Friday, 24 February 2017

Housing Supply (non)Crisis. LVT will sort it out.

Currently, total housing expenditure is depressed because landowners do not compensate those they exclude for their opportunity loss. This increases the demand for housing, leading to over consumption/misallocation. In order to quantify this, we only need to compare the consumption of owner occupiers and those that rent, as the latter are already paying the correct level of compensation, albeit pocketed by a landlord. 

Note, that due to the effect of subsidised social housing, the differences are smaller than if following were to strictly compare private rented vs owner occupied.

It is reported that the UK has over a million more dwellings than households, and twenty five million empty bedrooms. How many of these are over consumed due to owner occupiers not paying their full housing costs? Lets try doing some maths to find out.

Across England and Wales the average household size was 2.4 people. This figure was the same for owner occupied, but lower for rented households at 2.3 people.

Looking in more detail, the average household size was lowest among those households owned outright, at 2.0 people per household. This may in part be explained by the residents being older, with some members of the family having moved out, or a pensioner living alone.

The above graphic and text was taken from the ONS Home ownership and renting in England and Wales – Detailed Characteristics

 From it we can extrapolate that for every 100 owner occupied households 300 bedrooms are consumed but for every 100 rented households only 218.

So if we factor in 0.1 more people per household on average for owner occupiers, their below market housing expenditure causes the over consumption of  11.8 million bedrooms in England and Wales alone on a pro rata basis.

A 100% tax on the rental value of land(LVT), would thus take those 11.8 million bedrooms and reallocate them more evenly across tenures. This would involve lots of up-sizing, down-sizing and side ways moving.

While the consumption of bedrooms may not be the whole picture regarding housing demand, a LVT would allow the market to rationalise our existing stock,  and radically alter the demand for housing in the process. It may well be the UK has more than enough housing to cover any changes in population or household make up for the foreseeable future, it we allow a fair and efficient market to do its job. Yes, new housing always needs to be built. But perhaps just not the extra number or types currently being forecast.


paulc156 said...

How do you arrive at the £200bn figure?

Mark Wadsworth said...


PC, what do you think the total location rental value of all UK homes is? 27 million homes plus 1 million plots with planning, average rental value £11,000 incl Council Tax minus £4,000 a year bricks and mortar cost/value = £200 bn a year site premium.

Admittedly, about £50 bn of that is clawed back in Council Tax, SDLT and so on, so the actual subsidy is more like £150 billion but the point stands.

benj said...


Total rental value of all UK land residential/commercial/farm =£260bn pa. Minus taxes around £200bn.

Of course a lot depends on what figures you use for average house prices. ONS =£280K, Land Registry= £216K

paulc156 said...

OK. Ta.

Mark Wadsworth said...

PC, yes, add on commercial, agricultural etc and £200 bn a year is about right.