The housing benefit cap: Err, yes, this is the point

Long piece in The Guardian which doesn\’t really do the campaign against the housing benefit cap any favours:

Mick Beirne, a tenancy relations officer with the council, acknowledged that parents were \”very anxious\” and said his department was expected to be very busy for the next two years. The longer-term effect of the benefit would be a migration of families to parts of the capital that were more affordable, he said, and the profile of this part of London would inevitably change. \”If people who are poor and cannot afford to live here move out, their places, their homes will be filled by people who can afford to pay the rents,\” he said.

Quite.

Then we\’ve the examples of those directly affected by the cuts.

Until November, Amira, 39, was renting a flat near Edgware Road for £812 a week, with her four children. She is not currently working because her youngest child, aged one, is unwell and receiving treatment at Great Ormond Street hospital, and her rent was met in full by housing benefit payments.

That\’s, umm, £44,224 a year. People working part time on minimum wage should pay income tax for this?

The council offered to rehouse the family in Dagenham, on the eastern outskirts of London, but because this would have meant moving three children into new schools, Amira refused the offer.

To make £44 k a year post tax you\’d actually have to have an income well up there in the top 5% (top 10% starts at about £45 k pre tax I think). Who seriously thinks that someone not working should be subsidised by everyone else to that level?

A few miles away in Camden, Jo Stoakes has been living in an emergency hostel with her three children since she was evicted from her basement flat by her landlord last October, when it became clear that housing benefit reductions meant she would no longer be able to afford the rent. She was paying £525 a week, but the housing benefit, after the cap, would have paid only £340, and she was unable to make up the difference.

That old HB bill, to make that pre-tax, let alone post -tax, you\’d have to be making more than the median wage for the country.

The family was offered alternative accommodation, seven miles away in Enfield, on the north-eastern edge of London, but refused it, because it would have meant moving both younger children into new schools, at a particularly critical time in her teenager\’s education.

Exiled to Enfield, eh? What cheapskate buggers we taxpayers are to be sure.

Azhar, 44, who lives with her four children in a tower block off Edgware Road, is currently paying £750 a week rent. Once the cap is applied to her claim this month, she will need to persuade the landlord to lower his rent to £400, or move out.

£39,000 a year. You\’d have to be in the top 10% of all households by income to be able to pay that rent. That\’s without having anything left over for food, clothes, anything at all actually.

I seriously doubt that the average taxpayer is going to weep bitter tears over these tales.

72 comments on “The housing benefit cap: Err, yes, this is the point

  1. “The longer-term effect of the benefit would be a migration of families to parts of the capital that were more affordable…”

    Working. As. Intended.

    Also, I note that no father is mentioned in any of those three cases…

  2. And I can’t help but agree with the council official who is quoted thus:

    “‘To live in Westminster is a privilege, not a right’…”

    It’s not even a ‘right’ if you’ve earned the money and are paying it yourself. So to argue it’s a ‘right’ to demand it on welfare is even crazier!

  3. Nice to see the teachers working so hard to try to help their pupils and parents. Perhaps not unrelated to the expected 20% deduction in pupils at their schools and consequent job relocations?
    Can’t afford to live there – move, we all have to make the decisions on where we can afford to live but most do it without £750/week from the rest of us.
    Other parts of the country outside Westminster can be pleasant if you choose well.

  4. I’m going to get in before DBC Reed does and say that the problem here is rent. Yes, these rents are ridiculous; but the State has deliberately, over generations, forced rents up to absurd levels. I remember causing a bit of a row over at Samizdata by being in a bit of a bullish mood about this (my tumbrels and guillotines schtick) but the basic point I was making there was that free markets are not Ricardian, but the State produces a Ricardian- I used the term “hyper-Ricardian” effect. With deliberate land supply strangulation, we have to agree with Ricardo that “the rentiers win”.

    Not something that would happen in a true free market (here, the Georgists are wrong) but if anything is true of Britain these days, it is that it is not a true free market.

    We’re looking at London prices here; London is the centre of the Westminster bubble, right next to the money cannons, much of whose ammunition goes straight into land value inflation. The South East, and Londinium in particular, is not a free market. It is a classic example of what happens with inflationary state banking; a bubble forms around the money cannons, and the only way to avoid total ruin of the hinterland is massive money transfers, hence Soviet boroughs, and Greece. Within the bubble, a candy floss economy develops with two distinct classes- the State class, subsidised in their wealth by being handed wads of printed money, and a subservient class of “nannies and gardeners” to the State class, and very few people in the middle. (It is well studied in general by free market economists that price manipulation produces a double-peaked economy).

    A decade ago I was living in Finsbury Park with my beloved, in a small “two bedroom” (one usable bedroom, one tiny office/boxroom) flat. We were paying £260 per week for that. I’m sure the current tenants are paying considerably more. You couldn’t raise a family in that. Maybe one child, until they got too big. The kitchen would have made an excellent phone booth, saved only by having its wall knocked out into a big hatch, so you didn’t quite feel you were cooking in a cupboard.

    Great area? No. Drug dealers and shit. But, near a “transport hub”.

    This isn’t really a housing benefit issue. It is a general economic issue. Londoners can’t afford to live in London any more. Many of them have already moved out, then need ridiculously long journeys into work, and then you get transport systems that can’t cope. I remember one morning, we were on the platform at Finsbury Park and the jovial rasta announcements bloke came out with, “Now please don’t lynch me. The next train is a two car train”.

    Turn off the fucking money cannons, and you might get a sustainable, rational economy. Huge rents are a symptom. There has to come a point where the policy of general immiseration to feed the money lust of the State class will have to stop. Or it’s a Greek tragedy for everyone.

  5. And, of course, without the backup of extreme HB, the rents for the ‘not the best’ properties in the affluent areas might just fall to more reasonable levels.

