Owen and economics

Right to buy is a contributory factor in surging property prices,

How does that work?

More houses for sale means lower prices, no?

sure, there’s many other things going on in the housing market as well and thee’s no doubt at all that house prices have risen. But not *because* of right to buy.

30 thoughts on “Owen and economics”

  1. “More houses for sale means lower prices” .Well, obviously not if London ex-council flats are going for millions. Perhaps you ought to explain this basic market failure instead of sneering at Owen who has written a co-ordinated, fact-filled piece.As a follower of Adam Smith you know full well that laissez faire only works with a tax on rising land values.

  2. Well, more houses would lead to lower average prices, especially when RTB properties can attracts discounts of 70 percent to the tenants.

    The fact that properties that used to be council owned now change hands (after many years on the open market) for millions (?) is a sign that property prices have risen markedly since the property was originally disposed of by the council.

    Or: that wealth has transferred from the council (who were using it to rent out) to the tenant. Which is what the policy was designed to achieve- make people (not the state) richer

  3. Fact-filled? Really? It’s just a whinge about RTB.

    Relevant facts missed are the increase in demand, smaller households as well as more people, and the very low building numbers this century.

    You may also recall G. Brown, boasting about and celebrating high and rising house prices.

    My own view always was that rising housing costs would make housing more expensive. Cos I’m a genius.

    RTB was actually a driver of increased home ownership. Other things have happened since, and ownership is declining for the first time ever.

    If you follow the trend to the end, then Britain will have a few astonishingly wealthy landowners, with the land having been paid for by the rest via rent. This will not end well.

    RTB worked the other way around, directing subsidies to the less-well off.

  4. No: I’m sorry, the Owen Jones’ piece is gibberish.

    I’ve read the column now, and there’s a load of issues with it.

    I don’t doubt that the 40% figure arrived at by the (distinctly left-leaning) Inside Housing is broadly right, but I’d argue that’s because of other factors- i.e. lots of the RTB properties were sold in metropolitan areas, where renting is generally higher. Furthermore, the ONS states:

    Of the 23.4 million homes (or households) in England and Wales on census day in March 2011, 15 million (64 per cent) were owner occupied and 8.3 million (36 per cent) were rented

    So even if there is no metropolitan effect at all (which seems unlikely, what with cities drawing more young, lower-income people for employment purposes), the 40% of former RTB properties (a policy that has been in place for c 40 years) being rented out isn’t a million miles of the national average.

    He says that Home ownership in Britain has collapsed to it’s lowest point in 30 years- that may be right, but we are now closer to the mix of ownership models seen on the continent, where in some countries (Austria, Germany, Denmark, France being 4 of them) home ownership is far lower, property price:earnings ratios being broadly similar to the UK.

    Former Local Authority properties trade at a lower price in the housing market- three bed homes being c 30% cheaper in my area than non RTB equivalents, so they are more affordable, and often better value in terms of construction methodology and square footage.

    On the 5m waiting list for social housing- this implies that 1 in 5 households are homeless or in severe housing need. That’s simply not the case- in most areas anyone can apply to be on the housing list- the applicant will then be assessed for need, and move up the list or down as a result. The truth is that many many of those applicants will never get a home as they simply do not need one, and they will stay on the waiting list forever. Interestingly, councils do not purge the list on a regular basis as having a long waiting list gives them a figure to quit in bidding for development funding as many people (aside from Owen) assume that a large waiting list translates into urgent need for new homes for all on that list.

    On the lack of affordable social homes in inner London (and the fact that many associations and authorities are poor at replacing homes sold through RTB, that’s a fair point. His analysis might miss that properties sold off in (say) Chelsea are being replaced by properties in Lambeth, and he may have a point about ghettoisation, but that’s one for the sociologists. A cynic might respond that if someone who earns the money to pay the rent/mortgage on a market-sourced property can’t afford a ad in Kensington, why should the state pay for someone who cannot afford it to live there, but again- that’s not an economic point.

  5. DBC: please explain the logic of the following as I can’t see any “More houses for sale means lower prices” .Well, obviously not if London ex-council flats are going for millions.”

    also please explain why this should be a market failure. (A market outcome that you don’t like is not a market failure)

  6. Emil.
    Its a market failure in TW’s and conventional terms : increases of supply are supposed to put prices down.(But you can’t increase the supply of land, especially in Central London ) .The inventors of the concept of laissez faire (Physiocrats ) and Adam Smith (Land Taxer influenced by Physiocrats) understood this 200 years ago but modern laissez faire revivalists are so ignorant as to think that pumping commercial bank-created money into businesses AND land is equally useful ,leading to property price bubbles and busts, which is where we are at the moment-waiting for the next property bust.

