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Wednesday, 14 June 2017


MYTH No 1: “House prices are rising” 

Wrong! A house is a man-made artifact, and like every other manufactured item it depreciates from the day it is built. What is rising in price is the other part of the property: The land on which it stands. Remember the old saying about location, location, location.

Firstly, is the house in a nice spot, on a quiet road with pleasant views and a garden? Secondly, is the house near transport, shops, good schools and entertainments? And Thirdly, is your town or city thriving with lots of jobs on offer?

These are the things that give value to the plot of land on which your house stands. And you’ve probably noticed that it is Society collectively that creates this land value, not the individual landowner.

MYTH No 2: “There is a shortage of housing”
Wrong! Of course there is a mis-match with houses standing empty in places like Hull in the North, while crucial public service workers find it impossible to find anywhere affordable around London. But even in the boroughs with the highest demand there is still a crude surplus of accommodation. There are lots of big houses which are under-occupied.

Typically, a widow will choose to live on alone in her three  or four bed-roomed house, because there is no great inducement to move. If she stays on the value of her house and land increases effortlessly. Selling up and moving on involves leaving familiar territory,  as well as some frightening financial transactions. The only problem might be maintenance of the structure.

This is why we finish up with large numbers of big houses under-used and a dilapidated condition. Meanwhile thousands of workers must stretch themselves to pay for modest accommodation.

MYTH No 3: “We need 4.4 million newly built houses by 2020”
Wrong! Ever so often a Government report will pluck some figure out of the air and declare that we ‘need’ millions of new houses especially in the South East. It is always foolish to make predictions, (especially about the future!), but surely this kind of indicative socialist style planning was dumped along with the old USSR?

Either this figure is far too high (see the previous myth) or, as I believe, it is much too low.  Much of the demand for new housing comes from changing lifestyles: More people are choosing to live on their own or as co-habiting couples. Much of the existing stock is inappropriate ‘family’ housing. So we probably need not 4.4 million new dwellings but twice or three times that many. But that is a job for markets not government to decide.

Nor should there be anything wrong with wanting to occupy two or three properties — maybe a town house, a suburban villa and a country cottage. Why not? That’s the logic of the market and rising affluence.

MYTH No 4: “We can only cater for this huge demand for more houses by releasing vast areas of greenbelt”
Wrong! But surely brown field development has reached its limit, that the costs of cleaning up makes it un-economic, and that disused factory sites are usually in unpleasant parts of town? If lots more houses are to be built, then logic seems to push us towards the green fields. But that is to forget that huge amounts of land have already been developed. It’s all around us in the suburbs. Because of planning laws most these houses are built at low density — 10 or 12 to an acre. Only in the charming centres of our historic towns are densities greater.

If the outer suburbs were to be re-built at greater desities we could replace the few inefficient worn out ‘family homes’ with lots of the smaller modern units that are needed. This wouldn’t have to mean the ‘comprehensive area re-development’ of yore. Instead it could be done plot by plot: A pair of 1930s semis could be replaced without too much neighbourhood disruption. House builders will have to stop thinking in terms of developing whole estates on green fields and learn how to re-develop one-off plots.

The biggest problem might be our obsession with Heritage: So much of our built environment is protected, yet much of it is of poor quality. If  the re-built housing was as stylish as the Georgians then knocking down the old stuff should be fine. Thanks today’s building regulations we can be sure that it will be better built as well.      

Myth No 5:  We need lots of low cost affordable  housing”  
Wrong! There might be a need for subsidized housing, but sadly Bob and his housebuilding mates have not been very good at reducing unit costs. Unlike virtually all other industries like cars and mobile phones,  the product, in this case the house is not getting much cheaper or better year-by-year. Anyway that is not what the customers investing in house-buying want. The speculative housebuilders know exactly what drives the market — land values and scarcity, not good cheap houses. As prices rise beyond the means of many, then subsidies like Housing Benefit are the only way to fix affordability.

All of these myths have led me to one firm conclusion: It is the unearned increment in land values which creates the rising housing market and that it should be taxed in full. The proceeds could be used to replace all other property taxes. There will still be plenty of revenue left to reduce other taxes too. A ‘Land Value Tax’, to give it the economists’ label, would be the key to unlocking the land needed to build the housing we need or might like to have. Nice new houses would provide intelligent accommodation for today’s lifestyles, and would contribute to saving the planet by being so much more energy efficient.

But Land Value Tax would destroy perhaps the biggest benefit of all from owning your own house: Or would it? Which leads to

MYTH No 6: “Owning your own home is a wonderful investment” 
Wrong! for most people anyway. A few clever folk sell their houses each year and trade down to something cheaper, pocketing a tasty wedge in the process — extracting equity in the jargon. There are also those lucky enough to inherit a house following the death of the homeowner (typically your parents), but sadly this windfall tends to comes too late in life to make much difference.

The government has its eye on the equity in your of course — to pay for your maintenance in an old folks’ home (The 'Dementia Tax'). So this is how it is that there are only a tiny number of homeowners who are still alive and capable of enjoying some yield on their investment. As a sector the trade-off from the years of paying interest on a mortgage is tiny.

Of all the money that homebuyers invest each year into owning their homes less than one-fortieth comes back as a ‘dividend’, In terms of  a return on equity the yield is a miserly one-tenth of a percent.  There are lots of reasons to own your own home — security, it’s cheaper than renting, collateral for over-borrowing — but investment is not one of them!

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