Georgist, quoting Churchill circa 1909: "LAND MONOPOLY is not the only monopoly, but it is by far the greatest of monopolies -- it is a perpetual monopoly, and it is the mother of all other forms of monopoly."
Home-Owner-Ist or Faux Libertarian: "Not it's not. There are billions of landowners all over the world. Anybody can buy land. You can choose between dozens of landlords in an area."
These people aren't interested in listening to the explanation, but here it is anyway...
There is a fixed amount of land, you can't increase the surface area of a planet, no matter how much you build or how many swamps you drain. It is land itself that is the monopoly. For sure, it has been sub-divided and there are more small landowners than large landowners, but that does not change anything.
Let's agree that water companies have a monopoly on mains water supply (in their region). The fact that many water companies are quoted on the stock exchange and have zillions of shareholders does not change that. However many shareholders they have, that doesn't change the prices which consumers have to pay.
[As an aside, water prices are thankfully capped by the government at enough to give them handsome profit margins (but still at much lower than whatever the profit maximising price would be). In this case, capping prices does not reduce supply. Profit per consumer is fixed, so to maximise profits, the water companies just want to supply water to as many consumers as possible (provided the income covers the marginal costs). Stick that in your pipe and smoke it, Faux Lib's!].
Or we could cycle back a few centuries to when all the land in an area was owned by a descendant of a violent thief (i.e. an 'aristocrat' as they like to call themselves). He was clearly a monopolist and charged as much rent as he could get away with. By today, his descendants will have sold off small areas for development, which have since become very valuable, but they still owns lots of fields around the towns that have grown up.
Along comes our developer, looking for a greenfield site near the town. Some of the land is owned by a few small farmers and the bulk is still owned by one of the original thief's distant descendants. The small famers will demand the same price per acre as the 'monopolist'. Sub-division has not helped the potential buyer.
Or maybe the thief's descendants retained some of the land in the growing towns and built their own housing there to be rented out (or sold on long leaseholds). If you are looking to buy or rent, the price or rent you will have to pay to the sellers or landlords who own a single unit will be exactly the same as the price demanded by the original monopolist who owns all the housing across the road.
Another indicator that land is a monopoly is that in a monopoly, the price is set by demand and bears no relation to costs of production (the cost of producing land is precisely zero, or course). The monopolist can maximise his profits by restricting supply/pushing up prices so that his marginal revenue = his marginal costs. At the margin, land bankers home builders do exactly this, they just drip new housing onto the market so slowly that selling prices are not depressed. If selling prices fall (i.e. after every 'financial crisis'), they just mothball their projects for a couple of years. They'd be daft to complete and sell a house for £160,000 today if they know they will be able to complete and sell it for £200,000 in a year or two.
[Which also pours cold water on the idea that more generous planning rules = more construction = lower prices. Lower prices = less construction. It is self-limiting.]
With land and housing, supply is fixed in the medium term and so price is set purely by demand, which is entirely beyond the control of most landowners. Local factory shuts down? Less demand, lower prices. A new station or road is opened? More demand, higher prices. In truth, you aren't really paying for the land, you are paying for the bundle of local amenities which you can easily access from any particular plot, which is why houses with big back gardens don't sell for noticeably more than houses with small back gardens. The amenity value of a few extra square yards to store an unused trampoline and a rusty lawnmower is a tiny fraction of the amenity value of a well-paid job within an easy commuting distance.
Grand theft Labour
3 hours ago
19 comments:
I don't know much about land, but I do recall a parish councl meeting where a farmer kept interrupting: "what about my land!" repeatedly, after the third interruption the Chairman went over, kicked him in the balls and said "There's a couple of acres for you"
MrMC that's great!
A great monopoly breaker is the ability of people to opt out of participating in the market in question. If you had to buy food from restaurants, i.e. couldn't prepare your own food, prices would be much higher, despite there being dozens of restaurants in a given area. But you can source your own food from a far greater number of suppliers in a far greater area, so this caps the prices that restaurants can charge at a normal profit margin.
Price controls are required in water supply because you can't reasonably opt out of the market. In this case it is a clear monopoly, no point in having even two sets of separate pipes to each household, never mind a number that would be 'perceived' to be an indication of competition. Hundreds of thousands of landowners in London does not indicate competition as you HAVE to pay one of them, or leave your job, kids' schools if applicable etc. Basically be deprived of most of the amenities of your current lifestyle
MC, anybody who refers to "my land" deserves a kicking.
M, agreed.
M,
However, if water was like electricity or gas, and the government owned all the pipework and the water companies simply put clean water in one end of the network and sold clean water out of the other end, then it would no longer be a monopoly. How the water companies swung it so that they retained their geographical monopolies when the gas and electricity companies failed to do so is one of the mysteries of the last century.
"If you are looking to buy or rent, the price or rent you will have to pay to the sellers or landlords who own a single unit will be exactly the same as the price demanded by the original monopolist who owns all the housing across the road."
Oddly enough, where one landlord owns the whole town, or nearly all of it, they tend to take a far more intelligent attitude to rents, maintenance and vacancies than small landlords who only own one or two properties or large landlords whose property holdings are spread over a number of towns.
B, they could have done that, but it would make it more difficult to trace whose fault it was if sub-standard water gets into the system.
As long as they cap prices, that does the job. I think the cap is a bit too high, the water companies have a profit margin of 20% or 25% of what you pay, which is taking the piss if you ask me. So water prices should be 10% - 15% lower, but hey, that would only save me £1 a week.
B, yes, in that instance, there being a monopolist landlord has positive outcomes. See also shopping centres.
The whole "monopoly" thing is a bit overwrought and besides the point. IMHO.
