@richardjmurphy: get the analysis wrong and you\’ll get the solution wrong. Again.

So, yes, house prices are very high. So, yes, we\’d rather like to have lower house prices. In order to work out how to lower house prices we need to work out why house prices are high. The Murphmeister:

There is no doubt at all that current house prices are massively over-inflated. That is because banks lent too much on the security of land.

Therefore Murph reaches for the one weapon to cure all ills, very much higher taxes on everyone and everything.

However, banks have not lent too much on the security of land. The land underlying a batch of Barratts is worth perhaps £1,000, £1,500 a house. Build costs are around £100,000, yet the banks are lending £200,000, perhaps £300,000 against these rabbit hutches.

They\’re not lending against the security or value of land. They lending against the scarcity value of planning permission to place a house on that piece of land.

And that is what makes housing in the UK expensive: the scarcity value of planning permission. And we know how to reduce the price of something which has a scarcity value. Reduce the scarcity of course.

So we do not need to tax everything that doesn\’t move, glorious though Ritchie would find such a measure. What we actually need to do is just issue more planning permissions. The scarcity value of them thus declines and housing becomes cheaper.

So what we\’d like to see happen is a government willing to take on the Nimbys, the county set, the idiot enviros, and agree that perhaps housing might be allowed to expand from some 2% of this green and pleasant land to maybe 3%. By, perhaps, assuming a right to develop rather than insist on proving a need for development as presently?

Oops! Yes, sorry, forgot. The current government is doing just that, isn\’t it? So that can\’t be the right answer as they\’re Bastard Tories, aren\’t they?

19 comments on “@richardjmurphy: get the analysis wrong and you\’ll get the solution wrong. Again.

  1. OK, I refuse point blank to increase his site hits by going over & reading the moron in the original but I’m searching my mind to come up with a way that loading taxes onto housing development is going to decrease land prices & coming up with zero.
    More taxes on development= less incentive to develop= less development. Less development + demand for housing = higher house prices.

    And before anyone starts making out housing developers to be all Ferrari’s & yachts, I’m watching someone in the process of catching a serious financial cold over a UK project.

  2. And yet the advocates of land value tax argue that one way to reduce land speculation and price rises is to tax the rise in the value “unimproved land”. This seems unnecessary if central banks are going to print money like confetti, thereby encouraging investors to hold land and other “real” assets as a hedge vs inflation, for instance.

    BTW, in China, the authorities there are using all the instruments of a Communist state to try and curb land speculation. It does not seem to be enjoying great success.

    Of course freeing up planning restrictions would put Mr Murphy against the Greenies.

  3. And also Murphy’s default solution for everything is more government, when now the answer is less and less.

    c.f. The EU, public finances, welfare, employment law, immigration etc.etc.

  4. Johnathan,

    I would suspect in China there is plenty of land being made available for building, but not necessarily in the right places (or with the consent of those currently living/farming on them?).

    Shanghai is now 14m souls and expanding. The city has 4 new tube lines IIRC (being built in 2005 when I worked there, some craftily placed in the central reservation of new boulevards).

    BTW, I am repeatedly told by those advocating LVT that it will not rise if the value of the area rises, but one knows it will and at the whim of The Monopoly.

    I think I am going to rename the State, “The Monopoly”, just so people really know what beast they are facing…

  5. So, let’s get this right?

    He’s suggesting that we need a more complicated tax system – that interest on business loans for buy-to-let property is morally and therefore taxably (a generic Murph-fail) different from other business loans? What about buy-to-let commercial property?

    That taxing housing asset realisation would somehow lower house prices? It’s going to lower liquidity (if you are going to pay 28% tax on the gain on the sale of a house, you are going to be much less likely to move.) Lower liquidity generally equals higher prices, yes?

    And this family “unable to start a family because of the uncertainty rented accommodation provides“? Goodness me, it’s positively flabbergasting. This must be the first young couple ever not to own their own house or have a long-term tenancy. Or, perhaps, not. I think the young man just needs a bit of encouragement to get over his irrational fears. A bit of adjustment (aka relaxation) of the rules to make landlords less scared of long-term tenancy agreements might improve things to. Just saying.

  6. I’ve always thought that the reason house price seem to move ever upward is because they are the one asset that ordinary people can buy (and are easily understandable) that will keep up (in the long run) with inflation. If governments stopped destroying the value of the currency over time, and £100 saved in 1970 bought the same as nowadays (and probably more due to technological improvements) then they would be less likely to view house as ‘investments’ and more just as ‘machines for living in’.

    60 years ago after the war you couldn’t give houses away. In the village I live in houses that would now be worth hundreds of thousands were bulldozed in the 50s because they had negative worth – they needed money spent on them, they attracted rates, and even if they were in good repair would create little rent. So they were flattened.

    The concept of property as investment is only 30-40 years old, about the same as the fiat money experiment unsurprisingly enough. Stop printing money and house prices will stop going up.

  7. Lets get this straight his answer to every issue (or non-issue as the case may be) is to tax, tax and then tax again. If you read the thread you’ll see someone taking him to task and as always you will see his arrogant responses and chnaging views as his responder wins the argument.

    OccupyNorwich !! – that gave me the best laugh. Where next – OccupyMidsommerNorton or OccupyChipping-cum-Sodbury in the Wolds !!

