Why can’t you afford a home?Is the provocative title of new book by a genuine expert Josh Ryan-Collins.
He really does understand that building more houses is not the answer. It is the Land market and the way Banks can create unlimited credit for mortgages that drive up prices, and make housing an ‘investment’ good.
Fine as far as it goes! But does he suggest a remedy?
Yes indeed, not ONE fix, but three of them
Control the Banks
Tax Land Values
Public Ownership of Land
Let’s look more closely at how far Josh’s ideas will Fix the Housing Market (hint: sadly not very)
1. Control the Banksand force them to create “credit for the public purpose” (less for speculative mortgages). (Section 5.2 page 98-109)
Banks should have a useful job providing credit for productive businesses, and to some extent they do. But banks have found it much easier to major on the financing of mortgages. So, Josh says “the key challenge is … weaning banks off mortgage finance.”
How is this going to be achieved? In the past banks followed instructions from the Bank of England (in effect the Chancellor of the Exchequer) That won’t work today, not least because of open financial borders. So Josh suggest State-sponsored Banks or “simply to prohibit banks from lending against property assets.”
My Comment on this: Back in 2010 post the Great Financial Crash, the banks stood in very bad odour with the public and politicians generally. There was a feeling that Something Must Be Done. And so it was: a Bank Levy was instituted in the teeth of vehement opposition from the bankers. For more details about this burden on the bankers, see my Positive Money blogpost
Desirable though clamping down on bank lending for mortgages, or setting up nationalised banks, it is difficult to see how this could come about. The banks are yet again on their high horse, and won’t be tamed (barring, Heaven forefend, another Crash). And imagine the screaming headlines in the Daily Mail:
“Nationalisation of the Banks is nothing but Communism”
“If the computer doesn’t like you then a mortgage is impossible due to rationing”
2. Tax Land Values. Hurrah! (Section 5.3 page 109-115)
“Economists, famously, agree .. that — a land value tax (LVT) — would be a very good idea. … With so many clear economic advantages to LVT, the obvious question is why has it not happened already?” says Josh. After giving a few of the minor problems with implementing LVT, he then gives up altogether. Because this tax will fall on the most powerful groups in society it won’t happen, although maybe in the future some desperate Chancellor mightsee it as a good source of revenue.
He is not even sure if it will work to bring down house prices: yes, he agrees, LVT would shift house-buyers away from asset-purchasing towards judging the property for its tangible benefits. Developers would have less incentive to hoard landbanks.
My Comment on this: These seem like very tentative conclusions about the benefits of LVT — it’s too difficult to implement, and its benefits are uncertain. We expect better than this feeble response from our intellectuals! If the Author thought a bit more about the effects of a substantial amount of LVT — that taxed away a high proportion of the unearned land-value — he could have easily shown that LVT on its own must cause house prices to equalise throughout the country. Why isn’t Josh prepared to do the difficult work of planning a practical route to the implementation of LVT?
3. Public Ownership of Land. (Section 5.4 page 115-122)
I talked about a similar proposal in an earlier blog
Singapore is a good example where the State owns all the land, collects a form of ground rent, and the results are hugely beneficial. But that is a freak of its colonial past. Suggesting (as Josh does) that public bodies like local councils should become owners — ground landlords in effect — may appeal to some theoretical model of abstract economics, but it is politically barmy!
Public ownership of house-building land isn’t just a form of Nationalisation — in opinion polls, voters are warming to the idea of re-nationalising railways and utilities. Public ownership of Land is truly a form of Communism. It is so politically impracticable, as to be right off the scale. Even suggestions of gradually sneaking it in would be hostage to later governments who would sell it off at the drop of a bribe.
I am sorry to be so negative about all three proposals by Josh, but the last one takes the biscuit. Of course my single preferred option is LVT, as I have worked through in meticulous and politically sensitive detail. Perhaps all three proposals taken forward in small stages might be the ideal strategy.
But it behoves any academic worth his/her salt to work through the practicalities of their proposals. All else is just blowing in the breeze.
Full reference for the book:
Ryan-Collins, Josh (2019) Why can’t you afford a home? Future of Capitalism Series, Polity Press
Currently Josh is Hear of Research at the Institute for Innovation and Public Purpose at University College, London
Ryan-Collins, Josh; Lloyd, Toby & Macfarlane with NEF (2017) Rethinking the economics of land and housing London Zed Books
Then Josh was part of N E F the New Economics Foundation