Ritchie tells us all who really caused the crash

An interesting analysis really:

The reality is more significant. Ordinary people – the vast majority of people – were in reality priced out of some basics of living, like housing, by an elite. That elite – the holders of the vast majority of wealth – forced up the price of many assets – housing in particular. The result was people had to borrow more and more, and one income households had to become two income households and still borrow more and more, just to secure a roof over their heads.

So who were that elite?

On the evidence given there it was the local council planning committees.

The price of houses did not change at all during the boom: houses were, as they always are, at or around replacement cost. What did change in price was the right to build a house on a specific plot of land. A right that is artifically created and very much artifically limited by those planning committees.

The solution is therefore to change the method of allocating planning permission.

So, following Ritchie\’s analysis we get to burn the bureaucrats anyway.

Good Oh!

19 comments on “Ritchie tells us all who really caused the crash

  1. This bit doesn’t follow – why assume the replacement cost is static?:

    “The price of houses did not change at all during the boom: houses were, as they always are, at or around replacement cost.”

  2. It’s not, though to be fair construction costs haven’t changed anywhere near as much as the price of development land (more in less in line with inflation) so Timmys point still holds.

    I’ll bring the petrol.

  3. 1. Housing isn’t an asset: not a proper one, anyway.

    2. No-one was priced out of housing; they were priced out of ownership. Homelessness is a dire situation, but it is not the situation of millions.

    3. I’m priced out of owning a car; you don’t hear me complaining.

  4. None of the above, shurely?

    Credit expansion by central banks led to excess credit available for home purchases. This led to sellers ratcheting up asking prices, since funds were available to pay these inflated prices. Eventually repayments on the loans became greater than the rest of the economy could afford, so the house credit market crashed. The situation could only occur because of a mass delusion that houses are an asset whose value naturally increases faster than inflation.

    The situation is only likely to change when western mankind stops thinking it normal to pay a hundred thousand pounds for a pile of old bricks.

  5. So, er, I seem to be half agreeing with Ritchie. Except it wasn’t an elite who forced the prices up. Rather, the elite loaned money to a herd of ordinary idiots who forced the prices up all by themselves, and paid said elite vast amounts of interest as a thank you for being allowed to borrow their money.

  6. If Tim’s right that it mainly is a planning permission thing (and he might be) then that suggests house prices are not overvalued (and given I do not believe a Tory/Lib Dem coalition will do anything about planning permission, not likely to become so).

  7. The restriction is not just in being allowed building land but that “planners” insist on Victorian building practices & on minor changes from a common design which makes mass production possible. What should happen is that after foundations have been built (or screwed in or drilled) a container lorry, or 2, & deliver a 2 storey unit 40 ft long & 8 wide, or 2, (total 1280 ft) & you have a house for more than the cost of a mondeo but less than a jaguar.

    But then the common people would clutter up the countryside & who wants that?

  8. Jim Claydon of the Royal Town Planning Institute worked out that there are enough building plots with extant planning permissions in London to build 20,500 houses a year for years on end.He said,”All landowners including housebuilders maintain land values by managing supply.It is not in their interests to release large quantities of land because this deflates its value”
    Answer land value tax as this would encourage them to use their planning permissions.Mr Worstall believes in LVT the way Englishmen believe in God:they believe but not so it affects their ideas generally.

  9. Speaking as someone who thought that the housing market was nuts (and that buying highly volatile assets with a lot of leverage is even more nuts) and therefore kept renting while accruing savings and other assets, and who has now seen the value of those saving and other assets eroded as a consequence of endless bailouts of all kinds, I can only say that I really hate these people.

  10. Ritchie is ever so slightly right – but the elite is not who he says it is, and it certainly is not local planners, it is the vast bulk of the Home-Owner-Ist population who wanted banks to lend ever more money on the same old houses (and the bonus hungry bankers got the nod from the government and were only too keen to oblige), and who want local planners to prevent anything new being built.

