The government's decision to replace the existing rules for urban planning with a much looser system is apparently based on the ideas of a Cummings type special adviser, Jack Airey, who believes that "Market conditions should ... determine how urban space is used."
One of the first points made in any economics course is that, although although economists freely use the stand-alone term "demand" what we really mean is "effective demand." This constitutes not just wanting a product but also the ability to pay for it and the willingness to pay for it.
Hence, if the housing market is to be determined by supply and demand, then the needs of those who would like a house but do not have the ability to pay for one are not considered.
Given that in this sixth (is it now?) largest economy in the world affairs are so skewed that a considerable number of families cannot even afford to feed their children, never mind buy a house, some measure must be taken to ensure that, somehow, their basic need for shelter is supplied.
The obvious solution is that a public authority (it used to be the local council, who built "council" houses) works with the building industry to ensure there is a just and equitable provision of all types of housing. That is essentially what the existing system is designed to achieve, although it has been seriously weakened since its inception by the sale of social housing to the private sector, central government's grabbing of the proceeds rather than allowing local authorities to use the money for replacement building, and the ease with which developers seem to be able to evade the requirement for a significant proportion affordable housing to be included in every new scheme.
The government's proposal that in designated "growth" areas and "renewal" zones developers can build more or less what they like means that there will be a steady supply of ill-defined but profitable "executive" homes and a dearth of the less profitable but allegedly "affordable" houses. What less expensive housing is built is likely, according the the President of the Royal Institute of British Architects, Alan Jones, "to lead to the next generation of slum housing."
The local environment should be used for the public good and a civilised society should provide for measures to ensure that everyone, regardless of their income or wealth, has a reasonable chance of enjoying it. This means partnership and co-operation between the national government, custodians of our land; local government, custodians of local interests; and the building industry - the very opposite of the tearing up of the rule book.
A genuine and equitable shake-up of the planning system could include :
measures to reduce the hoarding of available land, presumably in the hope that its value with increase with time;
measures to ensure that most if not all of the increase in land values when land is rescheduled for building goes to the state or local government, rather than the private owner;
penalities when building permissions have been given but no building done (there are about a million of these already in existence - so much for the planing system being a cause of the housing shortage;
an end to the "right to buy" social housing;
effective minimum standards for size and safety for all domestic dwellings (akin to the famous Parker Morris standards which were abolished by Mrs Thatcher's government in 1980);
capital gains tax to be levied on the increased values of homes.
Paradoxically, as well as opposition from Shelter, other housing charities and the architecture profession, the government could well have opposition from the affluent shires. One newspaper this morning (I didn't catch which) jokes of a developer claiming:
"Of course we'll observe social distancing. We shall ensure at least two metres between your house and the next."
One of the first points made in any economics course is that, although although economists freely use the stand-alone term "demand" what we really mean is "effective demand. " This constitutes not just wanting a product but also the ability to pay for it and the willingness to pay for it.
ReplyDeleteSurely the second is that once supply exceeds effective demand the price will drop, thus meaning that people who didn't previously have the ability to pay for the product now do?
That's what happened with pretty much everything that used to be a luxury good but is now cheap enough that almost everyone has one, from cars to colour televisions to pocket-sized supercomputers of almost unimaginable calculating power.
Is there any reason to think the same thing wouldn't happen with houses as happened with everything else?
measures to ensure that most if not all of the increase in land values when land is rescheduled for building goes to the state or local government, rather than the private owner
If this would be the case then what incentive would any owner have to prepare the land for development. This sounds like something analogous to rent controls; did your economics courses not teach what they, and saturation bombing, do to cities?
One newspaper this morning (I didn't catch which)
That was Matt.
On your first point, what you describe may happen in the very long run, when even our great-grandchildren are dead, but quite the opposite has happened in my lifetime. When my parents bought their first, and as it turned out, last, house in 1950 the average house price to average income ratio was about 2:1. In other words, the average house cost double the average income. Today the ratio is over 8:1. Apparently most young people can't afford to buy a house until they are in their mid-30s, and even then may need the "bank of mum and dad" to help with the deposit.
DeleteOne your second point if the land is agricultural the "owner" doesn't need to prepare it physically, just get in rescheduled as building land, as Tony and pat did in "The Archers" a couple of years or so ago, and pocketed an huge amount of money. The script writers went on to develop the story true to life when they had the developer try to reduce the number of affordable homes that were written into the original plan
On your first point, what you describe may happen in the very long run, when even our great-grandchildren are dead, but quite the opposite has happened in my lifetime
DeleteWell, yes, because over your lifetime the housing supply has been hideously restricted while demand has risen.
That's the whole problem.
If supply had increased over your lifetime then prices would not have risen as they have with restricted supply.
One your second point if the land is agricultural the "owner" doesn't need to prepare it physically, just get in rescheduled as building land
'Just' you say. That's not free, though, is it? In fact it's very expensive and, as there's no guarantee the rescheduling will be granted, it's a very expensive risk.
Tony and pat did in "The Archers"
You may not realise it — I understand there are confused people who attack actors and actresses who portray unpopular or villainous characters — but soap operas are in fact fictional. The things that happen in them are not actually real, but are made up.
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DeleteI mean, say I own some land. Preparing for development, getting surveys, planning permission, etc, isn't free. So that's already a risk, but I might take it because of the possible rewards.
