Wednesday, 7 May 2014

Tsk tsk, these Faux Lib dickheads and their economic "theories"...

From City AM:

The rent regulation that Ed Miliband plans to introduce would see three-year rental contracts become the norm, during which landlords would be banned from introducing “excessive” rent increases.

These so-called second generation rent controls (SGRCs) are more sophisticated than their big brother, the simple nominal rent freeze rejected as destructive by almost every economist alive. But theoretical literature and evidence also stack up against this twist on an old measure.

Economic theory says that the quality and quantity of rental accommodation on offer will decline (even further) if there are absolute rent caps; quite clearly this is true (hardly surprising).

But why rely on theories if you have actual FACTS and real life examples? What people in the UK want isn't good quality and readily available - but expensive - rented accommodation; it's affordable owner-occupied housing! Home-Owner-Ism has twisted that perfectly understandable urge and turned it on its head (the aim nowadays is to concentrate land ownership and rents in as few hands as possible) but by and large, most people (including me) would agree that owner-occupation is the best form of tenure for most people for most of the time.

So they subscribe to the obscure "disappearing homes" theory; as we know perfectly well from the UK for most of the 20th century, if you have rent controls (in combination with more new supply of private housing, more council housing, mortgage restrictions and heavier taxation of land values, Domestic Rates) then you get long term affordable housing and a rapid increase in owner-occupation levels.

If current tenants only had to compete against other current tenants when homes come up for sale, and they know that renting is a very affordable (albeit grotty) alternative, then house prices will be lower.

This happens to be what most people in this country genuinely want.

Assured tenancies make it hard to get rid of the bad tenants. The prospect of being lumbered with one, therefore, dulls the incentives to build new rental properties and makes repurposing existing ones more attractive.

WTF?? Nobody said that landlords wouldn't be able to get rid of "bad tenants" (I assume this means non- and consistent late-payers) did they? Even if rent caps did increase the chances of being lumbered with one - it clearly wouldn't, it would reduce it, because fewer tenants would struggle to pay the rent - it does not dull the incentive to build new properties, because people will buy them to live in instead, a bit like, er, most of the 20th century.

When he says "repurposing", I suppose he means "selling to an owner-occupier", which knackers his whole "disappearing homes"argument.

This sees a reduction in housing supply and fewer properties available for new tenants, and that limited supply manifests itself in the form of higher rents.

This is Faux Lib fuckwittery at its best. Lower rents lead to higher rents. Has he not heard of market equilibrium?

Labour has hit upon an area that requires reform, but any form of rent control is at best a poisoned solution. Creating legal structures for landlords to offer three-year contract options and a liberalisation of the UK’s construction industry would be a better way to help out UK renters, and without the bitter taste.

Landlords and tenants are already perfectly entitled to agree any terms they like, the AST is just a basic minimum requirement.

What bitter fucking taste? Is the man mad? Does he mean the bitter taste of "Oh my God, houses are affordable again, we can pack in this renting malarkey and easily buy somewhere."? Sounds good to most people, I'm sure.

DISCLAIMER: If you want a really free-market economy/society with equality of opportunity, more wealth, less inequality/poverty and no free riders, you'd replace all taxes with LVT and let the markets sort it out, bugger rent caps. 20th century UK housing policy was cuddly complacent social democracy, if you ask me, but it is still a million times better than rabid rent seeking and financial instability aka Home-Owner-Ism; if we are to have less wealth, then at least let's have less inequality to match.

But if you think about it, LVT and rent caps have vaguely similar aims and vaguely similar outcomes; you can have both, as the UK did for most of the 20th century, with a predictably overall positive result.


Bayard said...

I wonder how much of the demand for owner-occupied housing would evaporate if houses weren't seen as a way of making a tax-free capital gain. If the "sawtooth" was reversed, so that residential land drifted down in value for 16 years , then rocketed back up for two, I suspect that renting would be the norm.

Mark Wadsworth said...

B, no, in the long run and in the absence of govt induced distortions, renting and buying cost much the same.

And the notion that you can make easy capital gains applies in spades to BTL landlords, so it cancels out.

Until a few years ago (ten? twenty? thirty?), people didn't buy homes to make easy money.

It was perhaps "insurance" against inflation (itself only generated by governments to mask real house price falls) at most, plus "you can decorate it as you like and you don't have to pay rent when you are old".

Which is all fair enough.

Lola said...

The 'disclaimer' sums it up nicely. Personally, I loathe state controls on any commercial transaction, so LVT is my preferred solution. 'Controls' just justify more bureaucratic state interventions which in my experience have an almost 100% failure rate.

So when I build my first barricade to bring on the LVT revolution will the barricade attract LVT?

Kj said...

Lola: agreed on all that. But OTOH, state controls are more likely to happen than LVT any time soon, and the unintended consequences are sort of ok as they are applied in the german speaking part of the world, namely cheap livin´.

Bayard said...

You yourself found out that making tax-free capital gains is now considered more important than low housing prices. What people want is both, i.e. to be in at the beginning of the ponzi scheme. Yes there was still demand for owner occupation thirty years ago (I remember the start of the mania), but it was mainly for the reasons you give, but also the difficulty of finding places to rent. Also back then, the thought of capital gain was mainly linked to gentrification rather than a nationwide rise in prices.