3 thoughts on “Can tackling the housing crisis be left to the market?”

  1. Posted 26/11/2018 at 19:25 | Permalink

    Sure, housing could and should be left to the market, so long as that market is fair it will also be efficient.

    Unfortunately it is neither because the owners of valuable land aren’t required to compensate those they exclude for their loss of opportunity. This bakes in excessive inequalities and resource misallocation, resulting in symptoms like unaffordable housing for some groups in society.

    There are three symptoms of the housing crisis which a 100% tax on the rental value of land solves. Other solutions like building more houses, rent controls, social housing may mitigate some symptoms, but they solve nothing while making other existing problems worse.

    Firstly such a tax reduces the selling price of land to zero precisely because it transfers incomes back to those that find housing unaffordable now. As a result and all else being equal, housing could not get anymore affordable for that group in society.

    Secondly, by levelling the playing field between all market participants, the tax allows optimal allocation of existing housing stock, thereby rationalising the excessively vacant and under occupied housing a distorted market has produced. This reduces the numbers of new homes that need to be built, but more importantly makes sure those that do get built are of the right type.

    Thirdly, as high aggregated land values result from the optimal allocation of resources, such a tax aligns the incentives of the state with those of its citizens, ensuring the right kind of development gets allocated to the right places. So we can end up with the sort of efficient, attractive urban environments we can all be proud of.

    Yes UK house prices have gone up since the 1980s. But so have some other countries by similar amounts. We started of from a low base, partly due to a weak economy and also due to a set of policies that were designed to keep prices low. Since then, not only has the economy done much better, but previous price regulating housing policies were undone.

    London is now one of the top global cities, attracting millions more people to live there and buy property. This success has distorted the housing picture of the UK as a whole. But even so, the data is unequivocal. The supply of housing has more than kept up with household formation for decades in every region of the UK. So while a simplistic narrative of supply and demand might be appropriate to some goods/services, it doesn’t apply to land, which housing issues are really all about.

  2. Posted 27/11/2018 at 08:19 | Permalink

    Hi Kristin,
    I agree with everything you say about private housing, but social /Council housing is required for people who can’t afford to buy or rent private, ie the disabled, minium wage earners, single parents, low income pensioners,these people at the bottom of the ladder need a helping hand, so their family members become the next private home buyers

  3. Posted 27/11/2018 at 08:38 | Permalink

    There is one very simple and quick change the government could make – relax height restrictions in planning rules. They should stipulate that buildings up to (say) 5 or 6 storeys should be allowed wherever there is planning permission, by default. Much of the country’s most attractive housing is this height – it should really be uncontroversial.

    In the longer term, it would make sense to gradually introduce a land value element to the Council Tax. We have a strange situation currently where we have a lot of not-particularly-nice low-rise housing in areas with high land value in towns and cities. Taxing the value of the land would encourage replacement (something that rarely happens currently) with better and more space-efficient housing.

    Both of these measures would allow greatly increased housing expansion without any changes to the green belt.

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