5 thoughts on “Forget it, Owen Jones: only free-market policies can solve the cost-of-living crisis (Part 2)”

  1. Posted 01/02/2014 at 08:21 | Permalink

    “Does it make sense to tailor our housing policies to the sensitivities” of NIMBIES? The answer is “yes – to some extent”.

    The loss of enjoyment / utility I suffer when a new housing estate goes up on the fields near my house is a clear case of what economists call an “externality” isn’t it? And it’s standard economics that externalities should be taken into account whenever possible.

  2. Posted 01/02/2014 at 20:07 | Permalink

    Ralph – no, unless you define an externality as “everything I don’t like”. But you wouldn’t call it an externality if your neighbour painted his house in a colour you don’t like, even though it could (marginally) affect the value of your property.

  3. Posted 02/02/2014 at 10:21 | Permalink

    Kris, An externality is “everything I don’t like”. E.g. if my next door neighbour plays loud music which I DO LIKE, that’s not an externality: it’s a “negative externality”. And economists have a word or phrase for the latter, which I’ve forgotten.

    As to the neighbour painting their door a colour I don’t like, that too is an externality. In fact some local authorities have rules (or used to) on what colour you could paint your front door.

    However, stipulating what colour people can paint their doors is a very pettifogging sort of externality, and trying to enforce rules there is waste of time I think.

  4. Posted 17/02/2014 at 13:43 | Permalink

    Thats all well and good, but this simple “supply and demand” idea is an easy trap to fall into.

    If we had more homes built where the market signals us to do so, i.e. London/south east, that would NOT lead to prices falling in London/south east, it would lead to prices falling in the rest of the country because by definition more people would move to London/south east, so all in all, prices in London/south east would increase.

    Think about it – there are enough homes for seven or eight million people in Greater London. What would rental values be if there had been a complete build moratorium a century or two ago, which would have restricted Greater London population to one million? Easy answer: they would be much lower.

    And who gains most if planning restrictions are loosened in London/south east? Quite obviously, owners of land!

    So the easiest way to sort all this out is to put a tax on externalities. If NIMBYs want to exclude people, good luck to them as theyll be paying for it. And if Wicked Property Developers (they are always wicked) build new housing anyway in high demand areas, then they will be paying for it (or the new residents will, reducing the WPD’s profits accordingly).

    To cut a long story, the quickest route to high wages and low house prices is to reduce taxes on wages and increase them on land values. Job done, sorted.

  5. Posted 21/02/2014 at 13:27 | Permalink

    We do not have a free market in housing.

    Landowners do not create land values. So the value of land is the capitalised value of the implicit subsidy they receive. Around £200bn net per year.

    End this subsidy and not only does the tax burden fall, but efficiency and re-cycling of existing property assets improve.

    Free marketeers should know the economic damage subsidies cause. Its puzzling why they seem unable to follow the same principals regarding land use.

    Any ideas Kristian?

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