    The government just goes along with the Home-Owner-Ist majority.

    There is little more to it than that. There is no great conspiracy involving Rothschilds or Nazi planning authorities, this whole house price/credit bubble is down to the mentality of the Home-Owner-Ists.

    As DBC says, land value tax would sort this out (and a dozen other things besides), but the Home-Owner-Ists don’t want it to be sorted out.

  11. According to Ritchie, “one income households had to become two income households and still borrow more and more.”

    Have I missed something too obvious ? If government are taking 48 % to 52 % (BoM) of all our incomes, does THAT not better explain why one income households (whether home owners or not) have had to become two income households ?

    Alan Douglas

  12. As the inventor of the Theory and Practice of Homeownerism, a bit like Goldstein’s
    book ,I could object that Homeownerism is by definition” the practice of politicians in encouraging popular homeownership in order to secure ,then remain in, power by maintaining high house prices and guarding against any
    attempts to tax them,”so it is primarily they (politicians) who are Homeownerists and not their client homeowners as Mark Wadsworth implies .But he is till right in practice.Tim Worstall points a shaking finger at the planners but local government politicians who approve planning applications are mindful that their constituents object to all new houses anywhere,ever,even when they’ve got their offspring’s families living in their place.
    ( I once read a really outrageously unconventional letter by a bloke living in an expanded Northants village: he said he had n’t fancied a lot of new houses,but the incomers kept the pub and shops open, reinforced numbers in the school and revived the local cricket team,which latter bulked very large in his attitude to things.)

  13. DBC Reed,

    Jim Claydon of the Royal Town Planning Institute worked out that there are enough building plots with extant planning permissions in London to build 20,500 houses a year for years on end.He said,”All landowners including housebuilders maintain land values by managing supply.It is not in their interests to release large quantities of land because this deflates its value”

    The RTPI’s own report (http://www.callcuttreview.co.uk/downloads/royaltownplanninginstitute.doc paragraph 22) into this showed that builders owned about enough land for 2.7 years of building based on plots and completions of the top builders.

    Bear in mind that there is always a delay between buying land and being able to even start building as you wait for roads, electricity, plumbing and so forth to be put in place and it hardly shows any sort of land hoarding beyond sensible business planning.

  14. @MW Splitter!
    It was my original concept which you fleshed out a bit (by about 2 million words in various places).
    I gracefully concede the parody of Goldstein’s book was all your own work.
    Now you admit that it was I who first declared we were living in a a one-party Homeownerist state!
    I’m not REALLY that bovvered,mind you.
    More fire-power should be levelled at Murphy
    who now insists he is kinda in favour of LVT, up to a point, for the sake of argument etc. May be time to hit him with the MW income tax/land tax reciprocating mechanism (or should that be the DR/MW itlt rm) and the Sentinel Tax (all DR
    with a large-ish soupcon of JS Mill).
    Whatever ; this man is a bit of a humbug .And I am notionally/tribally on his side.
    As I said before Tim Worstall is good land taxer,but never attacks Murphy for his weakness on the LVT front;neither does he see that it ushers in a totally different ,more entrepreurial , economic system.He is content that it is a good tax and that’s it.

  15. Are you sure Goldstein actually exists,even in the terms of a novel? However I am glad to accede to this happy accord.
    BTW Murphy is coming round a bit to LVT .(That’s my impression.See his Tax Justice website).It might be the time to hit him with your Tax Reciprocator as he seems none too keen on LVT as a single tax.

  16. DBC: “Are you sure Goldstein actually exists, even in the terms of a novel?”

    I think that Goldstein was a person of little importance whom The Party use as a boo-man. O’Brien cheerfully admits to having written parts of The Theory And Practice Of Oligarchal Collectivism Home-Owner-Ism.

    Bad news about Ritchie, if he starts supporting LVT then the cause is lost.

  17. The cause is doomed anyway.
    “Here comes a candle to light you to bed;
    here comes a chopper to chop off you head”

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