    I used to have a team of 5 working for me in central London – on reasonable salaries. But none of them (nor I) would have been able to afford £44k per year rent. So none of them lived within walking distance, or even a bus ride, of work. All of them had to take the train or one of the “out into ‘here be monsters'” tube journeys and then connections. One of them actually lived on the south coast.

  6. So, lets see. My friends have scrimped and saved for years and now live in Dulwich. They are on a financial knife edge all the time. If they lose one of their incomes they will have to sell up, pull their kids out of the fantastic school they love and move somewhere cheaper.

    Why should someone earning £15k in Greggs pay for my friends children to stay in Dulwich?

    This is called the real world. Its the one non-Guardian readers live in.

  7. From the journalist her self “Azhar’s seventh-floor flat is far from luxurious and is clearly overpriced”

    So why should we pay for something we know is over-priced. If I go to Tesco for a pint of milk today and find it is £25 I might think about going to Asda and paying 49p instead.
    We can and must choose to go where we can afford.

  8. “Nice to see the teachers working so hard to try to help their pupils and parents.”

    The same teachers who whinge and whine that they are drowning in paperwork and don’t have enough time with the kiddiewinks as a result?

  9. Oh the horrors of having to have your kids move school! The inhumanity!
    Are journalists at all aware of how this sounds?

  10. My friends have scrimped and saved for years and now live in Dulwich. They are on a financial knife edge all the time. If they lose one of their incomes they will have to sell up, pull their kids out of the fantastic school they love and move somewhere cheaper. Why should someone earning £15k in Greggs pay for my friends children to stay in Dulwich?

    Indeed. But it’s not really the question we need to be asking. We need to be asking why your friends, who have scrimped and saved for years, are on “a financial knife edge”.

    We live in a supposedly capitalist, growing economy. The basic expectation of that from economic principles is that “needs” i.e. basic expenditure (food, shelter, etc), should reduce as a proportion of income allowing more notional expenditure on X-Boxes and flashy motor cars etc. That isn’t happening.

    What has gone wrong? Why are all but a lucky (generally, State-connected) few still scrimping and saving and living on a knife edge? How can an economy that the State insists in its aggregate statistics is continually growing, not actually be producing growth at the individual level?

  11. Back in the good old days of the USSR, you didn’t just decide to try you luck in the big city, you had to have permission to move to Moscow or Leningrad. So we could take a leaf out of the comrades book here and declare some postcodes to be ‘benefit free’, i.e. W1 doesn’t have a benefit office and you can’t claim any benefit if you have a W1 address.

  12. There is an awful lot of exaggeration of what actual rents are out there by vested interests, too. I live in a generous two-bed flat, less than two miles from Charing Cross (the official milepost Centre Of London) and it costs me £250 a week in “rent” (actually mortgage interest and service charge).

  13. So, £750 p/w, £39k.

    Given many say one should not have housing take more than 50-60% of take-home pay, let’s say it is 60%.

    £65,000 take-home, £5,400pcm.

    Someone is earning a pre-tax income of around £115,000 to match such expenditures on housing at least.

    Yes, people will have to move. The idea that one can use the excuse of not moving school is just insanity, utter denial. Outrageous entitlement and selfishness.

    Yes, Tim, this piece does expose the absurdity and unsustainability, but I bet a pound to a penny the readers will be tut-tutting at the “forcing out” and “eviction” of their pets.

    Forget us not having enough money post 2008, the UK did not actually have the money ever since 1939!

  14. @TracyW: please let the Graudiad and BBC keep running this stuff. You don’t need to say anything, just link to stuff :-))))

  15. This morning has been truly a learning experience for me. I’ve followed IanB’s opinions expressed in various fora for some considerable time & rarely found myself disagreeing with them. Now I find I find we lived on opposite sides of the same park. Tell me Ian. Did you have the same views before you moved to the total insanity that is the Camden/Hackney/Harringey/Islington nexus of socialist republics or was it, like me, a process of slow discovery the people one was mixing with are totally, barking mad?
    I’ve sat outside the rather pleasant little cafeteria in that park & at other establishments & listened to the generally expressed opinions that being able to live in proximity to the attractions of Central London & the West End are a right that should be available to all, irrespective of whether they can be bothered to get out of bed before noon & disturb their fascinating social life with anything as mundane as productive employment. Conversely, the high cost of accommodation is driving out local people & breaking up the community – a view expressed in accents from every corner of the UK & indeed the entire planet, sometimes needing translation from diverse & obscure languages.
    I’ve eventually come to the conclusion that all the working, productive useful people in the metropolis should quietly steal away in dead of night & set up somewhere a lot more pleasant & continue their lives in sanity & comfort leaving the dregs to get on with it.

  16. “I’ve eventually come to the conclusion that all the working, productive useful people in the metropolis should quietly steal away in dead of night & set up somewhere a lot more pleasant & continue their lives in sanity & comfort leaving the dregs to get on with it.”

    I’ve often thought that! It’s a bit Ayn Rand for my liking though. Why can’t the people who actually appreciate and can handle living in this amazing city just throw out the ones who obviously couldn’t give two hoots where they live as long as it’s warm, has a big TV and has a big Tesco nearby? For everyone else there’s Milton Keynes, for example.

  17. “How can an economy that the State insists in its aggregate statistics is continually growing, not actually be producing growth at the individual level?”

    Rising inequality? You know, the rich getting richer? The doctrines of libertarianism?

  18. IanB
    “Indeed. But it’s not really the question we need to be asking. We need to be asking why your friends, who have scrimped and saved for years, are on “a financial knife edge”.”

    Absolutely. But, for them, living on a financial knife edge is a personal choice. It doesn’t suit my wife and I. We choose to live, as far as possible, within our means. Our friends, however, have made a choice to send their children to what amounts to an exemplary school, thereby giving them a fantastic head start in life. The only way they can afford this is by each working jobs they can’t stand.

