‘Market failure’ in housing? What ‘market’, Polly Toynbee?
– ‘That has long been debunked. Another study, from University Y, rebuts A and conclusively proves B.’
– ‘But that Y study is flawed: it fails to control for M, N and O.’
– ‘No, it’s the X study that cannot be trusted. It has been co-sponsored by an organisation which benefits financially from A.’
Does this dialogue look familiar? Of course it does. Most political arguments follow this blueprint: start with a conclusion that ‘feels right’, then look selectively for evidence to retrospectively back it up. To some extent, we all do it, though some a lot more than others.
But there are a few policy areas in which you could not play this game, because the evidence is just too conclusive: no matter how hard you look, there simply is no University Y that refutes A and finds B. Empirical studies on the determinants of housing costs fall into this area. Virtually every study ever conducted on the subject reconfirms the role of building restrictions as a key cost driver (for a literature review, see pp. 74-80). It is for a reason that NIMBY organisations have to revert to the most ridiculous excuses, such as making up non-existent brownfield sites that supposedly render greenfield development ‘unnecessary’. What clearer evidence does one need when land granted planning permission is hundreds of times more valuable than agricultural land in the same place?
And yet most people on the left just cannot bring themselves to acknowledge that Britain’s housing crisis is a crisis of supply-side constraints, and therefore a crisis of government interventionism. Writing in the Guardian, Polly Toynbee describes the housing shortage and the house price explosion it has produced as a ‘gigantic market failure’. Market? What market? It’s a long time since we last tried market economics in housing.
The one good thing about Polly Toynbee is that you don’t even have to contradict her; just let her ramble on a bit, and she will do it herself at some point. This article is no exception. Among her policy recommendations is a scheme in which the government buys undeveloped land, grants itself planning permission, then sells off the land at the now much higher price, and keeps the difference. In this system, the government would effectively capitalise on its monopoly power to grant planning permission, by retaining the ‘planning premium’. A scheme like this is financially attractive for the government when the planning premium is large, which is only the case as long as land with planning permission is in short supply. So in endorsing this scheme, Toynbee implicitly acknowledges that land prices are kept high by the withholding of planning permission. How on earth is that a ‘market failure’?
In fact, much of the rest of Toynbee’s article itself lays out clear evidence that the state is in part responsible for high house prices in other ways. She alludes to the extraordinary monetary policy and low interest-rate policy of the Bank of England. She even goes as far as saying that ‘the government creates a phantasm of success by deliberately inflating house prices’, presumably referring to the reckless Help-to-Buy scheme. But with all this evidence staring her in the face, she still cannot bring herself to consider the possibility of ‘government failure’.
How could someone possibly come to that conclusion? Being generous, it may simply show a huge misunderstanding of what ‘market failure’ actually means. The less generous interpretation is that it shows an Orwellian attempt to manipulate language such that ‘market failure’ or ‘laissez faire’ refers to any outcome that Polly Toynbee and co. do not like. Perhaps Toynbee thinks that acknowledging the often perverse outcomes wrought by government intervention will weaken her advocacy of it in other areas. Who knows?
Whatever the true explanation, her decision to ignore ‘government failure’ and the true structural causes of Britain’s high house prices and rents leads her to advocate all the karaoke leftist housing market ideas: state building, second generation rent controls and higher property taxes. Governments have a terrible record on the first, whilst the second and third are treating symptoms rather than the underlying cause.
We should be thankful for small blessings, however. At least Polly Toynbee recognises the need to build more homes – too many commentators still deny the need to build anything at all (‘Why should we build more? I already have a house!’). She is also right that the government is wrong to suggest rising house prices are good for the economy. Unfortunately though, her anti-market ideology refuses to acknowledge the implications of the evidence in front of her own eyes.
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