POLITICS AND THE HOUSEBUILDERS
Can they change? Might they WELCOME LVT?
Can they change? Might they WELCOME LVT?
So the housebuilding industry, working to its current business model is a failure. It is certainly not producing enough houses. Those that are built are of poor quality. But the greatest criticism is the price of these new houses increases year-on-year. Who is to blame for this mess?
It would be wrong just to heap all the blame the builders, as Liam seems to do. They are compelled to follow this business model, which only politicians could fix.
But the builders are not completely blameless. Their lavish funding of the Tory Party reaps its rewards, and sways the actions of government ministers. (Liam seems to find it especially reprehensible that Tony Gallagher a successful property developer hosted the 50th birthday party for David Cameron).
But lobbying and funding politicians is practised by most oligopolistic firms. For an industry so dependent of government contracts – all governments love to build things! – this is normal (for our latter-day form of financial capitalism anyway).
This may explain why Help To Buy was introduced, instead of some crack down on land hoarding by the builders. This has greatly enriched the house-builders. In reality government ministers were much more concerned to avoid a crash in property prices. That would be as I’ve said before, an electoral disaster.
So house-builders have considerable political influence, but that does not mean they are wedded to the current business model. The builders have gained a reputation as suppliers who knowingly produce poor build quality, and attempt scams like leasehold to ramp up profits. The CEOs will hopefully have some regard for their reputation and that of their industry, and would welcome a chance to improve it, so long as it does not constrain profits.
Reducing risk is popular, too, with businesses. Looking at the long-drawn out process to produce new housing explains the extreme risk-aversion of the builders. If that could be shortened, again, the companies would not oppose it.
The spec-builders may be one side of the Iron Triangle clamping the housing market into failure and crisis. But the builders are straightforward businessmen who are open to change which benefits them. I have suggested two things – an improvement of the reputation of the industry vis-à-vis their customers, and a large reduction in the temporal riskiness of their business model.
Why wouldn’t the builders welcome a major change which achieved better, less-risky industry?
THIS IS WHERE LAND VALUE TAXATION COMES IN
Looking at the process by which the Volume House-builders follow it’s obvious that the major time element stretching it out is LAND. That is also where the main expenditure lies, meaning that the bulk of the investment is at risk right from the start.
Now let’s imagine what happens in a full LVT. Acquiring the land requires only a small token amount, but if it is land with planning permission then an annual LVT levy will be imposed. (This would be made more effective because it would attract no home-owners’ rebates).(Perhaps initially we should leave the Volume Builders free of LVT on their landbanks, and only charge it when new developments are proposed)
At a stroke the building cycle drops from many years to a single year. The burden of carrying the upfront cost of the land disappears. The shorter time-scale means the builders become much more agile in responding to market demand. It would also lead to far more houses being built when the demand arises.
SNAG! Why would any landowner in their right mind wish to acquire planning permission? What benefit would they achieve by selling? Perhaps some form of local authority planning with CPO could be used when builders ask for land to build on.
Perhaps this LVT would be enough to destroy the logic of the current housebuilding model. Then a swarm of small scale housebuilders could step in and compete, a dream which Liam, market fanatic that he is would relish.
Maybe the Volume Builders would happily adopt the standard oligopolists strategy, and compete with each other on quality and price, but mostly reputation. Once branded competition sets in, the small firms will not stand a chance; who would trust an unknown firm of possible ‘cowboys’?
With delightful new houses with far superior facilities and much cheaper and easier to run becoming available to buy, the old pre-used houses would lose their allure. As the volume builders increase their volume of housebuilding they will have space to up their efficiency, using the latest automation. Bulk buying of their own superior fittings will enable them to mark out their products as superior. If a major and beneficial shift in technology arises – my favourite is roof tiles which double as solar panels – they, or maybe only the two or three biggest volume builders will have the capability to adapt.
[Note: there is a school of thought, espoused by Michael Ball that construction is fated to be stuck in a craft-built phase, and is inherently incapable of significant technological progress, will always have room for small scale builders. I disagree, butt Ball is very convincing. How many system-built tower blocks have you seen being blown up on the Sunday evening news? Failure of technology?]
So would the volume builders welcome such a future where LVT takes land out of their calculations? I think it would. The builders may be one arm of the iron triangle but they are the most flexible, have least to lose and could see immediate gains from an LVT future.