  8. What happens when,as now, developers keep thousands of plots WITH PLANNING PERMISSION unused,only releasing them in a dribble which won’t crash the inflated market in houses ? The vast homeowning bloc which determines elections in UK wo n’t like it if prices go down because of any action by anybody on the land supply.
    They go nimbily berserk as it is, at the threat of new local housing.They have been sold the Ownership Society >see Wikipedia ,on the promise that their wages will be controlled but house prices won’t.These people will get very nasty if they are denied their tax-free bribe to keep quiet,work for peanuts and be grateful for what their betters give them through the housing so-called system.
    (J Pearce’s constant preoccupation with LVT is becoming a real concern.He should get some outside interests.)

  9. “unable to start a family because of the uncertainty rented accommodation provides”

    So how do I manage with 2 young children, in a rented house with my landlord able to give 2 months notice to quit?

    The best thing was that when Prescott was in charge of housing, being on a standard shorthold tenancy I was technically classed as “homeless”. Anything to keep the bureaucrats employed.

  10. What happens when,as now, developers keep thousands of plots WITH PLANNING PERMISSION unused,only releasing them in a dribble which won’t crash the inflated market in houses ?

    But, is this what actually happens? Or is it, as we have seen until very recently, that they keep an inventory relevant to the length of time it normally takes to procure the same (i.e. the amount of time between purchase of the land and obtaining planning permission.) Because, of course, they have to size and plan their operations. And planning permission, being in the gift of one of the less efficient bits of the bureaucracy, our local councils, is hardly a JIT process.

    And then, we have a financial crisis and, like inventory holders everywhere when demand unpredictably plummets, they end up holding excess stock.

    As an example, not that it is what I would call “cheap”, there are brand-new, high quality builder, 3-bed semis up the road from me @ £170k.

  11. House prices are too high because housing wasn’t taxed enough ?

    Inheritance tax is too low ?

    Making landlords pay more tax through abolition of tax relief will ‘help’ tenants ?

    Five fold increase in taxation on vacant privately owned property to ‘force’ it onto the market ?

    Enforced saving into government sponsored debt ?

    Promote wage inflation and build more houses to ‘reduce value of houses’

    Enforced purchase of land from property companies ?

    Savers must suffer to avoid ‘war’ ?

    There seems to be a proliferation of ‘forcing’, ‘promoting’, ‘must’s’, and increased taxation in those suggestions.

    I though Nicholas Parsons was the only twat from Norwich who came out with shit on a weekly basis.

  12. Jim Claydon of the Royal Town Planning Institute got so pissed off with “its the planners wot restrict supply” ‘argument'(a very charitable choice of words) that he added up the number of plots being held with planning permission according to the developers’ own figures. He discovered that the developers were sitting on enough land ,for instance.to supply the SE ,with a six year supply of houses working at optimum output.He explained their failure to build anywhere near this number in memorable words “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”

  13. DBC Reed (#12) – housing is, what, 2% of land use? A very low percentage even in the south east.

    If there was a real relaxation of planning rules, there’s no way the builders/developers would be able to hold onto enough to affect the price.

    And the idea of landowners in general holding back land to increase the price – impossible, there are far too many of them to act in concert. A few of them would start selling, others would follow, and the price would tumble.

    If the developers are forcing up prices by holding back development land, what lets them do that is the whole idea of planning, the attempt to give just enough permits to meet some artificial definition of demand.

  14. @DBC Reed: what Richard said is correct. You are conflating house builders with all landowners. While house builders probably do have 6 years supply of land with planning permission, there are thousands of individual landowners (mostly farmers probably, owning thousands of acres) who would jump at the chance to flog off a few acres here and there if the price was say £25K/acre (rather than the£500K+/acre for land with planning currently). The housebuilders have a valuable asset (the planning permission) and aren’t going to flood the market and devalue it. But make planning easy to get and there will be a massive increase in the supply of housing plots available.

    Of course there is a slight problem with giving the green light to development, especially in the S East. There is considerable pressure on water supply, sewerage capacity and storm water disposal. Under the current system developers can be forced to pay for improvements for these things, which they pay for out of the inflated land prices. Free up planning and the land with planning permission will be worth a lot less, hence less value to do the infrastructure work.

  15. DBC Reed, you should realise that I am only raising the topic of LVT to save you the bother. You love me really.

    Richard: excellent points all.

  16. He mentions Zimbabwe and points out (correctly) that the hyperinflation there was a consequence of wilful destruction of production. But monetization to cover fiscal deficit IS a cause of hyperinflation. So his idea (in the comments) that he would print money to fund wage inflation not matched by production increases would in my view almost certainly lead to an inflationary spiral. There are numerous examples in the last century of hyperinflation following deficit monetization. Hungary, for example. Or almost anywhere in Latin America. Unless of course he thinks that imposing much higher taxes would eliminate the fiscal deficit – but if it did then he wouldn’t need to print money, would he?

  17. Not a question of not being arrsed, or arsed even : did n’t know it was there.And very interesting too .Many thanks for helping me to find it again.
    JP Do not presume on my good nature.You spent some time a while ago on Samizdat issuing me STERN WARNINGS about broaching LVT in housing and other relevant contexts.You are now so immersed in LVT that you can pick up on the merest soupcon of relevance to land tax prompting you to launch , what you hope are , pre-emptive strikes.All they do is alert the ever-ready LVT bore to enter the fray I’m afraid.
    BTW Tim W is a closet LVT enthusiast.Being an Adam Smith fan, he has to be.Something for right-wing naifs to bear in mind: quintessential liberal economist wrote the key defence of LVT.

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