Britain’s housing crisis: a self-inflicted tragedy
16 March 2018
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Lifestyle Economics
Economic Theory
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When reflecting on an important passage in Pope Benedict XVI’s encyclical, Deus Caritas Est (published on Christmas Day 2005), the problem of homelessness immediately comes to mind:
“Love—caritas—will always prove necessary, even in the most just society. There is no ordering of the State so just that it can eliminate the need for a service of love. Whoever wants to eliminate love is preparing to eliminate man as such. There will always be suffering which cries out for consolation and help. There will always be loneliness. There will always be situations of material need where help in the form of concrete love of neighbour is indispensable. The State which would provide everything, absorbing everything into itself, would ultimately become a mere bureaucracy incapable of guaranteeing the very thing which the suffering person—every person—needs: namely, loving personal concern.” (28)
Talking to charities that dealt with homelessness at that time, they would generally have agreed that homelessness was caused by complex personal and family circumstances and that addressing the problem required personal attention and not just money. Even today, Shelter’s website explaining the causes of homelessness relates a similar narrative.
This situation has changed. The affordability of housing is now a significant cause of homelessness. Not only that, high housing costs increase in-work poverty, lead to the increased use of food banks and also to crisis moments when people move on to Universal Credit. Many working people have no financial resilience because such a large proportion of their take-home pay is taken up by rent or mortgage payments.
Many proposed solutions to this problem, such as rent control or the building of more social housing, are irrelevant or would lead to still greater problems. High housing costs are caused by the lack of housebuilding resulting from restrictions on development which have (to use a phrase of Pope Francis) created an ‘economy of exclusion’: all but the well-off are excluded from housing markets.
Restrictions on building have led to there being more land used for golf courses in Surrey than for houses. In the UK, annual new dwelling starts have ranged from a highest level of 331,000 in 1970 to a low of 119,000 in 2008, with a strong secular decline – that is later peaks generally being lower than earlier peaks. In Germany, new housing starts have ranged from 810,000 to 179,000 in the same period. The UK is unique in the Western world in terms of the way the government blocks housebuilding.
As a result, according to a Countrywide survey, the average 20-29 year old will spend about half their post-tax income on rent for a one-bedroomed property. The effect of high house prices on the disposable incomes of the poor is especially dramatic. If, between 1965 and 2009, housing costs had grown at the same rate as incomes (instead of at a much higher rate) people in the bottom tenth of the income distribution would be 25 per cent better off.
If there are concerns about the environment from more housebuilding, these can be assuaged. Only about 11 per cent of the country is ‘built’ on and at least half of that is actually gardens and parks. New houses are energy efficient. Furthermore, the bio-diversity in gardens is hugely greater than that on farmland. A major study conducted by Dr. Ken Williams of Sheffield University found that a typical garden contains thousands of worms, invertebrates, spiders, and around 250 different varieties of plants.
Catholic social teaching has some relevance in thinking about this problem. The teaching argues consistently for human dignity and the common good to be promoted: all must have food, clothing, shelter and basic education and healthcare. These things are not generally provided directly by the government, but the government is responsible for creating certain conditions to promote the common good. However, in the case of housing, the UK government places impediments to working people being able to have a decent living by restricting housebuilding. In addition, this policy exacerbates income and wealth inequality, something about which Pope Francis often expresses concern. It is also worth noting that the restrictions on house building generally arise from pressures on politicians that come through the democratic process, normally in affluent areas. Self-interest is not a legitimate motivation for voting or for other activity within the political system (see, for example, The Compendium of the Social Doctrine of the Church 565-574).
Theresa May, blames housebuilding companies for the shortage of houses for sitting on undeveloped land with planning permission. Politicians often blame somebody else when their policies lead to social catastrophe. Developers sitting on land is a small problem in the great scheme of things. Nevertheless, Catholic social teaching does tell us that land should be used for a social purpose. As such, I believe that developers should pay taxes (Council Tax or business rates) as soon as planning permission is given on a piece of land. Developers should not be rewarded for land standing idle.
The housing crisis is one of the great socio-economic crises of our time. The tragedy is that it is entirely self-inflicted.
This article was first published by the Catholic Herald.