    You describe certain needs as ‘basic’. Well, my friends could send their children to perfectly adequate school and live a much easier life. They have instead chosen to try and give their children a leg up.

    This is what parents have done for their children since the beginning of recorded history.

    This is all a question of choice. My friends choose to work much much harder than I do in order to earn about 3 times as much. Their basic ‘needs’ are met. They are simply choosing to do more.

    As for the housing cap, it’s very hard to see how someone’s basic needs are not met by the state providing them with a 5 bedroom house, free dental, free medical, free opticians, and money each week for free.

    It’s very hard to get excited about a complaint that the 5 bedroom house is in Enfield rather than Islington.

    It’s hardly the cutting edge of human rights, is it?

  19. “Amira refused the offer”; “offered… but refused it”

    Why is it an offer? And why on earth would someone choose to live in an “emergency hostel” when they could live in a house?

  20. Tim, on your figures on top 5% or top 10% of households by income, do they take into account people paid through Personal Service Companies? It seems that anyone earning over £50k uses a PSC if they have any choice in the matter.

    The standard ONS Annual Survey of Hours and Earnings (ASHE) certainly doesn’t include dividend payments.

  21. There’a lots of empty housing in t’North, isn’t there? There used to be so much surplus housing there that Mr Prescott, as was, demolished perfectly habitable stuff on what seemed to be doctrinal grounds.

  22. “Rising inequality? You know, the rich getting richer? The doctrines of libertarianism?”

    Fuck off Arnald and take your bullshit Marxist propaganda with you.

    We ain’t buying your bullshit today.

  23. I’m perhaps being a bit naive here, so excuse my simplicity.

    If the rent in the seventh floor flat is “obviously over-priced” then isn’t the provision of housing benefit skewing the market? After all, the landlord will be trying to get as much as possible in rent – it’s called a market. If there is a surfeit of tenants with free money, rents are bound to rise. Take the free money away (or reduce it) and rents will fall.

    Removing the housing benefit skew will reduce rents to a more reasonable level and allow more people access to central London accommodation at affordable rents?

    Or am I missing something?

  24. Or am I missing something?

    No. You are not.

    It is a transfer payment or subsidy from the taxpayer (i.e. you) via central and local government (who take their cut) to the idle.

    As it currently stands the amount of this subsidy is unlimited (unlike the limited funds of your average taxpayer), therefore it acts as a distortion to the market.

    Cynical landlords can actually use housing benefit as a corrupt payment to inflate the value of the property above it’s actual value.

    Say the landlord was previously renting out an apartment in central London for £500 which was the typical market rent for the property and area.

    Under normal free market conditions the landlord would be unable substantially raise the rent from a private tenant as there would be a limit to how much they were prepared to pay / could afford.

    However, if the landlord finds a DSS tenant (preferably a single mum with young children) and says – “If you sign a 2-year lease at £750 / week, I’ll kick back £50 per week in cash to you”.

    Thus he has artificially raised the price of the rent being paid by £200 per week above the market price.

    This distortion can only exist because of the state subsidy through Housing Benefit.

  25. BIS-

    I’ve eventually come to the conclusion that all the working, productive useful people in the metropolis should quietly steal away in dead of night & set up somewhere a lot more pleasant & continue their lives in sanity & comfort leaving the dregs to get on with it.

    Well I did :) Much as I love London, I simply couldn’t afford it any more, so now I live in my home town of Northampton. My worldview was evolving during that time, moving away from a default vaguely-leftie position.

    I think part of the problem with narratives like this one is that everyone’s so busy looking at the unemployed, they forget the working poor. Maybe it’s just that I’ve always been “blue collar” or something; but I have always felt very aware of the infrastructure workers- engineers, cleaners, drivers, shopgirls, that kind of thing, which maybe office bods don’t really notice because of a different perspective; they don’t really notice Ian B, air conditioning bloke, until they’re too warm, then they forget me again. I have this image in my head of walking into the ladies’ loo at ABN Amro very early one morning, and finding this delicately beautiful Eastern European cleaner, fast asleep from exhaustion on the counter, woven around the washbasins and taps. It was almost like you’d pose it for a painting.

    Yes, there are the feckless. But there are enormous numbers of very hard working poor, struggling to make ends meet, and a State which deliberately enacts policies that make it far more difficult than it ought to be. It’s easy to laugh all the way to the bank if you’re a wealthy money-cannon fusilier and your house is spiralling in value. It’s easy to say “let the poor move further and further away”. It’s easy to forget that cleaners are making very little money, and the farther away they are, the more crippling the transport costs are, and how insane it is that people are forced out of the city in this way. You can’t live on the South Coast and commute if you’re a cleaner. It just doesn’t work that way. And if an economy has got like that, something is terribly, terribly wrong with it, and that’s what needs addressing.

    It would be nice to believe as John Galt is suggesting that Housing Benefit is the cause of the enormous rents in London. I think that is simply not an adequate explanation. There are far more working poor than unemployed poor.

    I think it’s time to prick the bubble, and see what happens.

  26. IanB, oh boy does that comment chime. One get’s the feeling that the entire dialogue is conducted between, on the one hand the bunch of intellectuals huddled around your money cannons & on the other, the bunch of intellectuals commuting between the Farringdon Road & the White City studios of the Beeb & purporting to speak for the ‘downtrodden masses’ ie the ones who would find the existence of two 9 o’clocks in the day a mysterious revelation.
    What one never hears about is the folk who actually get down in the shit & make the world happen. That the entire edifice exists thanks to the humble plumber without whom they’d all be dying of dysentery in a stinking lake of their own excrement.

    Oh & if you understand aircon come over & fix ours. Flights & accom? No problem. Could probably arrange a stretch limo with complimentary champagne to meet you at the airport we’d be in such a celebratory mood.