ReplyDeleteHowever under your proposals, if I prepared it for development but then for some reason the development didn't happen (things like this fall through all the time) I would be financially penalised. So you've increased the risk. Now I need an extra possible reward to make it worth my while. But at the same time you've reduce the possible reward I get by 'ensur[ing] that most if not all of the increase in land values when land is rescheduled for building goes to the state or local government, rather than the private owner'.
So obviously there is no possible reason for me to take a risk with considerably more downside, but much reduced (or if you have your way, eliminated altogether) upside.
So instead of opening up my land for development I will just let it lie derelict, unproductive and wasted.
Why do you want to encourage land to be left derelict? Surely the opposite, we should be encouraging people to make good use of their land by providing financial incentives for them to do so rather than disincentives?
Yes give them financial incentives by making them look at the statistics that inform who wants what size of house.Incentives on a sliding scale .If more single bedroom houses are required the incentive goes up to build them and not 3 bedrooms that are in less demand.That goes down
ReplyDeleteUm… providing financial incentives to build what is in demand is basically how a free market works (you will, in a totally free market, make more money making things that are in high demand than things that are in low demand because you will have more customers). If that's what you're after then you should simply abolish all planning restrictions and get the government (national and local) out of housing and planning entirely.
DeleteNo. Read the original post. A very significant proportion of the population are not part of the "effective" demand for housing because they haven't got the "ability" to pay. So the market system doesn't work for them and it is up to the rest of society to find some means by which need for shelter is provided for.
ReplyDeleteA very significant proportion of the population are not part of the "effective" demand for housing because they haven't got the "ability" to pay
DeleteBut if the reason they don't have the ability to pay is that they, say, don't earn enough to get a mortgage for the price of a house (or to afford the proportion of the price required as a deposit), then they would have the ability to pay if the prices were lower, wouldn't they?
And increasing supply so it matches, or over-matches, the current effective demand, will lower prices, won't it?
So those people who previously didn't have the ability to pay now will have the ability to pay, won't they?
This isn't that complicated.
In the 1980s, when portable telephones cost several thousands of pounds (more when adjusted for inflation) quite a lot of people were not part of the effective demand for them. But due to increases in the supply as more efficient manufacturing techniques were brought on-line, the prices fell, and not the effective demand is far greater and a large proportion of the population has one.
Why would the same not happen if the supply of houses were to increase just as the supply of mobile telephones did? Are houses special in some magic way that means the laws of supply and demand which apply to everything else don't apply to them?
[Actually they are special in one way: because they are fixed in place, 'supply' doesn't just mean 'number of houses in the country', it means 'number of houses where people actually want to live'. So you have to look at the supply and demand on a local level. Building houses in Grimsby helps no-one, as it doesn't increase what you might call 'effective' supply. But other than that, the same rules apply.]
Yes, but the evidence is that:
Delete1. Left to themselves the developers prefer to supply "executive" designated homes rather than affordable ones because the former are more profitable. Hence without some form of intervention (Nigel Hunter's suggestion of a subsidy is one way) affordable homes are simply not supplied in sufficient quantity, nor "social" housing for affordable rent
2. Over the past 70 years ((maybe more) house prices have not come down as you suggest, but risen: as a multiple of average incomes they have more than quadrupled. If what you suggest will eventually happen, then it will take several generations. In the meantime those people excluded because of their low incomes from "effective demand" need somewhere to live, a basic need which even Hastings Banda, dictator of Malawi, recognised ("houses with roofs that don't leak" was part of his appeal.)
For this reason, and because in the UK houses have become a "cash cow" for unearned wealth rather than just a machine in which to live, we need a thorough reconsideration of how the present system can be improved, not just a tearing up of the rules and hoping for the best.
Left to themselves the developers prefer to supply "executive" designated homes rather than affordable ones because the former are more profitable. Hence without some form of intervention (Nigel Hunter's suggestion of a subsidy is one way) affordable homes are simply not supplied in sufficient quantity, nor "social" housing for affordable rent
DeleteThat's not a problem. There is just as much a shortage of supply at the top end of the market, and that results in prices going up all the way down because people with lots of money who can't find the houses they want at the top tier instead go for the ones the next tier down, pushing up the prices of that tier, and meaning that the people who would have been looking at the tier then have to drop down, again pushing up the prices, and so on all the way down.
Increasing supply at the top will reduce prices all the way down.
Over the past 70 years ((maybe more) house prices have not come down as you suggest, but risen
Yes: because supply has not kept pace with demand.
If what you suggest will eventually happen, then it will take several generations.
Rubbish. History shows us that when supply increases (or when demand drops, which is the same thing) prices drop quickly, not over the course of generations. If somehow an extra half a million new, empty houses were magicked into being around, say, Cambridge, tomorrow, and put on the market all at the same time, how can you possibly believe that wouldn't result in the price of the houses around there dropping?
The only limit to how fast prices will drop is how fast the supply can be increased.
For this reason, and because in the UK houses have become a "cash cow" for unearned wealth rather than just a machine in which to live, we need a thorough reconsideration of how the present system can be improved, not just a tearing up of the rules and hoping for the best.
The present system is exactly the problem, because it's that system which prevents supply being increased.
Look, why do you think is the main reason people object to the building of more houses in their area? It's because they know that this is true: if there are more houses around, the price of their house will drop. It's in their interests to keep supply restricted. Which is the main reason we need to blow away the system which allows them to do so.
The problem of course is that people who own houses and therefore have an interest in maintaining their prices at a high level by restricting supply are a sizeable voting block. But as they mostly vote Conservative, it's a little surprising to see you so enthusiastically campaigning for their interests to be protected.
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ReplyDelete