Fixing the problems with the housing market
Posted: Wed Mar 20, 2024 7:28 pm
The Guardian yesterday published an opinion article arguing for the end of private landlords. It is written by a barrister who has just published a book making that argument.
The author argues that there is no shortage of housing in Britain. He says we have the same number of dwellings per capita as the average in Europe. That seemed to contradict the general wisdom. And the data sources I can find, OECD and Statista both suggest his claim is, to use a technical term, utter bollocks. But there are substantial differences between those two data sources suggesting it may vary considerably considering how you count it. What you count as a dwelling, how you count the population.
The author argues that landlords make excessive returns from their investments, because they charge "monopoly prices". Which is just economically illiterate. With around 1,000,000 private landlords, how can you call that a monopoly? They charge to the value of the market, like anything else in limited supply. Energy. Steel. Etc.
In fact, despite rents being up 9% over the last year, private landlords are reducing their holdings because returns are insufficient. In part that's because taxes on their earnings have been increased. And a 9% price increase is unsurprising when general cost inflation was recently over 10%, which probably takes a bit longer to come through to rents than to goods on shelves. Especially when house construction and maintenance costs have been going up faster than general inflation, and housing insurance costs are also hugely up, like car insurance. Accommodation has got more expensive for everyone.
Clearly if you ban people from renting out houses, the amount of money trying to buy houses reduces and the price of buying a house goes down. But that mainly benefits people who can afford to buy a house to live in. And withdraws from supply their houses that they find it convenient to own, but currently are not living in.
The author's suggestion is that the rental houses should be bought up by municipalities and rented out. Apparently in the 1970s municipalities bought up some of the private rental stock and converted it to social renting. But that was slowed down by shortage of capital as the 70s proceeded, and then completely reversed on ideological grounds by Mrs Thatcher, who forced councils to sell property to the occupiers at a discount. That still goes on, I'm amazed to learn.
The author points to the case of Vienna. The council and local housing cooperatives together own about 60% of the housing stock and rents it out at protected rents. Another 20% is privately rented. Since you can't get into one of those protected rent places until you have lived there for a couple of years, there is still a rented sector which supplies them. There are also up-market rentals of posh properties, which the council doesn't provide for. I suspect the council/cooperatives are also not in the rooming sector, where houses in multiple occupation are rented by the room.
I think what this actually shows is that there's nothing inherently wrong with private renting, the real problem is that our social rented sector is far too small, in large part because it was sold off under Thatcher. And of course municipalities are hugely starved of funds and find it difficult to expand. Because social housing sell-offs are continuing, the social housing sector continues to shrink despite new construction.
The author suggests that councils could buy up the rental sector over about 10 years. Even if rental dwellings are worth only an average of £100k, rather than the £250k or something that is the average value of a dwelling in Britain, then the 4.8m privately rented sector is worth £4,800bn pounds. That is an astonishing amount of money for our local authorities to have to raise to take it over. And then with private renting banned, or largely so, they would have to be much more the funders of new rental accommodation going forward than currently. I rather wish they were already. But in present financial conditions at local level, nothing like that will happen.
Most economists continue to think that the main reason for the shortage of housing in Britain is the planning laws. If even the Dutch can have a lot more housing per capita than us, as I think they do, despite this author's insistence that they don't, I think we can have a lot more housing in this country, and put it more nearly in the right places.
The author argues that there is no shortage of housing in Britain. He says we have the same number of dwellings per capita as the average in Europe. That seemed to contradict the general wisdom. And the data sources I can find, OECD and Statista both suggest his claim is, to use a technical term, utter bollocks. But there are substantial differences between those two data sources suggesting it may vary considerably considering how you count it. What you count as a dwelling, how you count the population.
The author argues that landlords make excessive returns from their investments, because they charge "monopoly prices". Which is just economically illiterate. With around 1,000,000 private landlords, how can you call that a monopoly? They charge to the value of the market, like anything else in limited supply. Energy. Steel. Etc.
In fact, despite rents being up 9% over the last year, private landlords are reducing their holdings because returns are insufficient. In part that's because taxes on their earnings have been increased. And a 9% price increase is unsurprising when general cost inflation was recently over 10%, which probably takes a bit longer to come through to rents than to goods on shelves. Especially when house construction and maintenance costs have been going up faster than general inflation, and housing insurance costs are also hugely up, like car insurance. Accommodation has got more expensive for everyone.
Clearly if you ban people from renting out houses, the amount of money trying to buy houses reduces and the price of buying a house goes down. But that mainly benefits people who can afford to buy a house to live in. And withdraws from supply their houses that they find it convenient to own, but currently are not living in.
The author's suggestion is that the rental houses should be bought up by municipalities and rented out. Apparently in the 1970s municipalities bought up some of the private rental stock and converted it to social renting. But that was slowed down by shortage of capital as the 70s proceeded, and then completely reversed on ideological grounds by Mrs Thatcher, who forced councils to sell property to the occupiers at a discount. That still goes on, I'm amazed to learn.
The author points to the case of Vienna. The council and local housing cooperatives together own about 60% of the housing stock and rents it out at protected rents. Another 20% is privately rented. Since you can't get into one of those protected rent places until you have lived there for a couple of years, there is still a rented sector which supplies them. There are also up-market rentals of posh properties, which the council doesn't provide for. I suspect the council/cooperatives are also not in the rooming sector, where houses in multiple occupation are rented by the room.
I think what this actually shows is that there's nothing inherently wrong with private renting, the real problem is that our social rented sector is far too small, in large part because it was sold off under Thatcher. And of course municipalities are hugely starved of funds and find it difficult to expand. Because social housing sell-offs are continuing, the social housing sector continues to shrink despite new construction.
The author suggests that councils could buy up the rental sector over about 10 years. Even if rental dwellings are worth only an average of £100k, rather than the £250k or something that is the average value of a dwelling in Britain, then the 4.8m privately rented sector is worth £4,800bn pounds. That is an astonishing amount of money for our local authorities to have to raise to take it over. And then with private renting banned, or largely so, they would have to be much more the funders of new rental accommodation going forward than currently. I rather wish they were already. But in present financial conditions at local level, nothing like that will happen.
Most economists continue to think that the main reason for the shortage of housing in Britain is the planning laws. If even the Dutch can have a lot more housing per capita than us, as I think they do, despite this author's insistence that they don't, I think we can have a lot more housing in this country, and put it more nearly in the right places.