  27. “Amira refused the offer”; “offered… but refused it”

    Why is it an offer? And why on earth would someone choose to live in an “emergency hostel” when they could live in a house?
    ________________________________

    Oh, I know how that one works. Seen it done. Woman’s sitting at the top of the housing list because her ‘needs’ take precedence. What’s most likely is that she’s actually living somewhere else. With relatives. Maybe even renting. Or even owns. She’ll drop in to collect the post. Have a presence. Then she’ll be allocated a nice housing association place in due course.

  28. ” It’s easy to forget that cleaners are making very little money, and the farther away they are, the more crippling the transport costs are, and how insane it is that people are forced out of the city in this way. You can’t live on the South Coast and commute if you’re a cleaner”

    Isn’t it the case that as the supply of cleaners able to actually afford to live nearby/commute dries up the wages for cleaners will rise?

    I guess housing benefit keeps a number of people nearby who can afford to work for a low wage, assuming you can claim housing benefit and still work a couple of hours a day as a cleaner, preventing this from happening.

  29. Housing Benefit is only one part of the toxic mix. We have effectively banned greenfield development in the South East and at the same time the consensus is against knocking down inner city houses to at higher densities.

  30. Amazing how when the subject of housing crops up normally intelligent people start spouting bollocks.
    IanB, I thought you were an economist. (My apologies.) But you have heard of the concept of scarcity, haven’t you? Is your solution to the limitation of land in Inner London to build on Finsbury Park or to create another planet?

    Everyone else seems to think that housing benefit is uniquely pernicious. But ALL transfers (not excepted schools and the NHS) create distortions.

    In 1993 the cost of houses in leafy areas of London (e.g. Dulwich, Crouch End, Kennington) was less than the replacement cost. (i.e. in theory land values were negative.) It’s quite possible that this will happen again if the demographic wheel turns.

    Meanwhile the vast majority of housing is occupied by people who pay for it, so the market clears.

  31. Ian B

    Absolutely spot on with your comments. Having worked as a manager in a ‘middling’ set of sectors (Retail,Production and Distribution) and been forced out of the capital, I was always struck by how much more dire must be the lot of my workforce either on the production line, in the fleet or driving the forklifts? How can someone earning below or even around average wages afford anywhere in the capital?

    Obviously the answer to your question as to why the working poor are disregarded is twofold: on the one hand we ave a global ‘elite’ primarily in finance which has created a situation whereby the instructions and market which they have created have become ‘too big to fail’ and as a result they behave with the fiat of a medieval court. On the other, and this is crucially missed from any analysis you’ll see in the Guardian, for example, we have a well paid, well pensioned Public sector elite,primarily in non- jobs whose continued employment is predicated on the continuance of the problems they are ostensibly trying to solve. The working poor who aren’t feckless have no need of their ministrations and are thus irrelevant when policy decisions are made.

  32. Having bred a monster when it comes to benefits, the argument from our politicians is not how to kill it but how to best feed it.

    Huge cash amounts paid to people on benefits so they can continue, untroubled by reality, to live as they prefer is akin to the shark in Jaws being spoonfed vast amounts of offal to keep it relatively peaceful rather than anyone going out to kill it. Our ‘leaders’ merely argue over how much offal should be provided.

  33. Worth remembering that London councils regularly top up payments to private landlords out of council funds to make up the shortfall the private landlord would have between housing benefit and private market rates when taking on social tennents, but this is at the discretion of the council.

    This is probably a bit of a secret thing that councils don’t want the public to know about.

  34. @Michael K:

    I know that used to happen back in the 1980’s when there was a limit on what would be by the DHSS.

    Equally, these payments tended to come from the coffers of the councils run by the Marxists.

  35. Bif
    Have to demur. When I moved to Crouch End, early 90’s the property prices were already headed towards stratospheric.
    Yes of course its scarcity but the scarcity is largely artificial. Past the central core London’s pretty well all Victorian & Edwardian 2 & 3 high terrace until you get to the north & south orbitals. By the standards of any city I’ve lived in, France probably, Spain definitely, the housing density’s incredibly low. The whole place is biased towards owner occupier office workers & to keep property prices up. Where are all the built to rent multi room apartment developments seen most other places? Councils built some on bombsites from the 50’s into the 60’s & that’s about it. These days the only new build’s on sites they clear a factory off of to provide yet another batch of luxury designer flats with a leavening of ‘affordable’ housing to keep the council happy.
    London doesn’t seem to want it’s blue collar workers living & raising their families anywhere near the core.

    This is from the horses mouth. Large housing association area manager, 2008, face to face discussion. Their policy, in line with GLA guidelines, is the disposal of smaller properties – those that provide two & three bed flats in favour of larger properties suitable for large families. Tenants are being offered alternative properties out beyond the M25, preferably on a co-ownership basis. Lets out that in comprehensible English. Blue collar workers with small families ie largely white are being turfed out & their homes sold into the private sector in favour larger families – origin we’ll leave to the imagination.

    And housing association & council are about the only accommodation a blue collar worker could hope to be able to afford anywhere near the centre. The ex-housing association property, the subject of discussion, went for £950K at auction & has now been refurbished into…..luxury apartments.

  36. Absolutely, Arnald, the rich are getting richer. That’s essentially what the article is saying. The people in the article by any standard have incomes well above average. The only difference between them and other people on above-average incomes is that they don’t have to do productive work for their money – you know, the sort of work that benefits the economy, increases GDP, that sort of thing. Oh, and they don’t pay taxes on their above-average income either. And the rest of us poor wage slaves pay taxes to provide them with their tax-free unearned above-average incomes.

    Please try to keep up.

  37. IanB, I thought you were an economist.

    No sorry, I think you’ve mistaken me for somebody else. I’m the oily rag turned pornographic cartoonist. If you want a real economist, you’ll have to go over to Ritchie’s.