  7. DBC,
    Where you make your bloomer is in thinking that, overall, supply has increased at a rate greater than demand.

    RTB is just a single component.

  8. Yes, Jack C is correct. You need to compare against a (hypothetic) counter-factual in which all components are held the same but the RBT. In this case the supply would be lower and prices would be (even) higher

  9. Funnily enough the Nationwide’s “Real House Price” guide, that is prices adjusted for inflation, show the following:

    1980, Q1 = 92.9k (the year of RTB)
    1997, Q1 = 93.1k (when Labour came to power)

    Just maybe, other factors are involved, and maybe the Labour Party, in government between 1997 and 2010, bears some responsibility.

    At this stage, blaming everything on Fatch seems a little childish. Neither will it actually resolve the problem we have, regardless of how warm, tingly and superior it may make you feel.

  10. Jack C
    Yer what? I think that the supply has increased at a much lower rate than demand .( Developers keep massive land banks and only dribble out as few houses as they can get away with: if they flood the market with houses ,their land banks will devalue and the grossly inflated price of existing houses will slump.)
    NB Since the supply of land cannot increase especially in London ,investing in landed property will jut inflate the price (This is a market failure).Invest in productive businesses and the supply of goods will probably increase, but, since private sector businesses can’t pay people enough in aggregate to buy all the goods they produce, you end up with market failure just the same. As the Pope says, you shouldn’t treat the markets as gods.

  11. Interestingly, Owen doesn’t mention mortgage availability as a house price factor. Did deregulation and competition play bigger role in house price increases than RTB? I would have thought so.

  12. DBC,
    Yer what? what?

    So you’re saying that supply has increased more slowly than demand. Good, so we all agree.

    But you’re blaming this on RTB?

    BTW, the supply of land can’t increase, obviously, though this is not particular to London.

    I don’t know what you’re trying to argue.

  13. DBC

    Tim’s done the land bank thing already, it’s the time and cost of planning permission. You say the quantity of land can’t be increased, true only if all available land has been used, which it hasn’t, nowhere near. I have never seen any explanantion I understand ( OK that’s probably me ) of why taxing land will reduce house prices, if there is more demand than possible supply, according to your claim, then surely whatever is done in the way of land tax or anything else will not bring those prices down ?

  14. The “supply of land” is a red herring anyway.

    In literal terms it can’t increase, which has been true forever, though the amount of land available for building certainly can increase. Britain can feel quite crowded, but it’s mostly empty.

    Moreover, we can build more on the same land, which is certainly true of London. Old terraces are being replaced by high-rises in many parts, apartments being ideal for the young-and-not-terribly-interested-in-gardening.

    Fatcher: Land Snatcher.

  15. “Owen who has written a co-ordinated, fact-filled piece”

    Extraordinary claims require extraordinary proof.

  16. @Jack C/@Thornaven
    Correct- The supply of land can effectively increase even in very local sense- one of the reasons Canary Wharf/Canada Wharf/Docklands went through such a financially tumultuous time in it’s earliest days was down to the fact that the City of London increased it’s available office space more quickly than Canary Wharf etc was being built. A solid base of demand for east London office space was eroded quicker than the new buildings went up.

    Other interesting cases include the office building in HK that was torn down and rebuilt (with an additional 15 or so stories) when a new MTR station opened up next door. In that instance the additional rent chargeable (due to the proximity of the station) by the landlords more than paid for demolition and reconstruction of a brand new building. Madness, from one perspective- but from another perspective: a sensible use of HK’s scarcest commodity.

  17. “Interestingly, Owen doesn’t mention mortgage availability as a house price factor. ”

    Hmm. Lemme think what’s changed vastly since 1997. oh yes, mortgage interest.

    Unless you’re paying cash, a house costs you the deposit (if any, although these days they are normal again) and x a month. This is where the maths is done. “Can I afford the deposit, and can I pay x a month”. Not “can I afford xxx,xxx quid”.

    Mortgage debt costs a fraction of what it did in 1997, let alone in 1980. So the average person can afford much higher repayments – and it is to a large degree THIS that has driven house prices ever higher.

    And that first rung on the ladder is these days not so much “can I afford the repayments” but “can I afford the deposit in cash”.

  18. House prices significantly more than doubled in 9 years under New Labour without any visible purchases under RTB, far faster than the rise under the previous Conservative government that introduced RTB.
    So, according to Owen Jones, RTB is the cause of the acceleration in house prices.
    Anyone who believes is an idiot. Anyone who *claims* to believe who is not an idiot is a liar.
    Let’sd look at reality – Mrs Thatcher launched the policy with the idea that (i) longstanding council tenants could establish a legal right to the house they lived (ii) that the councils could use the cash to build more houses to house those in need on the waiting list. (ii) was massively shrunk – but *not* totally eliminated – by Treasury Civil Servants who demanded that the councils use most of the money to pay off the loans used to build the houses. So RTB provided a vast increase in the number of owner-occupied houses and a relatively modest increase in the total housing stock.
    Both of these contributed to a reduction in house price inflation.