Recommended reading:
“Love—caritas—will always prove necessary, even in the most just society. There is no ordering of the State so just that it can eliminate the need for a service of love. Whoever wants to eliminate love is preparing to eliminate man as such. There will always be suffering which cries out for consolation and help. There will always be loneliness. There will always be situations of material need where help in the form of concrete love of neighbour is indispensable. The State which would provide everything, absorbing everything into itself, would ultimately become a mere bureaucracy incapable of guaranteeing the very thing which the suffering person—every person—needs: namely, loving personal concern.” (28)
Talking to charities that dealt with homelessness at that time, they would generally have agreed that homelessness was caused by complex personal and family circumstances and that addressing the problem required personal attention and not just money. Even today, Shelter’s website explaining the causes of homelessness relates a similar narrative.
This situation has changed. The affordability of housing is now a significant cause of homelessness. Not only that, high housing costs increase in-work poverty, lead to the increased use of food banks and also to crisis moments when people move on to Universal Credit. Many working people have no financial resilience because such a large proportion of their take-home pay is taken up by rent or mortgage payments.
Many proposed solutions to this problem, such as rent control or the building of more social housing, are irrelevant or would lead to still greater problems. High housing costs are caused by the lack of housebuilding resulting from restrictions on development which have (to use a phrase of Pope Francis) created an ‘economy of exclusion’: all but the well-off are excluded from housing markets.
Restrictions on building have led to there being more land used for golf courses in Surrey than for houses. In the UK, annual new dwelling starts have ranged from a highest level of 331,000 in 1970 to a low of 119,000 in 2008, with a strong secular decline – that is later peaks generally being lower than earlier peaks. In Germany, new housing starts have ranged from 810,000 to 179,000 in the same period. The UK is unique in the Western world in terms of the way the government blocks housebuilding.
As a result, according to a Countrywide survey, the average 20-29 year old will spend about half their post-tax income on rent for a one-bedroomed property. The effect of high house prices on the disposable incomes of the poor is especially dramatic. If, between 1965 and 2009, housing costs had grown at the same rate as incomes (instead of at a much higher rate) people in the bottom tenth of the income distribution would be 25 per cent better off.
If there are concerns about the environment from more housebuilding, these can be assuaged. Only about 11 per cent of the country is ‘built’ on and at least half of that is actually gardens and parks. New houses are energy efficient. Furthermore, the bio-diversity in gardens is hugely greater than that on farmland. A major study conducted by Dr. Ken Williams of Sheffield University found that a typical garden contains thousands of worms, invertebrates, spiders, and around 250 different varieties of plants.
Catholic social teaching has some relevance in thinking about this problem. The teaching argues consistently for human dignity and the common good to be promoted: all must have food, clothing, shelter and basic education and healthcare. These things are not generally provided directly by the government, but the government is responsible for creating certain conditions to promote the common good. However, in the case of housing, the UK government places impediments to working people being able to have a decent living by restricting housebuilding. In addition, this policy exacerbates income and wealth inequality, something about which Pope Francis often expresses concern. It is also worth noting that the restrictions on house building generally arise from pressures on politicians that come through the democratic process, normally in affluent areas. Self-interest is not a legitimate motivation for voting or for other activity within the political system (see, for example, The Compendium of the Social Doctrine of the Church 565-574).
Theresa May, blames housebuilding companies for the shortage of houses for sitting on undeveloped land with planning permission. Politicians often blame somebody else when their policies lead to social catastrophe. Developers sitting on land is a small problem in the great scheme of things. Nevertheless, Catholic social teaching does tell us that land should be used for a social purpose. As such, I believe that developers should pay taxes (Council Tax or business rates) as soon as planning permission is given on a piece of land. Developers should not be rewarded for land standing idle.
The housing crisis is one of the great socio-economic crises of our time. The tragedy is that it is entirely self-inflicted.
This article was first published by the Catholic Herald.
Recommended reading:
- ‘The key to affordable housing‘ by Kristian Niemietz
- ‘The housing crisis: a briefing‘ by Kristian Niemietz
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Interesting article and definitely an issue that needs debate. Although the supply of housing is a factor in unaffordable homes the biggest factor is the allocation of bank created credit.