  38. Well, I think Frances has beaten Hugo’s mere outing in the “beating on Arnald” stakes …

  39. To make £44 k a year post tax you’d actually have to have an income well up there in the top 5%…

    To be able to spend £44k per year on housing alone, you’d need to be well into the top 5%. That suggests a post tax income of around £100k-150k.

  40. Because housing benefit makes it possible to employ cleaners without paying their actual cost of living, it is a subsidy to people who have cleaners.

    Iron law of wages.

  41. bloke in spain:

    Actually, “Ian B” is an economist but an amateur
    (like myself and a fair sprinkling of others, in which I’d include you).

    Ian, like myself, follows the “Austrian School” whose actual influence has never (until recently) been more than marginal–probably because they’ve never been willing to favor any of the various “policies” advocated by ANY of the various political parties or aspirants (they’re simply not “team players” in that sense.

  42. fjfjfj:

    The “iron law of wages” is an intellectual contribution of Ricardo, one of the first (if not the first) of the “classical” economists–a group (including Marx) who had to go about their theorizing blindered. Once the source of “value”
    was discovered and became widely understood, some of the earlier theories, when reconsidered, did not conform to the now-better-understood
    reality and needed to be either revised or even discarded entirely.

    One discarded entirely is that Marxian favorite–the “iron law” (by which is meant the tendency for wages to approximate a level at which the working “class” is barely able to subsist (and to reproduce itself). Wages are determined only nominally by most typical “employers” (i.e.,
    business entities) but, rather, by the consumers of the entities’ products. In paying prices which are costs of various component portions of
    their output, the owners (or managers) of businesses are limited (on the upside) both by the requirement to make profit/avoid loss AND
    the existence of competition for the same sales.
    They are, likewise, quite as limited on the downside by the same motive (make profit/ avoid loss) and by competitors not for their sales but for their employees.

    As I’ve remarked, only Marxists cling today to the “iron law.” But much of Ricardo’s theoretical analysis have stood the test both of time and of newer and better understanding.
    What was advanced as the “Law of Comparative
    Advantage” and interpreted narrowly as the most profitable behavior of nations or individuals faced with inequalities in either natural resources or personal abilities (either or both inherited or acquired) can now be seen clearly (as Mises saw it, calling it the “Law of Association”) as fundamentally underpinning human cooperation (via competition) and even
    all of civilization itself.

  43. Gene, just to add, the Georgists stick even more fiercely to the nonexsitent “Iron Law”. Henry George was maybe the last true Ricardian. Ricardo’s theory was that of the three classes- Labour, Rentiers and Capitalists, one class must win. He decided that wages were set ultimately by the land value measured in production (of corn) so all the production would end up in the hands of the rentier class, as rent. Marx believed the Capitalists would get it all- Ricardianism with a different winning class.

    That’s why the Georgists believe the Land Value Tax is the only logical tax; because they believe that all values in the economy are determined by land values. Mark Wadsworth is the type species Georgist in the blogosphere in this regard.

    Of course it’s total cobblers, but neither the Marxists nor the Georgists will ever budge one iota on it.

  44. Personally I prefer to think of Ian B as a pornographic cartoonist.

    A much more honourable profession (requiring talent at the very least) than mere economics.

    Go for it Ian – Live that Dream.

  45. The reason why its not worth doing working class jobs in London is not because you can make more on ther Dole:it’s because ,even if you have a decent job ,you can’t afford the property prices and rents.The worst victims are those whose gigantic mortgages don’t leave them enough to spend in the shops, hitting the entrepeneur in turn.All of which Ian B explains ,and to be fair ,Henry George as well.
    Figures used by Mark Wadsworth:
    1959 Mini 416; Average House price £2014: multiple 4;
    2011 Mini£11,810 ;Average house price £166,277 : multiple 14.
    It is all very well decrying land taxers but at least recognise that house (really land) price inflation is outrunning general inflation and that something should be done about it.Its really up to you.You cannot turn off the cheap credit taps:the easiest thing to do is turn them on full and tax any increase in land value from that moment on as a leakage from the productive process.Martin Wolf FT 8th July 2010 “Why we must halt the land cycle”
    “Socialising the full rental value of land would destroy the financial system and the wealth of a large part of the public.
    That is obviously impossible.
    But socialising any gain from here on would be far less so. This would eliminate the fever of land speculation.It would also allow a shift in the burden of taxation”

  46. Anecdotal contribution: a while back the Daily Mail ran a story about some Somalis or similar who were housed in a relatively cheap area, it may have been Halifax, then we’re moved to a fabulously expensive pad in West Hampstead. A whole troop of ‘em. The comments on the piece were overwhelmingly hostile to the amounts of money sluiced at this family, whose origins and defiantly unrepentant welfarism didn’t assist their popularity.

    But here’s the thing: among the hundreds if not thousands of comments there were perhaps half a dozen of the grolie sensibility, one of whom wrote, addressing the assembled company of commenters, “well where do you expect them to live? In a sewer?!” or words to that effect.

    Well. This was too dishonest to pass by. I pointed out, therefore, that no one was suggesting this family should live in a sewer… and the really, deeply weird thing was that my comment was jumped on by about 150 people who deprecated it. Since I doubt the comments on this story had suddenly been colonised by grolies, I must conclude it was Daily Mail readers who failed to grasp the correct end of the piece of wood. They thought my comment was of the grolie variety.

    I’m afraid I found myself thinking, “you people really are too stupid to survive this”.

  47. Edward, what else did you expect at the Daily Mail?

    DBC: There was a post here a few days ago about footballers’ wages. The accompanying (in the newspaper) graphic had relative prices of the footballer’s wage from 1961 to other products. The price of bread had inflated 20 times. The price of a house, 100 times. Which pretty much proves our point.

