« Gender, competition & boardrooms | Main | Agents of freedom »

August 21, 2013

Comments

Alex

"Sadly, however, there's no assurance that rent control would mean getting Debbie Harry for a neighbour; no policy can be that good."

Micheal Oakeshott couldn't have put it any better.

"And for another thing, there is a massive difference between there being an optimal rent control in theory and governments having the wisdom and honesty to implement it in practice."

And therein lies the rub. Once you establish the principal of the government setting rent prices, eventually the economic 'optimal rent' is succeeded by the political/media/lobbying 'optimal rent'. Unless you put your trust in an independent body to derive it.

FromArseToElbow

I agree that the fundamental solution is to massively increase housebuilding, however this would take decades to have the desired effect (lower prices) unless accompanied by rent controls.

If you look at this chart, you'll see that we've only managed to hit around 350k new builds a year on two occasions over the last 100 years, in the mid-30s and late-60s.

The government accepts that it would need 300k new homes just to meet demographic change (increased population and decreased density) up to 2031 (link.

In other words, even if we managed to build 500k new homes a year for a decade, this would only increase stock from 27m to 32m. This means that property would still be an attractive asset class, plus it would still produce healthy income in the interim for BTL landlords.

If, on the other hand, this massive building programme were accompanied by rent controls, short-term income from property would be less attractive, while "forward guidance" on increased supply would eventually undrmine the attraction of holding property as an investment.

Rent controls could therefore have the effect of increasing supply to first-time buyers quickly as the BTL crowd exit the market. Though this correction would disappoint speculators and those who over-leveraged in the hope of trading down in a decade or two, and would depress the rental market in the short-term (though this could be offset by prioritising council lets for building), it would help accelerate the development of a more sane market for homes.

FromArseToElbow

Links:
http://fullfact.org/sites/fullfact.org/files/Miliband_2_0.png
http://www.parliament.uk/business/publications/research/key-issues-for-the-new-parliament/social-reform/housing-supply-and-demand/

Staberinde

Yes, we do need more house building. But where? London and the South East are clearly where demand is highest (and therefore prices too). It's where the jobs are.

But the Green Belt lobby have a point - do we really want a sea of brick and concrete over the South East?

There's plenty of greenfield land we could build on, but the failure of successive regional policies means that building anywhere other than South East would be largely pointless.

Unless we create infrastructure, employment and real economies beyond the London sphere, we'll continue to be a country of Londoners paying ridiculous living costs, commuters spending their lives riding as cattle, retirees reading The Mail in villages and everyone else living in run-down areas near call centres.

The answer ain't housing supply, it's regional policy.

Luke

"But the Green Belt lobby have a point - do *we* really want a sea of brick and concrete over the South East?"

As Tonto said: "We?"

Staberinde

Well, Luke, do you? And if so, is it your goal or merely a consequence you don't object to?

Jim M.

I rarely comment here; I am here to learn more than anything else.

I cannot, however, let this pass without noting that Debbie Harry once threatened to take me back to the hotel and whip me to death with cold spaghetti should I not behave.

Which puts me one up on most men except Chris Stein, I guess.

Mark J

Jim M: did she carry out her threat?

Luke

Staberinde, I think we need lots more homes. I'm guessing a couple of million homes (incl flats) could be fitted w/o concreting over the SE. But I'm one of those conspiracy theorists who think house builders are a bit like OPEC - they like to restrict supply to keep prices high. So neither your "concreting over" nor my fantasies of sustainable urbanism will happen.

SK

Rent controls might not be efficient but it seems to be the only short-term solution to the housing problem.
Yes a bad solution, but a solution at least.

The government is too afraid to tax the 2nd properties owners, so at least they can try to put rent controls in place.

Otherwise, the labour mobility in UK will suffer and emigration will increase.
No point in living in a country where the costs outweight your income.

Mark Brinkley

Why not just ban buy-to-let mortgages? They only came about in 1996 and they have distorted the market far more than the supposed absence of new housebuilding.

Staberinde

Taxing second homes more heavily sounds like a good idea. Let's game it through.

First, what's the aim of the tax? Do we want to extract more money to spend on, say, building council houses? Do we want to actually stop people owning multiple properties, so there's more stock to go round? Or do we want to see a significant transfer of stock out of the private rented sector and into the owner-occupier segment?

The first is very easy indeed and you'd probably want to link it to each property's Council Tax band.

The second is more problematic, since the country's housing problem isn't a shortage of holiday chalets, rustic cottages and country mansions.

What exactly do we seek to discourage? Private landlords or people who buy a flat in the city and a house in the country for family/weekends? Besides, it's difficult to target owners of multiple homes who aren't landlords - they can simply take a lodger and avoid the tax.

The third is the most radical option. If masses of landlords leave the market, the price of housing should be depressed and should allow more people to afford a home of their own. It's the Thatcherite dream - and it would create a huge pool of capital looking for alternative investments, which should ultimately boost lending for business.

It might also create a very different private rental sector, with landlords owning fewer properties and a correspondingly smaller role for managing agents.

This actually sounds pretty appealing to me; I'm not convinced the current private rental sector is in the broader interests of society or the economy - and I'd suggest a Landlord Tax, coupled with rent control to stop it being passed on to tenants, might be a good way to address a growing and pernicious inequality.

Luke

Staberinde, what's the big deal about landlords having fewer properties? If you want cheap food, you go to a supermarket, not the corner shop. "Landlords" does include housing associations.

Germany is always held out as being better in this regard - they have large scale institutional investors in rented property.

A start might be lots more purpose built student accommodation, so small scale landlords don't have a captive market for tenants in student towns Whether such landlords then sell or rent more cheaply to young workers, I don't really care.

SteveH

Yes, let us keep housing at its current fair market price shall we and not meddle in the magic of the market!

Nick

'Besides, it's difficult to target owners of multiple homes who aren't landlords - they can simply take a lodger and avoid the tax.'

But thats exactly what you want! In the process of avoiding a tax, they increase housing supply! Much easier would be simply charging council tax regardless of occupation level. Thats simplifying tax while increasing costs to seond home owners.

But I disagree that we want more home ownership in aggregate. Home owners get stuck in their localities. Renters move to where the work is. What we want is competitive rental sector that makes home ownership look like one reasonable option, not the be all and end all of middle class life. In western europe, only italians are more obsessed with home ownership than us.

Jeremy

When I rented in France, I had to prove that my income was more than three times the rent. Seems a nice simple way of stopping excessive rents. Having 66% of my income left for luxuries like food and clothes was much appreciated. It seems to work in France. Why wouldn't it work in the UK?

Bialik

New house building doesn't have to mean big developers. I'd like to see off-the-shelf house kits, perhaps central banks of recycled building materials.

St James, who are building riverside apartments next to me, are like a secret state. The natives of residential moorings, recycling former working boats for homes, rarely survive first contact with riparian developers. I wouldn't wish developers on any community.

Churm Rincewind

We had rent controls before. And the most obvious result was so-called "key money" - i.e. you had to pay a premium, often of many thousands of pounds, to existing tenants in order to take over the accommodation they occupied. They, in turn, would "recommend" you to the landlord as a new tenant. The landlords didn't really care about the identity of the new tenant as the rent was invariable, and the key money system meant that they didn't have the hassle of seeking new tenants and, perhaps more importantly from their point of view, this system obviated "voids" - i.e. untenanted periods.

The whole system was so massively corrupt that it became normalised.

And that's why rent controls are a bad idea.

The comments to this entry are closed.

blogs I like

Why S&M?

Blog powered by Typepad