Search This Blog

Wednesday 21 April 2021



Andrew Morton, lead author at the C.P.S. — the Tory-supporting Centre for Policy Studies, has produced two well-researched reports on fixing the housing crisis. They are

- Help to build: An emergency plan to support housing supply  and The housing guarantee

Of course Morton falls in to the simplistic economists’ idea that you cure high prices by increasing supply. Being a Tory think-tank, it’s the Local Authorities ‘failure’ to provide enough house-building plots with Planning Permission (PP) that are to blame for the shortfall in supply.

[Read the previous blog-post to see why this is balderdash and piffle. Housing has long been an investment good, not a normal market consumer good. Prices of houses are screamingly high, but boosting supply won’t fix it anytime soon UNTIL the flaw in the market is fixed.]

In fairness, Morton has been hard on the house-building industry, too. Surprising when the construction industry are such big donors to the Tories. In this he is critically joined by Liam Halligan who did a puff-piece on the CPS Reports in The Telegraph 18/4/21. Both Morton and Liam slate the house-builders for building poor quality housing, too slowly, not enough variety of types of housing. The house-builders fail to train skilled workers and invest little in productivity or product improvement.

Bravo to Liam and Morton for ‘biting the hand that feeds them’, but the situation is so dire that it has to be said. Read the Reports, read Liam’s book. The housebuilding industry, for perfectly rational reasons of self-preservation really is as bad as this.

[For my part, I don’t blame them. It is the very peculiar nature of their industry that forces them to act this way. Only politicians can correct the repeated blunders of policy that created the incentives for builders to produce too little of their crap product and be able to charge such high prices.]


There has been some increase in the number of houses built, but way less than PPs granted.

What’s gone wrong? It seems the volume builders are quite happy to monopolise the available building land with PP. This makes life difficult for the SME builders, so freezing out the only real focus of competition in this whole rotten house-building game.

It gets worse: Despite holding vastly more plots with PP, the Big Boys like Persimmon make no effort to build more. It is not their business model to do so. Flooding a local market with new houses might drive the market down, which is the last thing either the builders or existing home-owners want!

So rather than accept his build-more theory is wrong, Morton doubles down.

It’s hard not to see that this is a clear repudiation of the ‘build more and the prices will come down’ theory. But instead of seeking the real cause, Morton tries to find ways of forcing the housebuilders to make more use, more quickly of their PPs. This involves convoluted schemes, and puts the onus on the despised Local Authorities to implement them. (Or, as cynics might point out, to make them the scapegoats for the inevitable failures.)

Don’t be surprised if Morton’s Sticking-Plaster on the festering housing market doesn’t work.

As he said in the Help to Buy Report

“costly schemes to try to prop up the entire £7.2 trillion value of the UK residential sector…[are] unsustainable, which means just delaying the pain”

At least he realises the pain is caused by propping up the value of ALL houses!

What would be the effect of Plot Value Charging?

: If, say, two-thirds of that £7.2 tn value is in land values, that’s a theoretical £5 tn to play with. So 2 ½ % of £5 tn would yield £125 bn in LVT revenue.

With comparable houses now the same price in all parts of the UK, with much lower mortgages and mortgage interest payments, houses become ‘affordable’ to the many, nay the Majority. Banks shrink, the Chancellor has revenue enough to get rid of all other property taxes, and more.

That’s what ‘fixing the housing market’ really means

 Full reference for Morton’s two reports

Morton, Andrew (Jun 2020) Help to build: An emergency plan to support housing supply  London; Centre for Policy Studies Help to Build: An emergency plan to support housing supply - Centre for Policy Studies (

Morton, Andrew (Apr 2021) The housing guarantee London; Centre for Policy Studies  The Housing Guarantee - Centre for Policy Studies (


Saturday 17 April 2021




Yes, it has always been the case that, overall, there is more than enough housing accommodation in the UK, even in England. True much of it is in poorer areas with few jobs. But even within reach of flourishing areas, there may be more houses than needed, certainly more rooms in houses than are strictly needed.

That shouldn’t be a problem. This is a free country. If you want two houses or two cars or three or four televisions, that’s your privilege. But over-housing and empty properties are a sign that a house is not just a consumer product, it is an asset, too.

The hated ‘Bedroom Tax’ was the Tories response to this situation. Naturally it only hit poorer people in social housing. What I’ll propose will not have that intentional evil aspect!

Who owns houses kept empty for speculation, or keeps on living in over-sized homes?

--BTL landlords hoarding because holding costs are trivial. Build new and the BTL landlords will grab a lot of it, especially London properties.

--Grannies in oversized family housing because they like the idea of leaving loads of money to their children. Can’t we get Granny to show more compassion for the young?

One sensible and practical fix, one pie-in-the-sky fix.

For the btl landlords – a practical fix

As David Renton in the Guardian 10Apr21 explained why BTL landlords are so rampant in the housing market.

For some time, it has been government policy to privilege the interests of private landlords over other homeowners. This process began in the mid-1990s when banks introduced buy-to-let mortgages, which assessed buyers’ creditworthiness on the rental yield from the property, rather than their existing income. Easy finance gave landlords an advantage over first-time buyers.

