Housing and Planning

The virtues of benign neglect


Ronald Reagan famously stated the perfect response that government should make to any crisis: “Don’t just do something, stand there!” This, it seems to me, is still the best response that government can make to the current problems in the housing market.

Interestingly, the nearest example of this was the last 4 years of John Major’s government. Prior to 1993 the Major government had sought to deal with a recession through intervening: by buying up empty housing and instituting mortgage rescue schemes. Kenneth Clarke, when he took over as Chancellor in 1993, stated that this intervention had been a “bloody waste of money” and instead put greater store on creating economic stability.

What Clarke seemed to realise was that housing markets depended on low inflation, high employment and some degree of predictability. As a result the Major government was able to phase out Mortgage Interest Tax Relief. They were also able to increase the output of new social housing whilst reducing the amount of public subsidy to the sector.

The Blair government maintained a similar policy to that of its predecessor for the first 3 years in office. However, it changed tack after 2000 and began to intervene in housing markets to try to ensure “affordability” and to encourage more households – particularly those on low incomes – into owner occupation. This may have contributed to rapid house price inflation and the consequent bust.

The key lesson we can learn from this is that there is much to be said for a policy of benign neglect, where households are left to manage their own housing decisions and take personal responsibility for their choices. Government, therefore, should do a bit more standing and a lot less doing.



10 thoughts on “The virtues of benign neglect”

  1. Posted 15/06/2009 at 10:23 | Permalink

    Yes, those of us who advocate ‘laissez-faire’ mean well too!

  2. Posted 15/06/2009 at 10:23 | Permalink

    Yes, those of us who advocate ‘laissez-faire’ mean well too!

  3. Posted 15/06/2009 at 11:52 | Permalink

    It’s important to acknowledge that some recent government intervention has arguably acted to undermine the housing market, in particular ‘buy-to-let’. For example, houses in multiple occupancy must now be licensed and inspected by local authorities. In many instances landlords have faced huge bills to comply with the new regulations. Prospective investors in low-cost rental accommodation will undoubtedly have been deterred by the extra costs and risks involved.

  4. Posted 15/06/2009 at 11:52 | Permalink

    It’s important to acknowledge that some recent government intervention has arguably acted to undermine the housing market, in particular ‘buy-to-let’. For example, houses in multiple occupancy must now be licensed and inspected by local authorities. In many instances landlords have faced huge bills to comply with the new regulations. Prospective investors in low-cost rental accommodation will undoubtedly have been deterred by the extra costs and risks involved.

  5. Posted 15/06/2009 at 13:14 | Permalink

    Correct.

    Subsidies to land and property ownership are the worst kind of subsidies because they are in more-or-less fixed supply, so all that happens is that prices go up. Our current government is so wedded to the myth that the economy depends on high and rising house prices that it is taxing the economy more and more just to reflate the bubble.

    If anything, the reverse approach – reducing taxes on incomes while increasing taxes on land and property, while reducing overall tax burden – would lead to a far more favourable outcome, as well as keeping house prices low and stable etc.

  6. Posted 15/06/2009 at 13:14 | Permalink

    Correct.

    Subsidies to land and property ownership are the worst kind of subsidies because they are in more-or-less fixed supply, so all that happens is that prices go up. Our current government is so wedded to the myth that the economy depends on high and rising house prices that it is taxing the economy more and more just to reflate the bubble.

    If anything, the reverse approach – reducing taxes on incomes while increasing taxes on land and property, while reducing overall tax burden – would lead to a far more favourable outcome, as well as keeping house prices low and stable etc.

  7. Posted 15/06/2009 at 21:40 | Permalink

    Just to throw in a point from left field in response to Mark. Maybe subsidies to the arts and sport (by which I don’t mean grass roots arts and sport but the opera, bidding for the olympics, the Welsh government subsidising bidding for tests and so on) are the worst kind of subsidy. Housing supply can respond to some extent but the supply of major sporting events is totally inelastic as is the supply of the very best opera singers. So these subsidies just go straight to opera singers pockets (in one case) and into the pockets of the ECB (in the other case), whilst raising the cost of bidding for everybody else. But, of course, I agree with Mark’s first paragraph.

  8. Posted 15/06/2009 at 21:40 | Permalink

    Just to throw in a point from left field in response to Mark. Maybe subsidies to the arts and sport (by which I don’t mean grass roots arts and sport but the opera, bidding for the olympics, the Welsh government subsidising bidding for tests and so on) are the worst kind of subsidy. Housing supply can respond to some extent but the supply of major sporting events is totally inelastic as is the supply of the very best opera singers. So these subsidies just go straight to opera singers pockets (in one case) and into the pockets of the ECB (in the other case), whilst raising the cost of bidding for everybody else. But, of course, I agree with Mark’s first paragraph.

  9. Posted 16/06/2009 at 11:01 | Permalink

    Philip, all subsidies are bad, but subsidies for the Opera etc are just pure waste, which increases the tax burden slightly, but doesn’t actually make life worse for anybody.

    Housing supply can’t ‘respond’ because of strict planning laws, which are themselves merely the result of successful lobbying by NIMBYs. If we liberalised planning laws, then to some extent the problem of high house prices would solve itself (I think this very blog linked to an article explaining the difference between ‘flatland’ in the USA that didn’t have a house price bubble at all, and the ‘zoned zone’ that has strict planning laws and was responsible for the entire house price bubble).

  10. Posted 16/06/2009 at 11:01 | Permalink

    Philip, all subsidies are bad, but subsidies for the Opera etc are just pure waste, which increases the tax burden slightly, but doesn’t actually make life worse for anybody.

    Housing supply can’t ‘respond’ because of strict planning laws, which are themselves merely the result of successful lobbying by NIMBYs. If we liberalised planning laws, then to some extent the problem of high house prices would solve itself (I think this very blog linked to an article explaining the difference between ‘flatland’ in the USA that didn’t have a house price bubble at all, and the ‘zoned zone’ that has strict planning laws and was responsible for the entire house price bubble).

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