  19. The Green Belt also has a lot to answer for where London property prices are concerned.
    More immediately, I suspect the government is scared shitless of taking any action which would put the slightest downward pressure on property prices. They’ll talk the talk, but never do anything. They look at Spain, Portugal, Ireland…

  20. @abacab

    “Mortgage debt costs a fraction of what it did in 1997, let alone in 1980. So the average person can afford much higher repayments – and it is to a large degree THIS that has driven house prices ever higher.”

    The other thing is that mortgages are offered to more people- the “average person” in your example genuinely is an average person nowadays. In the 60’s/70’s there were far fewer “working men” being offered mortgages.

    Nowadays, even folk working minimum wage jobs are routinely offered mortgages by banks. My sister is an example- She’s saved a 25k deposit, and HSBC have offered her 75k worth of mortgage. Granted, the 100k properties in her area aren’t great, but the repayments and interest lost on the savings are £100 pm cheaper than renting.

    One aside on social housing- since 2010, all RSL’s offer periodic renewal of kitchens, windows, bathrooms, heating etc. Couple this with the 24/7/365 repairs service, plus further subsidy through HB (if eligible)…. the value of the total social housing package is huge. And that’s before you add in the fact that social rents are 50-60% of market.

    I did an analysis for a southern housing association and I valued the additional services (those above, plus some other niceties that RSL provided) as c £1k per month Add on that 40-50% market subsidy: there’s such a huge benefit to being a tenant- is there any wonder 5m people have asked for a council house? It’s like a free lottery ticket.

    There’s no surprise that the biggest issue on most social housing estates is parking: all the cash saved by subsidised housing is ploughed into cars.

  21. bloke (not) in spain

    “( Developers keep massive land banks and only dribble out as few houses as they can get away with: if they flood the market with houses ,their land banks will devalue and the grossly inflated price of existing houses will slump.)”

    Jeez, DBC. In any market, how could that possibly work? It just takes one developer to cash in his “land bank”, build & sell houses & it initiates a scramble by all the rest to do likewise. Do you really believe there’s some mysterious cabal of property developers, secret handshakes, robes & arcane ceremonies the lot, meeting in a dark cobwebbed crypt somewhere to manipulate housing supply?

  22. Here in Malta, the most densely populated country in the EU, you can still buy a half decent flat near the center of things for about 4x the average single person’s wage.

    Malta’s magic is that they build big tall buildings in the sky – because there’s not much land. Amazing how people solve the ‘land is a finite resource’ issue.

  23. “If your opponent out-thinks you, close your mind.
    If your opponent out-argues you, close your eyes and ears.
    If that fails, stick your head up your arse and sing ‘la-la-la’ very loudly”

    The thoughts of Chairman Murph.

  24. Tall buildings?

    If you spend any time in and around NYC, you come to realise just how flat London is. Astonishingly flat.

    One thing we do need is a viable opposition. If Thatcher-bashing is still seen as the way to win the next election, then the DBC Reed’s of this world should at least pick on something she did wrong, and not something that was MASSIVELY popular with the working class.

    Yes, the working class may be a bit crass and have dubious cultural tastes or whatever. But if you want their votes DBC, you’re going to have to be a little less patronising.

  25. “More immediately, I suspect the government is scared shitless of taking any action which would put the slightest downward pressure on property prices. They’ll talk the talk, but never do anything. They look at Spain, Portugal, Ireland…”

    Why look that far? There are many marginal seats within eyesight which are just as vivid a check on any action which might make buying a house more affordable.

  26. &Rob and John Davis
    Agreed, all political parties are scared shitless of an end to property price inflation. They work to the Homeownerist political formula: house price increases good ; wage increases bad.They have destroyed jobs making things and providing services under this cover, and the key part of the electorate is now workshy looking to anything ,but especially unearned untaxed capital gains in their houses, to provide a living. However the young can’t now buy into the scam and will rebel (being left without paid work and unearned income from property): the tide of Corbynism may be the first manifestation of big political change.

  27. “the tide of Corbynism may be the first manifestation of big political change”

    Or it might just be f*cking funny.

    Unless you mean “the end of the labour party and hence the 2.5 party settlement of the past 30 years” as big political change, which it would be.

    Either way, I’m going long on popcorn futures.

  28. Wow more examples of masonomics… The mysterious “they” who destroyed jobs. Does anyone really believe this tripe?

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