    On Georgism, the argument boils down to this; Georgists argue that land inflation is intrinsic to any economy; the alternative view (er, mine) is that it is extrinsic, that is, caused by specific market manipulations and not inevitable in the economy. Ricardian effects kick in when somebody is deliberately strangling the land market (via the State- either an aristocracy or Mark Wadsworth’s “homer-ownerists”). “Hyper-Ricardian” (my neologism) effects kick in when somebody else is deliberately pumping in money to lend to people to buy the inflated land.

  48. As a social vivisectionist (copyright G Monboit) I’d like to remark:
    BIS:
    the market clears under ALL circumstances, even those where it’s skewed by stupid policies.
    I was offered an ex-council 3-bed for £50K in 1993. Turned it down because it was in a grotty block although within walking distance of the Bank of England. Yes I’ve kicked myself since.
    IanB:
    There isn’t anything special about housing. Get rid of the barriers for entry and bankers would make less money and you’d have less concern about your “money cannons”.
    Everyone:
    Have you actually looked at sites such as gumtree? No DHSS is standard in ads for private renters. Why do landlords charge more for DHSS tenants? Because if they are too idle to work they are also too idle to change a lightbulb, and you have to factor in degradation.

    The housing benefit debate is not actually about housing, it’s about how much to pay the unemployed. Let’s not moralise too much about it.

  49. DBC Reed – “It is all very well decrying land taxers but at least recognise that house (really land) price inflation is outrunning general inflation and that something should be done about it.”

    Yes but what? Apart from freeing up zoning laws and building more houses, there is not a lot that can be done. A land value tax is not going to make housing any cheaper is it?

    “You cannot turn off the cheap credit taps:the easiest thing to do is turn them on full and tax any increase in land value from that moment on as a leakage from the productive process.”

    OK. But that won’t drive down any rents in London. It is just that the government will get the revenue, not private landlords. London has become a global financial centre. Thanks to the stupidity of the French it looks like it is going to become even more of one. That means highly paid people from all over the world (and women from Africa who clean their offices) are moving there. That puts huge demands on nice homes in the London area. Nothing is going to change that any time soon. There is a relatively fixed number of decent homes in London. There is a huge number of people moving to London to work. Thus rents will go up until one of those two things is changed.

  50. SMFS-

    “World financial centre” is a euphemism for “the place where new money flows into the economy”. Bacteria cluster most densely around a sewage outlet. Or, for a slightly less unpleasant comparison, think: gold rush town.

    Tim Newman-

    It’s a dirty job, but somebody’s got to do it.

  51. IanB,

    I suspect it is Chartered Engineer snobbery about technicians. I happen to agree with Tim. It is justified snobbery. But then I am a Chartered Engineer.

    My favourite was a Pizza restaurant on the Grassmarket in Edinburgh which had a perennial advert in the window for “dish technicians.”

  52. Oh right, I guess we’re class enemies then. I’m an (ex) oily rag engineer. You know, the kind of person who installs a thermostat and a float switch instead of ten grands worth of BMS linked microcontollers :)

    Whatever, I meant the people who have to fix the problem of a river of shit flowing down ten flights of stairs because somebody with a degree insisted that the company could save water on the flushing system and be more “green”.

    *wipes nose on boiler suit sleeve*

  53. Except that there are no provisions under UK law* banning you from calling yourself or practicing as an “engineer” (or practicing engineering without so labelling yourself) without being a CEng or even a member of one of the Institutions. Hell, even my professional indemnity insurers don’t care.

    So, yes, a classic Mediaeval Guild in exactly the same way that you don’t need to be a member of the Worshipful Companies of Mercers, Grocers or Drapers to set up a corner shop, green-grocers or sell cloth in London, these days. Largely if not totally irrelevant.

    Anyway, I spent most of my years between degree and CEng in subs. Plenty of oily rags, far too much shit. And, boilers suits. White ones, being h’off the h’officer class, mind.

    * German law is very different. Which still causes amusement when the accountants, PR mavens and other assorted MBA types that run British companies do deals for engineering products or services in Der Reich.

  54. @Ian B
    Pretty much entirely in agreement then.BTW Mark Wadsworth and I are in dispute about who invented the term Homeownerism- in fact I did on HousePrice Crash but it is fair to say that he has developed the idea so far as to deserve most of the credit (0r blame) .The fundamental proposition is that we live in a One Party State where the so-called parties engage in mock battles around the peripheral issues while staying in power by pandering to the homeowners who form an electoral majority by at least keeping up house prices or actually increasing them. Trying to provide work and advance earnings are seen as irrelevant.
    ( I once had the misfortune to lobby Northampton’s Sally Keeble to enlist her in an All Party Partliamentary Group on LVT ;her response was not so much negative as threatening as she knew that any linking of her name to LVT would spell personal electoral doom.She lost the next election anyway)
    @SMfS
    You suggest that LVt won’t actually lower land/house prices.The version I favour (from JS Mill’s Principles of Political Economy) would draw a line in the sand and tax any increases from there on,so imposing a price freeze on land /houses only ,so other prices will rise leaving houses relatively cheaper.
    There is a huge difference between the Henry George Tax and the Mill tax (which is just a land price inflation tax).IMO George treated Mill abominably using Mill’s Wage Fund theory of wages to support his racist campaign against the
    Chinese in California and completely distorting Mill’s ideas for LVT which he almost certainly lifted from the same book by Mill probably on the same day in the public library.

