homey DoubleThink, I refer you to Bill Quango's post.

He makes the perfectly sensible point that the majority of the council houses which were sold off are still occupied by the family had always lived there and then bought it. Seeing as they would have stayed in the house either way, that sale has no net effect on availability of social housing.

Fair enough.

But then he merrily throws in a classic bit of Home-Owner-Ism:

The idea was not to give tenants a house and then build another one for some else. It was to remove people from state dependency for their property and, as a bonus, turn socialists into capitalists through asset transfers.

We've heard this crap so many times that many people actually believe it, but it crumbles apart under closer scrutiny.

How on earth does making people pay some rent every week, even if it only £80 mean "state dependency"? Why does it make them less dependent if you effectively give them that house for free?

In my simple world view, if the state gives people stuff for free then that is truly "state dependency". If the state charges market rates, or at least some sort of contribution towards costs, like social rents, prescription charges, or charging for dentists, then those people are forced to be a little more self-reliant i.e. less dependent on the state than people who get things for free.

Our successful right-to-buyer is in the happy position of paying no rent, having paid off the laughably small mortgage years ago. So he has to be slightly less self-reliant than the tenant next door who is paying £80 a week which at least covers the costs and maintenance etc.

And this does not turn people into "capitalists" it turns them into rent-seekers. If the government can afford to forego £80 a week from a social tenant, the best thing it can do is cut their PAYE deductions by £80 a week but continue to collect the rent. That's the carrot and stick to make sure that people go out to work, to the benefit of the tenant, wider society and the taxpayer as a whole.

And even if Bill is right, that building a council house, renting it to a family for a few years for a low rent and then allowing them to buy it for a fraction of its full market value turns people "into capitalists", then why aren't we doing more of it? Why don't we do it for everybody? Why don't we just build half a million of them every year and give them to every young couple who get married as a wedding present?


Rational Anarchist said...

As far as council tenants sub-letting their houses, the main issue to me is one of fraud. They are claiming that they have nowhere to live, so need subsidised housing; then they sub-let the housing to someone else. Thus, fraudulently claiming benefits. As such, I can see why they've criminalised it.

In an ideal world there would be a vast amount more "council housing" and the rents collected could pay for a substantial amount of the government, but our political system guarantees that such sensible solutions are not going to happen.

Right now, Conservatives have power (kinda). If they wanted to invest large amounts of cash to build council houses, the benefits would not be realised for several years, and the next government (or the one after) would get the credit (and the extra money to spend). Whereas a policy like selling off council houses would give them more money to spend now (albeit at the cost of lower income in future years - good news, it's not likely to be their problem!)

And this is why our particular flavour of democracy (aka popularity contest) sucks.

(Sadly, we've yet to find anything better)

Derek said...

Rational Anarchist wrote:
They are claiming that they have nowhere to live, so need subsidised housing;

But council isn't subsidised, is it? It's just cheap. However its cheap rental still covers its costs.

Consider the case of a private landlord A. He has no mortgage. He can afford to charge less than the going rate. As long as he's getting enough to cover taxes, insurance and maintenance, there's no subsidy going on.

The council is like landlord A, except its costs are even lower because it doesn't have to pay taxes. So it can make a larger profit when charging the same rent as the equivalent private landlord.

So no subsidy required. Council housing is just cheaper.

Mark Wadsworth said...

RA, yes, agreed to all that, but as D explains, Council Housing is NOT subsidised, you've fallen for a Homey myth there.

Council rents slightly more than cover running costs. Housing Benefit on the other hand IS a subsidy.

Yes, you can argue that there is an "economic subsidy" that council rents are lower than private rents, but that discount is negligible:

Imagine - they scrap Housing Benefit and told councils they could charge as much as they liked. How high would they be able to set the rents?

On average, they would be much lower than now. Half of council tenants would not be able to afford much more than five or ten pounds a week. That would be the "market rent".

Even more irritatingly, the only people entitled to argue that there is an economy subsidy to council housing are Land Value Taxers, who point out that the economic subsidy to privately owned land is many times greater.

D, ta for back up.

Lola said...

I think BQ was right, but wrong. I think the point he was making was that it was all about jerrymandering the electorate by turning them into homeowners. Whether BQ knew that this was the point he was making is not clear.

Anonymous said...

L, yes, but if building housing and selling it off cheap is A Good Thing, why don't we do more of it? Why not do it for everybody?

The Homey elite hate council housing because they can't earn any money from it. That's why they constantly push this anti-social housing propaganda.

Dinero said...
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Dinero said...
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Bayard said...

Council housing may not be subsidised, but there is still a cost when someone sublets a council house. This is because there is then another family that the council has to pay housing benefit to, or maintain in B&B accommodation that could be costing them nothing living in that council house.

Mark Wadsworth said...

B, council housing at headline rents is very much NOT subsidised, certainly not in cash terms and possibly not even in economic-notional cost terms. It "costs" the taxpayer (who owns that housing) nothing.

Housing Benefit on the other hand clearly is a subsidy, in cash terms, in economic-notional terms.

So if we want to minimise the cost to the taxpayer, instead of pissing £8 billion up the wall for subsidies to private landlords, let's build a load of council houses instead.

That's my cold logical position at least.

But the Homeys hate council housing, full stop, and the Homey elite is of course a beneficiary of that £8 billion subsidy so they are quite happy with the LMBH status quo.

Bayard said...

"B, council housing at headline rents is very much NOT subsidised"

Er, didn't I just say that?

"Housing Benefit on the other hand clearly is a subsidy, in cash terms, in economic-notional terms."

Exactly, so when a private tenant on HB moves into a council house, there is a saving to the community, hence the prevention of that happening is the opposite to a saving, i.e. a cost.

Mark Wadsworth said...

B, I was actually agreeing with you.

But this bit confused me a bit: "Council housing may not be subsidised, "

DId you mean "It is against the law for it to be subsidised" or "It might not be subsidised" or did you mean "It isn't subsidised"?

I wasn't sure so I thought I'd emphasise my own understanding.