As professor Werner explains, it is the allocation of bank credit for the puchasing of existing assets that has caused house prices to rise. The increase of debt for unproductive purposes risks creating financial crisis as the purchase of existing assets creates very little productivity or wages.
See article on the quantity theory of credit. http://www.res.org.uk/view/art5jul13features.html
The quickest and easiest change that the government could make that would help alleviate the situation is to relax the current – largely arbitrary – height restrictions. Most of our new developments are land-inefficient because only very low rise developments are allowed.
What the government should do is to put in place a presumption in favour of developments of up to 4 or 5 (or even 6) storeys for all new planning permissions unless the planning authority can demonstrate very strong reasons why this should not be allowed. This wouldn’t automatically allow high rise developments (5 storeys is only medium-rise and much of the most attractive and sought-after housing in cities is already this height) but it would allow somewhere in the region of twice as much housing to be constructed on land already earmarked for development.
This is not the whole solution, of course, but it could be implemented quickly and it would make a significant impact.
Over the past 12 months, in a series of articles on his blog, economist Ian Mulheirn has examined the data and concluded that in every part of the UK, the supply of housing has more than kept up with household formation for decades.
Naturally, this has angered those ideologically invested in the idea that if there’s a problem, state interference and regulation must be the cause. Whatever quibbles and objections they have raised with Mulheirn, he has shown them to be false.
To a certain extent, this is irrelevant. Everyone agrees there are issues with housing, so even if current planning regulations aren’t to blame, we just need to get on and build even more. After all everyone knows that if you increase supply, prices drop.
Unfortunately, this is simplistic and wrong, because housing issues are land issues whose supply cannot be increased by more housing. It only changes how and where it is consumed.
When we concentrate resources by supplying labour and capital to where they are most in demand, we not only get an economy of scale, but we see an increase in demand for spatial proximity to those resources. Jobs, schools, parks, etc.
In other words, laws, regulations and state spending which result in good development and a thriving economy will increase aggregate land rents over time. This is not only sound theory, but an easily observable fact as the results of urbanisation across the world confirm.
So while good development is always needed, it does not, in the long term, make housing more affordable. Poor development and sprawl, made possible by watering down planning regulations is another matter. However, we will simply be consigning another generation to more poor quality housing and ugly urban environments.
Instead, we should debate the real issue, land and how we view it as property.
Land is an irreproducible factor of production, supplied for free by nature/God. Therefore when we exclude others from its use, we inflict an opportunity loss upon them. If this is not compensated we bake in excessive inequalities and resource misallocation. We pay wages and for goods and services for the same reason. To compensate others for their losses.
The housing crisis is therefore merely a symptom of the excessive inequalities and resource misallocation our current view of land ownership inevitably causes. Affordability issues result from the net transfer of incomes from those that own little or no land by value, compared to the taxes they currently pay to those whom the opposite is true. Typically the young/poor to the elderly/rich. This also means expenditure on housing is lower than it should be in a perfect market, leading to overconsumption and misallocation.
Sorting this all out is therefore, in principle, easy. A 100% tax on the rental value of land rebates back in full to households that part of housing expenditure that currently makes it unaffordable.
Not only would house prices fall by an average of 2/3rds, but disposable incomes of typical working households would increase by over £10K pa, resulting in optimally affordable housing for that group in society(as measured by ratio of discretionary incomes to prices)
Furthermore, by increasing housing expenditure overall, we obtain a perfect market, eliminating excessive vacancy and under occupation, rationalising the extra 11 million bedrooms consumed by owner occupiers compared to renters on a pro rata basis.
Most importantly perhaps, as high aggregated land rents are a measure of optimal resource allocation, as a source of state revenue the government would be incentivised to maximise them. In order to do so, it would be become a competitor in the market for our spending against alternative goods and services. Balancing the need for development and the enhancement/preservation of our shared environment.
The state becomes a firm (landlord/property developers) and its citizens become customers(tenants). From which we get thriving economies and beautiful cities.
Of course, there will be vested interests who wheel out Poor Widows in Mansions as their human shield. But in a fair and prosperous society, we must all pay what we owe to each other. Even poor widows.
Lots of shite written here. Its simple. Wages are too low and houses too expensive. End of.