  55. Bif
    “BIS:
    the market clears under ALL circumstances, even those where it’s skewed by stupid policies.”
    Well…….uh ……..yes
    But (if you’ll excuse a near Pollardism) there are actually two markets. There’s also a market for tenants wanting to rent properties in London. How’s that clearing apart from in the sense rents are so high they’re unaffordable?
    A sensible strategic housing policy might be to flatten swaths of those shoddily built terraces (I’ve worked on them. Forget any notion of superb Victorian craftsmanship. The whole lot went up in about 30 years. The fronts look good but behind they’re thrown up by poorly skilled labour.) & build decent sized apartment blocks. Raise the housing density fourfold. You could make money doing that.
    Of course as soon as you started doing that rental prices would start to level off & then decline, the underlying property prices follow & owners would scream blue murder.

    To my mind, a property price is made up of two things. There’s the ‘utility value’. What’s it worth for me to live in that house? And it’s investment value. How much more on top am I willing to pay to take advantage of its price rising? In housing bubbles the latter rises but the former’s exactly the same. Interestingly the latter can be negative. There’s folk down here, the market’s so f****d they’d sell their place simply to curtail their losses.

    The property market’s f*****d because everybody’s got it into their heads it’s an investment vehicle. The blue collar worker doesn’t want an investment vehicle. He wants somewhere to live & raise his kids.

  56. The blue collar worker doesn’t want an investment vehicle. He wants somewhere to live & raise his kids.

    And he’s not alone. Although, I’ll fully admit, it’s easier away from London and the South East. I had the least valuable house of the all the people who worked for me (except the recent graduate, who was renting) at the time I was talking about in #5. I also had the largest house and grounds.

  57. BIS-

    Reminds me of when I was house bashing (yes, I am a jack of all trades, most of which are closely aligned to “electrician”) in London. So many houses bought by excited young couples that were just basically piles of shite, barely holding themselves together. I mean really; walls you couldn’t fix anything to because they were little better than mudbrick after a century or a century and a half. Masses of this property would be just bulldozed by a free market; it only has value due to the property bubble. It just wouldn’t be economic to tart it up again, and again, and again, without the gross inflation.

    What would be best to replace it? Perhaps high density housing. But I think we need to get back to the other thing I was ranting about; the Westminster Bubble dragging people towards the booming of the money cannons. My argument is that this has an enormous causative influence on the exitence of the “affluent South East”. That’s where the money is pouring into the economy. That’s why we need massive monetary transfers to the hinterland, and they’re still not enough.

    (Actually John Redwood just wrote a piece about this. Without the money cannons schtick explicit, but I think it is implicit.)

    I come back to the earlier analogy; the Klondike gold rush. It is very similar; in a gold rush, new money is being dug out of the ground. People rush there. An “affluent” economy arises. But it is producing nothing but more money.

    The only difference is that the Klondike’s cause is apparent, and the gold rush is temporary. Imagine the same thing, year after year, at a somewhat gentler pace of monetary expansion. That’s your Westminster Bubble.

  58. Ian @ 65

    Cue the preservationists wittering on about architectural merit.
    As I mentioned above, the whole bloody lot went up in about 30 years. Where’d you find the sort of skilled labour to do that? Answer was of course it was on the job training.Vaguely skilled bricky’d do the bits that show, apprentice the bits that didn’t. I’ve seen brick coursing so haphazard a kid could do better in a sandpit. Mortar so lean you can take entire walls down with your bare hands & stack what are basically clean but horribly, badly made bricks stuffed full of what I presume is furnace ash.A bottom course laid straight on the bare ground. The leaves were perfectly preserved underneath. The latter was Hampstead & the building would probably sell complete now for £1.5m
    Architectural merit? For fascias made up from parts selected from a builders merchants catalogue. I’ve actually got a copy dated around 1915. It’s like bemoaning dumping an Ikea bookcase.
    Yeah, concur on the South East thing but let’s just accept it as being the status quo.
    I’ve given a bit of thought to design & reckon 8 fold increase in density’s achievable. Borrowed a lot of ideas from down here. Underground parking. Could go down 3 levels if you fancy. Put in carousel lifts like they have in Japan. Also other facilities. Squash courts or whatever. Outside terraces. English weather’s not that bad. Retail at ground floor. Everything from studio to 6 bed plus in the mix with central light wells. Pay more get an outside view but the core’s got a glass roof, maybe pool at ground level, so in-looking terraces are just extensions of the living area. Penthouses get the roof terraces & are big money. Make the whole block mixed a mixed community.
    Tricks setting it up. Work on the communal ownership principle, hoping Brits can do it without the Spanish corruption. Owner occupier, buy to let, rented off the community or any other model but make sure it’s always mixed in every block. BIG stipulation. NOTHING is eligible for other than short term benefit financing apart from elderly & disabled.
    Modern building techniques, communal heating, aircon etc
    This’d change the whole nature of urban living. Density cuts down on travel requirements, reduces car ownership demand. Energy efficiency is enormous. Main thing is your building pleasant communities. They can’t ghetto-ise. It’s the 60s tower blocks without the shit. But it HAS TO BE PRIVATE SECTOR. God help you if you let the State near it. You’d be rebuilding Russia.

  59. Ian B – ““World financial centre” is a euphemism for “the place where new money flows into the economy”. Bacteria cluster most densely around a sewage outlet. Or, for a slightly less unpleasant comparison, think: gold rush town.”

    It is not important here but I disagree. Those people are actually adding value to the world economy. If I want to open a gold mine in Papua New Guinea, I would go to London to find the sort of people who could front the cash. I am not sure there is anywhere else you could do it as easily or as quickly. Or at all. At least not if you want to do business with the sort of people you would want to do business with (that is not trivial; think about it – Shanghai? Hong Kong? Singapore? Even Tokyo? I don’t think so. Sydney? Oh God no)

  60. DBC Reed – “You suggest that LVt won’t actually lower land/house prices.”

    It certainly would not reduce rents. I am not even sure it would do much to reduce land prices. It would reduce the number of people willing to buy to own but whether that has a large impact on the market is debatable.

