Forget it, Owen Jones: only free-market policies can solve the cost-of-living crisis (Part 2)

Have you ever come across a lipogram? A lipogram is a somewhat eccentric literary technique: the art of writing a text from which a particular letter, word, or combination of letters, is entirely banished. Not letters like X or Q, obviously, but a letter that seems impossible to avoid. An example would be the novel Gadsby, which, apparently, does not use the letter E a single time.

That book must have been a formidable challenge to write, but over at the Independent, columnist Owen Jones has composed an even more impressive quasi-lipogram. He has managed to write several articles on housing costs in the UK without once using the terms ‘planning laws’, ‘green belts’, ‘height restrictions’, ‘NIMBYs’, nor any synonyms or related terms. In comparison, Gadsby is a piece of cake.

Despite the unusual literary format, Jones’ description of the symptoms is spot on. He recognises, correctly, that Housing Benefit is a forced redistribution from taxpayers to landlords. He also points out, correctly, that the housing shortage is not just a problem in its own right, but also aggravates a whole range of other social problems.  

But that is as far as the lipogram can take us. It does not enable the author to say anything meaningful about how the housing cost crisis can be solved. Jones believes the shortage can be overcome by simply building more council houses. Councils currently face a cap on how much money they can borrow, and Jones argues that money spent on building council houses should be exempt from that cap.   

Fair enough. There is indeed something to be said for lifting those borrowing caps, provided it can be coupled with a credible no-bailout clause. However, this would do nothing to overcome the housing shortage, because it is not the borrowing cap that deters councils from building homes. Rather, councils have been taken hostage by well-run anti-housing groups, and the latter have the planning system on their side. You can give councils access to all the housing finance credit in the world, but it would make no difference as long as they have no intention of actually making use of it. Exempting councils’ homebuilding expenses from the borrowing cap would be like exempting Mormons from alcohol duties.

There is no specific bias against the development of public housing the UK. There is a general bias against all housing development in the UK. The same forces which prevent the private sector from building homes would also prevent the public sector from doing so.

The current system is dominated by NIMBY interests, and the NIMBYs are not in the least interested in who is behind a potential building project. The only thing they are interested in is how it can be stopped. Whether the potential homebuilder is a private property developer, a local authority, a group of self-builders, or a fairy that can make houses appear by waving a magic wand, you can count on the NIMBYs to be there faster than Owen Jones can say ‘nationalisation’. With their usual combination of scaremongering (‘concreting over the countryside’) and myth-peddling (‘there are brownfield sites that could be developed instead’), they will try to kill off the project, and they usually get their way.

Planning controls such as green belts are the most regressive policies currently in place in the UK. But their supporters have been smart enough to adapt to the zeitgeist by adopting a vaguely anti-capitalist-sounding rhetoric. The ugly truth is that those policies are the tools with which the lucky few keep out the hoi polloi. But the official version is one of charming local communities trying to defend their little paradise against invaders who, out of sheer malice, seek to destroy everything they hold dear. It is Lord of the Rings all over again, and supposedly ‘radical’ writers like Jones utterly fail to see through it.

Therefore, they miss the fundamental question. There are, on the one hand, almost 2 million households on a housing waiting list. In the bottom quintile of the income distribution, renters spend, on average, about half of their family budget on housing costs. Taxpayers pay £23 billion per year on Housing Benefit - that is almost £800 (!) per household.

On the other hand, there are people who are well-housed, but who dislike the sight of houses other than their own. And now comes the question: does it make sense to tailor our housing policies primarily to the sensitivities of this latter group, and if not, why are we doing it?   

“Does it make sense to tailor our housing policies to the sensitivities” of NIMBIES? The answer is “yes – to some extent”. The loss of enjoyment / utility I suffer when a new housing estate goes up on the fields near my house is a clear case of what economists call an “externality” isn't it? And it's standard economics that externalities should be taken into account whenever possible.
Ralph - no, unless you define an externality as "everything I don't like". But you wouldn't call it an externality if your neighbour painted his house in a colour you don't like, even though it could (marginally) affect the value of your property.
Kris, An externality is "everything I don't like". E.g. if my next door neighbour plays loud music which I DO LIKE, that’s not an externality: it’s a “negative externality”. And economists have a word or phrase for the latter, which I’ve forgotten. As to the neighbour painting their door a colour I don’t like, that too is an externality. In fact some local authorities have rules (or used to) on what colour you could paint your front door. However, stipulating what colour people can paint their doors is a very pettifogging sort of externality, and trying to enforce rules there is waste of time I think.
Thats all well and good, but this simple "supply and demand" idea is an easy trap to fall into. If we had more homes built where the market signals us to do so, i.e. London/south east, that would NOT lead to prices falling in London/south east, it would lead to prices falling in the rest of the country because by definition more people would move to London/south east, so all in all, prices in London/south east would increase. Think about it - there are enough homes for seven or eight million people in Greater London. What would rental values be if there had been a complete build moratorium a century or two ago, which would have restricted Greater London population to one million? Easy answer: they would be much lower. And who gains most if planning restrictions are loosened in London/south east? Quite obviously, owners of land! So the easiest way to sort all this out is to put a tax on externalities. If NIMBYs want to exclude people, good luck to them as theyll be paying for it. And if Wicked Property Developers (they are always wicked) build new housing anyway in high demand areas, then they will be paying for it (or the new residents will, reducing the WPD's profits accordingly). To cut a long story, the quickest route to high wages and low house prices is to reduce taxes on wages and increase them on land values. Job done, sorted.
We do not have a free market in housing. Landowners do not create land values. So the value of land is the capitalised value of the implicit subsidy they receive. Around £200bn net per year. End this subsidy and not only does the tax burden fall, but efficiency and re-cycling of existing property assets improve. Free marketeers should know the economic damage subsidies cause. Its puzzling why they seem unable to follow the same principals regarding land use. Any ideas Kristian?

Post new comment

The content of this field is kept private and will not be shown publicly.
Type the characters you see in this picture. (verify using audio)
Type the characters you see in the picture above; if you can't read them, submit the form and a new image will be generated. Not case sensitive.