More social housing won’t help the housing market

The government would have us believe that one way to help households struggling to gain access to the housing market is to build more social housing. This will also have the benefit, our Keynesian friends tell us, of boosting the economy through a healthy dose of government spending. In consequence, the government has brought forward spending for social housing with the ambition of increasing output in the short term.

Of course, this will do nothing of the sort: the short term doesn’t exist as far as housing production is concerned. It is rare for a housing association to get anything built in less than two years. But in any case, this attempt to kick start the housing market is based on some rather dodgy premises.

First, why should allocating funds to housing associations help the housing market? For most people on housing waiting lists owner occupation is not an alternative and most prospective first-time buyers would not be in priority need and so have no chance of a social tenancy. Therefore, whilst more people might be housed more quickly, this will not have any impact on the housing market.

Second, government grants only fund part of the development of social housing, the rest having to come from private investment. Yet housing associations, like everyone else, are finding it hard to borrow and are increasingly becoming concerned with their high existing debt levels and falling asset values. There could not be a worse time for a housing association to borrow more money.

There is a more fundamental problem, however, with this rush to build. Building more social housing risks creating even more centres of dependency and worklessness. We ought to have learnt by now that social housing is an experiment that has failed to improve the life chances of the poor.

Much better would be to start focusing on the individual needs of households and tailoring housing support accordingly. If we want to bolster the housing market what we need to do is to ensure everyone has access to it, not sit around for a couple of years waiting for housing associations to build more ghettos.

Our government’s “affordable housing” target will be one of the few it can actually achieve, by simply giving up all these futile attempts to prop up house prices and allowing them to fall to their natural level, which would be about 40% to 50% below last year’s peak. The question remains, would a future government have the political will to keep them low (by proper banking supervision, liberalising planning laws or even some sort of tax on the bubble element)??

Why do we call government-controlled housing “social” and “affordable”? Our house was affordable (at least to us) and it is also quite social. What we really mean is “government controlled”, “socialised” and/or “subsidised”. On Mark’s comments, maybe the “proper control of monetary policy” is the issue – if central banks print money it is very difficult to stop a bubble: the money will find its way into the system one way or another. And how do we tax bubble element?

All housing is affordable to someone, which is why the term ‘affordable housing’ is so useless. What the term masks is that we have effectively two housing systems:one for the majority (owner occupation) and one for a minority (social housing). There is increasingly little cross over between them. Indeed access to social housing depends on the minority successfully separating themselves from the mainstream.

“How do we tax the bubble element?”Click the link above for the answer!

I see. But your system does not distinguish between the bubble element and real factors that cause a real increase in house prices. Also, the point of buying a house is to rent it back to yourself. If I bought a house in 1970 (when I was 6!) I would have paid then for an asset which I then rented back to myself (in effect). I do not get any extra value if it rises in price afterwards – so why should I be taxed? I can understand tax on imputed rental value – which may be related.

My students always have trouble with the idea of imputed rental tax. I think the reason is, that on a day to day basis, we don’t see housing as an asset. Rather most people become owner occupiers because it is the ‘natural’ thing to do. What this means for social housing is that it is now beyond the experience of the majority and so it has no political leverage.

But it is hard to distinguish between true location value and bubble value anyway. IMHO, LVT should replace Council Tax, NNDR, Stamp Duty, IHT etc & be the only source of funding for local councils. Smith, Ricardo and Friedman all explained why it is the Least Bad Tax. This justifies the tax on the location value. The tax on the bubble value is not supposed to raise any tax at all, it is supposed to prevent bubbles. In other words you wouldn’t have paid much on the house you bought in 1970.

Our government’s “affordable housing” target will be one of the few it can actually achieve, by simply giving up all these futile attempts to prop up house prices and allowing them to fall to their natural level, which would be about 40% to 50% below last year’s peak. The question remains, would a future government have the political will to keep them low (by proper banking supervision, liberalising planning laws or even some sort of tax on the bubble element)??

Why do we call government-controlled housing “social” and “affordable”? Our house was affordable (at least to us) and it is also quite social. What we really mean is “government controlled”, “socialised” and/or “subsidised”. On Mark’s comments, maybe the “proper control of monetary policy” is the issue – if central banks print money it is very difficult to stop a bubble: the money will find its way into the system one way or another. And how do we tax bubble element?

All housing is affordable to someone, which is why the term ‘affordable housing’ is so useless. What the term masks is that we have effectively two housing systems:one for the majority (owner occupation) and one for a minority (social housing). There is increasingly little cross over between them. Indeed access to social housing depends on the minority successfully separating themselves from the mainstream.

“How do we tax the bubble element?”Click the link above for the answer!

I see. But your system does not distinguish between the bubble element and real factors that cause a real increase in house prices. Also, the point of buying a house is to rent it back to yourself. If I bought a house in 1970 (when I was 6!) I would have paid then for an asset which I then rented back to myself (in effect). I do not get any extra value if it rises in price afterwards – so why should I be taxed? I can understand tax on imputed rental value – which may be related.

My students always have trouble with the idea of imputed rental tax. I think the reason is, that on a day to day basis, we don’t see housing as an asset. Rather most people become owner occupiers because it is the ‘natural’ thing to do. What this means for social housing is that it is now beyond the experience of the majority and so it has no political leverage.

But it is hard to distinguish between true location value and bubble value anyway. IMHO, LVT should replace Council Tax, NNDR, Stamp Duty, IHT etc & be the only source of funding for local councils. Smith, Ricardo and Friedman all explained why it is the Least Bad Tax. This justifies the tax on the location value. The tax on the bubble value is not supposed to raise any tax at all, it is supposed to prevent bubbles. In other words you wouldn’t have paid much on the house you bought in 1970.

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.