    “The version I favour (from JS Mill’s Principles of Political Economy) would draw a line in the sand and tax any increases from there on,so imposing a price freeze on land /houses only ,so other prices will rise leaving houses relatively cheaper.”

    A tax of this sort by definition does not impose a price freeze on land and houses. When a house goes to auction, presumably the difference between what the original owner paid for it and what the new owner pays for it would go to the State, right? So the owner does not get the increase, the Treasury does. Thus the house goes up in price. Thus any rent for it also goes up in price. Otherwise how would it work? You have a lovely Victorian mansion in Chelsea you want to sell. You bought it back in 1963. It goes to auction. A lot of people would want to live there. They will bid for it. The price will be higher. As it will probably be higher in 2020 or in 2040. How are you going to stop the price going higher?

    63bloke in spain – “The property market’s f*****d because everybody’s got it into their heads it’s an investment vehicle. The blue collar worker doesn’t want an investment vehicle. He wants somewhere to live & raise his kids.”

    I think that depends on the blue collar worker. I know blue collar workers who are balls deep in property – highly mortgaged and all (God knows what their situation is like now) – because they expect the houses to go up in price. But even if not, blue collar workers who own their houses now expect a windfall. Who is to deny it to them? It would be electoral suicide.

  61. Frances Coppola:

    Yes,–blindered. It means to be as though one were wearing blinders like a horse (or hooded falcon).

    Quite coincidentally, I happened just a few hours ago to read something on an altogether different topic which illustrated a “blindered”
    condition in even more dramatic fashion. (And I should add at this point that “blindering,” whether of horses, falcons, or people, is done with the very same purpose: to calm and thus render tractable by preventing sight of some- thing that might excite or alarm.

    The topic under discussion was that often heard in the U.S. : “disparate impact,” which term is applied almost solely to the different outcomes for whites vs. blacks in different activities such as hiring, firing, school admissions, criminal justice matters, etc. Typically, some maintain that differential outcomes are caused by differential behaviors or abilities and a second group argues that the differences are due to racial prejudice and that even the view of the first group (that there’s justifiable accounting for the difference in treatment) is an example of such prejudice and, therefore, prima facie evidence of the correctness of their own view (and suggests the likelihood of moral turpitude of the part of their opponents).

    Needless to say (but I’ll say it anyway), the first group (in the U.S) are known (style themselves)
    as “liberals” (though they are actually radical
    socialists or “progressives”), enthusiastically committed to “social justice” and, everywhere, support what has become known as “PC” or “political correctness.” Most of the rest are known as “centrists” and/or “conservatives” (though they are mostly simply less-radical socialists with a firmer grip on reality (in that they don’t believe problems can be solved by refusing to believe they exist and won’t believe (as liberals insist) that, if they stop calling them “problems” and take to calling them “blessings,” they’ll eventually become what they’re called.

    In the case discussed, the subject was the dramatically skewed rate of incarceration of black vs. white lawbreakers. In every state, blacks are incarcerated in much higher numbers than whites, despite the numerical ratio of each being on the order of 1: 5.5 or thereabouts. Liberals assume such differential constitutes proof that justice is administered in prejudiced fashion, leading to the “disparate impact” of so many more blacks than whites being locked away. In very many places, the ratio well exceeds even the statistics on the numbers of crimes committed by each of the races.

    And the conservatives’ argument, such as it is:
    “No–it ain’t so! We’re fair people, I tell you–wouldn’t stand for such a thing!” And the liberals smile (for two reasons: firstly, that the “conservatives” are unprepared/ inarticulate–meaning stupid–and, secondly, that we all know that they lie about such matters and not nearly so well as do we ourselves).

    Proper analysis presents the truth of the matter simply (and forcibly), even suggests a solution or melioration, if such were sought.

    Jurisdictions differ, according to sentiment of their majorities, in what acts are considered worthy of incarceration. Conservatives are “tough” on crime, setting a lower bar as to offenses demanding imprisonment. Liberals are, in such respect, truly liberal, turning a “blind eye” to lesser offenses for which conservatives would have banged the guy up and even give lesser time for equivalent offenses.

    One would expect differentials in incarceration –disparate impact–affecting the races–to be different in different jurisdictions as to whether they were conservative or liberal.

    That’s exactly what we find: wide variation in the b/w incarceration ratios according whether a jurisdiction is liberal or conservative. Huge differentials, as a matter of fact.

    But, hold on a second! If “disparate impact” were the result of racial prejudice (rather than disparate rates at which different sorts of folk commit offenses for which incarceration is the penalty), we should expect, naturally, that this would show up as an inordinately higher ratio (b/w) of imprisonment in conservative places.

    That’s not what we find by our comparison. In fact, we find exactly the opposite. The highest ratios (in 50 states and District of Columbia) are all–and by far–in the more liberal places: New Jersey, New York, Minnesota, Connecticut (and the leader, D.C.), while the lowest (conforming closely to the differential rates, b/w, at which crimes are committed, statistically) are states of the “deep south.” Who’d’a’thunkit?

    And the wildly “disparate impact” can be cured easily: simply lower the bar (in liberal places) as to acts for which prison will be required. We’d have to imprison many, many more people (and many more blacks than whites, as well) but, the ratio will be reduced, hallelujah! (at least in the “liberal” jurisdictions).

  62. SMFS:

    There is a fundamental economic difference between free market capital allocation and state-backed money generation. Supporters of the current banking system tend to deliberately confuse the two.

    Banking/loan brokering and the like are normal free market indirect value adding industries. But I’m not talking about that. I’m talking about where new money flows into the economy; as Friedman says, “they don’t drop it from helicopters”. That is the cause of the Gold Rush Town effect.

    New money does not create value, as surely we all agree. A Gold Rush does not generate value; nonetheless people rush towards it because of the flood of new money (being literally dug out of the ground).

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