Yes, this is the point

The federation says that in areas where rents are already high, such as the London boroughs of Camden, Hackney and Haringey, many tenants moving into new social homes would face bills of £340 per week for a three-bedroom property. Even if people could get a job, their earnings would disappear in high rent repayments.

This would mean they \”would have to earn at least £54,000 before they could get off housing benefit and be in a position where they could keep the bulk of their additional salary and find themselves better off in work\”.

Think of what is actually being said here. Currently there\’s some subsidy (hidden in the opportunity costs of below market rents) to social housing. This change, of charging near market rents and then subsidising those who need such subsidy through housing benefit won\’t in fact change….or at least won\’t increase….the subsidy being paid.

It will almost certainly decrease the subsidy….as not all those in social housing are unable to afford their rents. For we\’ve this crazed system whereby if at one point in your life you need a housing subsidy then you get that subsidy for all your life. To take just one example. At some point Lee Jasper qualified for a council house in London. Yet, when he was earning £100,000 a year as an advisor to Ken Livingstone he was still in that council house and still getting that subsidy. As has Baroness Uddin, even as she bought a flat outside London and built a villa out in Bangladesh. There is no justification for such to be receiving housing subsidies and moving from a system where all social housing is subsidised to one where only housing for those who actually need subsidy, whether in hte social or private sectors, is subsidised will cure the system of this affliction.

What it will also do is clarify the subsidy being paid: instead of being hidden as an opportunity cost, something that most don\’t understand (and given what we know about people, that they hate losing something they don\’t have much more than not getting something they\’ve never had), we\’ll now have the total amount of housing subsidy there as a line item in the budget.

Now my number is a very rough one indeed. But if there are 4 million social housing units, and the average subsidy to each is £200 a week (drawn from a Guardian article and certainly wrong but I invite more accurate calculations of the total difference between market and social rents for the entire stock) then that\’s a £40 billion a year subsidy. Add the £20 billion a year HB bill and we\’ve £60 billion a year, 10% of government spending and near 5% of the entire economy, being spent upon housing subsidies.

If we actually see that number then we might in fact get off our arses and do something about it. £60 billion is enough to raise the personal allowance up to around £20,000 a year for example (a rough guide is that it costs £4 billion to raise it £1,000).

Setting the income tax level at around and about median earnings would be a suitable reward for sorting out the planning system which makes the land upon which you can build housing (for it is the land with permission that costs, not the house) so damned expensive would be a suitable reward, don\’t you think?

I do, so here\’s hoping. Liberate the planning system, drive the cost of housing down and alleviate much of the tax burden on the working man and woman. Sounds like a plan to me.

12 comments on “Yes, this is the point

  1. I’m finding the news reports about this baffling. Eg single mum asking “How do you tell a nine-year-old that she’s got to move schools?” But people move their kids voluntarily around the world.

    I do feel more sorry for the 75-year-olds who need to move home having put down their roots in a community, it’s a painful process to be uprooted at that age.

  2. Cost £4 billion to increase it by £1,000?

    Surely you mean it resulted in £4 billion less tax income. Sorry to be picky but they’re not the same thing by a long shot.

  3. The fundamental problem in London and the Southeast, despite the recent recession and some mild declines in prices, is planning restrictions that block up supply of new building units, limits on high-rise developments, and the like. But even in a complete free market for land, unlike what exists, rents will still be high, as a reflection of demand running ahead of supply. Of course, this ought to encourage people/businesses to move out of London/Southeast to where it is cheaper, such as Ooop North.

  4. It is not a matter of planning permissions .California in the 1860′s and 1870′s was in practically a state of nature , e’en unto the point where Rand’s “robber barons” roamed , but the facts of the matter were already obvious to Henry George who saw land being bought up speculatively for prices far in excess of any profit they could then earn.No reserve bank then to push out cheap credit either.We are still in the same fix with people buying property in the expectation of a big unearned rise in value.
    This kind of analysis goes back to the origins of modern economics with the Physiocrats who thought the endogenous rise in land values problem enough for the productive class aeons before planning.
    Face it: with every increase in wealth land prices go up cancelling it out; then they start going up in advance of increases in wealth.What JP probably calls demand running ahead of supply in fact supply being restricted by price ahead of demand.
    He’s a game boy though that JP.

  5. Pingback: Housing Reform – ending life tenure is a GOOD idea | The Wardman Wire

  6. Tim: To clarify your point, it’s not land with permission which is expensive; it’s the permission itself. I don’t mean that councillors need to be paid off, but land without planning permission sells for vastly less than land which has gained planning permission. I think it was CentreForum had a very sensible suggestion from Tim Leunig on this: a mechanism for allowing councils to internalise some of that uplift, encouraging them to be more pro-development.

    DBC: I think you may find that Gold Rush California is not a reasonable model for the land market in the twenty-first century United Kingdom.

  7. @PW
    On the contrary, California during the Silver Rush of the latter part of the nineteenth century (the Gold Rush was a generation earlier) is a pretty fair equivalent of present day UK: with land speculators using big splodges of adventitious money (in our case from Keynesian demand stimulus) not to invest productively but to go in for passive investment in land (in the likelihood that it will increase in value without anybody lifting a finger).
    Tim Leunig’s pet scheme was ,if memory serves, to auction planning permissions for the public
    benefit.Far from a waste of time ,this nevertheless stops the landowner pocketing all the land value uplift consequent on permissions being granted which is great in principle but will mean the idea will get shot up in the press and will never happen.If you going to take on the landowners,you may as well go for the full public ownership of the rising land values that the community itself creates with a Land Value Tax.Leunig’s type of auction is a very weak form of land value capture but this will not save it: it will get a clobbering just the same .Particularly from libertarians who believe that high land and property prices are the soul of liberty.

  8. @PW They sort of do now, its called planning gain.

    @DBC What you describe used (it may still be) the way Hong Kong operated. The Government auctioned planning development land and pocketed the revenue. It worked very well for a long time however this did require the (colonial) Government to own all the land with the exception of the land where the Catholic cathedral stands.

    Libertarians don’t believe in high land and property prices, they believe in the rights of the owners to do with the property as they wish, within reason.

  9. @SF
    Leunig’s system would work pretty well under the conditions of complete nationalisation that Hong Kong had,but then it would n’t be Leunig’s system but land nationalisation.The problem with the latter ( promulgated by Spence and taken up by some of the pissed and confused Spa Field Rioters )was who decided who got the land .Lease auctions get over that problem,but Leunig’s scheme went a bit weird because it allowed the owner to make a bid: how much s/he would accept.The public share was the difference between this bid and the other newcomer bid for the land with planning permission. LVT would be simpler and take in more revenue by taxing all land whether with new permissions or already legally built on /or not built on.
    Libertarians believe in the rights of property owners to do what they like with their property including keeping people off it and making a huge unearned capital gain out of it in a way which totally screws up the economy .There are Geo-libertarians who believe in Land value Tax but they are so few and far between that you fear for their safety.

  10. My centre forum paper is still available, those wanting a shorter summary can go to FT.com and google “leunig davey” and it will appear immediately. I think it remains the best way forward

  11. Pingback: Rachel Smith (Mrs Vince Cable) attacks Coalition housing plans

Leave a Reply

Name and email are required. Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>