Friday, 22 March 2013

On the Budget Housing Stimulus

The Government is planning to loan people significant money in order to find the deposit on a new-build house. Now. I think the major problem with the UK economy in the long-term is Britons' habit of seeing a house as an investment, assuming "bricks and mortar" can beat inflation in the long run. Of course, if the supply is held below the growth in the number of households, as it is in the UK, this will be true. The result of this endless house-price inflation is no-one can afford a house big enough for their family, unless they quit work early enough to get on the Council house waiting list.

Thus house-price inflation keeps the existing rich, rich as wealth is transferred from non-home-owners to home owners. It also helps Labour's client state, as they can never hope to afford to be free of the welfare state, thanks to the cost of putting a roof over your head.

The young, and those in the middle income brackets are forced to spend enormous percentages of their income on housing themselves. In response, houses have got smaller, people are more likely to share. In short, house-price inflation, like all other forms of inflation makes people poorer.

If you're on the Right, you might point to the massive subsidy at the bottom distorting the market, housing benefit, which mainly transfers taxpayers' money to private sector landlords. You might see cutting HB as a solution. If you're on the left, you won't see beyond Social Housing - basically demanding the council build more estates and manage them as a letting agent.

The real solution is to build more houses, so many in fact that house prices rise by less than inflation and keep doing this for a couple of decades. Unfortunately the two metrics on which a UK government is judged are unemployment and house-prices. Home-owners are vastly more likely to vote than renters, and are enormously exposed to this one metric. For this reason, and others all home-owners always vote against all development, anywhere, ever. So any politician who espouses the policies which will result in enough houses being built, will get voted out.

I am not sure subsidising lending to people with marginal deposits is the right way to go. But at least it's only for new-build. And the fact that there's no restrictions - aspiring private-sector landlords CAN apply for this funding (at least until they U-Turn on this) it might actually work to encourage a few more developments at the margin.

Of course what is really needed is a big easing of planning regulations, and a removal of the need for such huge percentages of new developments to be earmarked for Labour's client state to be provided at cost (for this is what social housing is) which is holding back so much development. Without social housing, building would be more profitable, which means more would be done, without waiting for the land value to rise due to scarcity.

This is being SOLD as a means to "stimulate" the housing market and help buyers with a deposit. What it actually is, is a subsidy for developers and banks who'll be able to lend at lower risk. I will result in a few more houses being built at the margin. It wouldn't be my way of doing it. But it isn't totally insane.



6 comments:

Luke said...

'It wouldn't be my way of doing it."

Given the political restraints, what would be? Payments to local councils in return for granting planning permission, so they can say to Nimbies "more houses or your council tax goes up"? Or what?

[and what is the plural of Nimby? Nimbies or NIMBYs?)

Jackart said...

The Government's policy on a presumption in favour of building is a start. We must let people buy land and build individual homes on it. Otherwise we get estates of Barrat Breeding hutches which is what everyone objects to.

I think as Nimby has become a word, Nimbies. But NIMBYs I wouldn't object to either. A vexed issue.

Luke said...

BTW, there's some weird levy that some London councils (maybe others?) are imposing on developers in return for not having to build social housing. An acquaintance is being charged £50k by Islington for converting a house into 2 or three flats. I think it applies to small devs where they don't have to provide x% social.

It would be the same of she was building from scratch - it's nothing to do with trying to prevent houses being broken up into bedsits. Now how's that for encouraging new homes?

Demetrius said...

There was a time when owner occupied housing was regarded as "consumption". Not least because of the amount of money that needed to be spent to keep it standing and in decent order, and also the taxes and charges. The rental market may have been "investment" but long ago it was recognised as a relatively high risk field. It is inflation and the rest that have helped to change this to the detriment of the overall economy.

Rosscoe said...

Luke,

It's the "Community Infastructure levy", social housing is still expected to be provided and in fact I think it's expected to pay it as well, basically it's yet another tax on building, for every square meter of residential space an applicaiton creates the developer has to pay a fee (£100 in this area of dorset but varies depending on the local authority), it's national and it's one of those policies that shows how little difference between this governemnt and last, (labour thought of it, the coalition have embraced it.) Only a fuckwit politician would think the way to get out of a housing shortage would be to make building houses MORE expensive!

Weekend Yachtsman said...

£100 a square metre tax? Isn't that a significant fraction what a new build costs? Are they insane?

Oh no, I remember now, this is a device to screw over self-builders - someone in the ruling classes has noticed that taken together they're about the third or fourth biggest developer in the country, and they have this annoying habit of, you know, wanting to do things their own way.

So find a way to ban them.

This is it.

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