Tuesday 31 January 2017

Housing Crisis Paradox

We are told that high housing costs are due to a lack of supply. Therefore we need to build more homes to make them affordable. But building and maintaining housing expends labour and capital, which are a cost. 

How can increasing the cost of something make it more affordable?

Of course people need somewhere to live and the cost of housing is outweighed by the benefit of having shelter. But as the UK has roughly a million more dwellings than households, everyone has a roof over their heads, so it doesn't  appear we have an actual "shortage".

This paradox is based on a misunderstanding of costs. Location isn't a produced factor, so what makes up the majority of rents and selling prices isn't a cost, but a transfer payment. It is this payment which causes excessive individual, inter-generational and regional inequality, from which affordability issues for large parts of society is but one of the symptoms.

What puzzles me is that the subject of economics is really about costs and how to reduce them ie resource allocation and productivity.

Why is is then not a single economist recommends tackling this problematic transfer payment at source with a 100% LVT as the best way of addressing the "Housing Crisis"? Which would not only solve affordability issues completely and permanently, but would reduce costs by allowing the market to rationalise our existing housing stock.

Instead they want to tackle it indirectly by building more houses in order to reduce selling prices. Not only will this be far less effective in the goal of reducing the transfer payment, it will add billions of pounds of unnecessary costs to our economy.

4 comments:

Bayard said...

Probably because the whole "housing Crisis" idea was started by the Landbankers to make it easier for them to acquire more land at undervalue to add to their landbanks.

As you point out there is no shortage of housing, just a shortage of cheap land in expensive locations.

"Not only will this be far less effective in the goal of reducing the transfer payment,.."

In fact, it will almost totally ineffective. All houses need to be built on land. That land will be sold at the current going rate to the housebuilders, so, unless the some housebuilders are going to make a loss to get the ball rolling, there will never be cheaper housing on the market. No-one wants to be the ones that nobly make a loss for the greater good of the housebuying public.

Mark Wadsworth said...

They call it "housing crisis" as part of the shock doctrine tactic.

They can then use the "crisis" as an excuse to make things worse, more land for the land bankers, help to buy subsidies to push up prices, housing benefit to push up rents etc etc.

Lola said...

"What puzzles me is that the subject of economics is really about costs and how to reduce them ie resource allocation and productivity." Economics is about 'scarcity'. There is never enough of anything. And it is 'price signals' that enable us to allocate those scarce resources most efficiently. Except land which is not only scare but a monopoly whose value is created by us all. It is also rivalrous.
With land, it seems to me, that the land owner is not paying for the costs of exclusivity guaranteed by everyone else.

L fairfax said...

How do they calculate the number of households? I know people who rent a room, live with their parents etc are they a household? I know they would like to be.
One example a friend of mine is paying for his parents to have a loft conversion so he can live in it as it cheaper than buying or renting - is he a household?


@Lola
A great argument for a LVT.