@B how much of a water bill is supply of purified water, and how much is capital depreciation on pipes and sewerage treatment? Very little I imagine, as sewerage is more per cubic meter than water generally. So very little impact on bills if you have an open market in putting purified water into the vast network of expensive pipes.
True, sewerage is always going to be a geographical monopoly, however only those who live in towns pay sewerage bills, by and large, so perhaps sewerage should be handled by the local authorities again.
As to "the vast network of expensive pipes" the cost of those was paid off decades ago, now it's just maintenance, however the gas network also has a "vast network of expensive pipes" and the electricity network has a "vast network of expensive wires" and they manage quite well with the split ownership.
As to whether it would make things cheaper, it may not, a monopoly may seamlessly morph into a cartel, but the object of the exercise was to get rid of the monopoly.
Benj, maybe it is, to be honest.
@B the vast network of pipes requires a lot more maintenance as a proportion of the bill than is the case for electricity. Elec you need to source the energy and transform it at significant capital cost, whereas water is free and just needs to be purified. https://www.nationalgrid.com/uk/electricity-transmission/about-us/breaking-down-your-bill shows national grid is ~4.5% of total bill
How much do you think attempting to get a facade of competition could realistically bring bills down? Water and sewerage is already significantly cheaper in London than elsewhere because fewer meters of pipes are needed to serve more densely packed areas. Seems like the regulators have done a reason job at preventing rent seeking at too egregious a scale
@B
"Oddly enough, where one landlord owns the whole town, or nearly all of it, they tend to take a far more intelligent attitude to rents, maintenance and vacancies than small landlords who only own one or two properties or large landlords whose property holdings are spread over a number of towns."
Hear, hear! Amateur landlords are the scourge of the market. Also see ex-council flats. Constant fights between the local authority and (often BTL) leaseholders, whereas if all flats were the responsibility of one management company (esp run by share of freehold) is always going to get better results
Another interesting comparison is a landlord with two identical homes, one in London, one in Scunthorpe. If there was competition, the rent would be the same on both, just as a loaf of bread costs roughly the same across the whole country. The same person is providing the same physical structure and associated maintenance, why are they charging 3 times as much for their London one?
M, agreed, pipes are cheaper to maintain than wires, but then what about gas? How come the gas companies don't enjoy the geographical monopolies that water companies do? I'm much more inclined to believe Mark's point about tracing contamination.
In any economic system, there are things that are better done by the state and managing monopolies is one of them. Having an ostensibly private part of the economy, but subject to meddling by bureaucrats is a kludge and is to be avoided. If you are going to have prices set by the state, the state might as well own the business in the first place.
"Amateur landlords are the scourge of the market."
I wonder why this is. It's not exactly rocket science, being a landlord. I suppose it's to do with the f*cked up British attitude to class. Amateur landlords start thinking they are a superior species to their tenants and all the idiocies stem from that. Mind you, large landlords can be horrors, too. Ask anyone who's rented off the Nazional Trust.
@B amateur landlords are no worse than people on average I reckon, some of my friends have friends who are amateur landlords :-) Their behaviour is dictated by the market. If there's no competition, you charge what you can, and do the least possible work. When I was an amateur landlord, there was just about zero ROI on making my flats any better than basic. Depreciation on a fancy kitchen or bathroom would be more than the extra rent I could wring out of my tenants.
The lack of enforcement of basic standards is what has led to many amateur landlords not even providing the bare minimum. Hopefully the new rent repayment orders will light a fire under the cottage industry. If the extra cost of providing a decent home will affect rents then great, let's bring them DOWN to what they are in countries with properly enforced standards
Mombers, I was thinking more of the sort of idiot who "saves money" by not doing things he is going to have to do anyway, sooner or later, or things that not doing them means greater expense at a future date, like not painting windows on the outside and having to replace them after ten years. That's before you get into the idiocy of expecting your tenants to care about somewhere you obviously don't care about yourself. I have just bought an ex-rental property to do up. The vendors were fulsome in the condemnation of their last tenant - "horrible woman" - but the place was a sh*thole. There was no natural light or ventilation in the kitchen except what was afforded by the front door.
"When I was an amateur landlord, there was just about zero ROI on making my flats any better than basic. Depreciation on a fancy kitchen or bathroom would be more than the extra rent I could wring out of my tenants."
However, such expenditure could easily be covered by letting your flat two or three months earlier than you would if it had a grotty kitchen or bathroom.
@B I never had voids because I always took market rent. The flats were by no means hovels, I just did the maths and didn't see a return on anything except basic maintenance. I'd always fix anything immediately, and do preventative maintenance, but to replace a perfectly functional kitchen or bathroom would be a loss making exercise. What was a really good return on investment was paying for any maintenance right away - craftspeople put you at the top of your list if you pay promptly.
In a properly competitive market, for the premium city centre rents I was extracting, I would have to be providing a much better service. That is if you don't consider the local amenities as part of the service that I provided, because I did not create those things but got to trouser a fortune for them.
On the other hand, I've been at the receiving end of the f*ckwittery you describe above. A landlord argued with a roofer for a month about some faulty work, all the while it got worse and we were one or two storms away from hotel stay at her expense when she finally got someone else in to fix it. You also get idiots who have a huge mortgage or rely on unrealistic cashflow expectations and end up not having money to fix a roof or appliance - these are very easy things to budget for with a spreadsheet so that you don't run a business that falls over when a predictable but large bill comes due
"but to replace a perfectly functional kitchen or bathroom would be a loss making exercise."
Agreed, but many landlords seem happy to let kitchens and bathrooms deteriorate through wear and tear to way below the status of "perfectly functional" and still do nothing about them.
Agreed about paying on time, also I find paying cash is always appreciated, if you don't try to suggest they might like to do a little light tax evasion by asking for a discount.
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