Buy-to-let landlords have also enjoyed tax relief: mortgage interest relief, and a wear-and-tear allowance. The tax breaks have diminished in comparison to what they once were, but the broad picture remains the same. Although the UK’s 2.5 million landlords are a small minority, because the market has been loaded in their favour, they were responsible for 18% of all residential property purchases by the end of 2019.

 The problem BTL causes

Apart from the obvious ‘crowding out’ of private home-buyers, because (as I explained in my previous blog link )

 Because housing has an asset-class, there is every incentive to hoard. Sure the extra income from rent is attractive, but it is a common observation that in boom times for house prices, your house can earn more than you (in capital appreciation)

The special fix for BTL

The 2.5 million landlords are neither popular, nor are they politically important. It is unlikely their advocates and protectors, the Tories, would interfere with their money grubbing schemes. But for all other political parties, landlords are any easy target. It’s not hard to identify who they are, because rent is income, and income means Income Tax.

The Fix: As before switching Stamp Duty to Land Value Tax is easy at point of sale, in the case of BTL even more so, and even less likely to cause street protests like the Poll Tax riots!

Even more helpfully, BTL already attracts much higher rates of SDLT, 3% extra  on top of ‘normal’ Stamp Duty since 2015. So it can kick in straight away for new BTL’s at more than double the 0.3% of Plot Value I suggested earlier.  (

So a starting Plot Value Charge rate of say 0.75% payable by the landlord is entirely practicable.

This can be retro-fitted to all previous rented property, with owners of multiples first in line. Annual uprating, the bugbear of many property tax systems would be far less contentious, politically.

Note: some private landlords are nice to their tenants, keeping rents low, helping when need arises. This applies especially when the landlord has a single tenancy, even more so when the landlord/lady lives in the same house. Sadly such benign tenancies may be swept away by these proposals.

FOR LINGERING GRANNIES – A pie-in-the-sky fix

The author of the Guardian article goes on to identify the other great category of housing-hoarders – the ‘lingering grannies’

Now let’s consider the situation for older homeowners who aren’t landlords. Hundreds of thousands of them save money in their 70s or beyond, long after retirement, not because they want to have an extravagant lifestyle but for the sake of the generations who come after them. If their plan is to help their children buy a house then rising house prices are of no benefit – it obliges them to save more, as ever more money is going to be needed to provide a deposit for their children’s first home.

For these people, the benefit of high house prices never materialises (they aren’t planning to sell their own home), but the cost to their family is only too real. It compels the younger members of their family to live in cramped housing, to have less money than they should, and to spend their days working excessive hours so that they have no time for older relatives.”

So appeal to the good nature of the grannies?

“What the left needs to do is to get people to see that the obstacle to housing justice is not individual home ownership…. [Do it] for the sake of individual homeowners who want the generation below to find a home of its own.  …. [Accept] a fall in house prices: a diminution of [your] capital and security in retirement.

Holy cow! There must surely be a better fix than appealing to good natures? How about tax-breaks for the over-housed elderly? How about Local Authority officials who can assist the move as a Social Service. Official because the old folk are (quite reasonably) suspicious of financial sharks and con-men.


Ref for this article

Monday 12 April 2021


Why the Bank of England authors are deluding themselves (and their bosses and the Treasury).

To repeat what they said

 No, house prices are not a credit-fuelled bubble. Thanks to the long-run in interest rates (and rising incomes) house-prices and rents are actually a bit cheaper than you’d expect.”

The source of this amazing conclusion is a Bank of England paper “UK house prices and three decades of decline in the risk‑free real interest rate” by David Miles and Victoria Monro. [M&M] So this is a credentialed paper from an authoritative source. David Miles is a professor at Imperial and on the BoE ‘expert committee’. This is the credible, logical, rational voice of economic orthodoxy!”

THIS DOESN’T FEEL RIGHT — houses are, if anything, a bit too cheap — SO WHY IS THIS WRONG?  Let’s go through it.

M&M (the authors Miles and Munro) falsely  assume the British house-buying and -renting public are indifferent between renting and buying. Wow! So much for Thatcher’s great Home-Owning Democracy! Of course the British love owning their homes. An Englishman’s home is his Castle, as the saying goes.

Now there is a place where the inhabitants take a rational (in economic terms) decision between renting and buying. That is Germany where they differ in two significant ways:-

         —NO house-price inflation. Look at M&M’s Fig. 2, In Germany incomes have risen just as much, or more than in the UK and interest rates if anything have generally been lower than here as well. M&M fail to explain why this should be, apart from vague comments about elasticities. If they can do it, why can’t we?

Highly regulated tenancies. Not for them the ‘evict-on-a-whim’ landlord-friendly situation described by Chloe Timperley in Generation Rent.

Another unstated falsehood by M&M is to assume that Housing is a normal consumer good. Actually, Shelter (Housing) along with Food and Clothing are not just consumer items, they are basic necessities. Thanks to the efforts of entrepreneurs and engineers food and clothing are cheap and plentiful. It is as Galbraith once said “The greatest failure of Capitalism” that housing, decent or otherwise, is beyond the reach of a large part of the British population because it is too expensive. That House Prices should be stabilized or reduced is a consequence of it being  a basic humanitarian necessity.

Also un-commented on by M&M is the strange anomaly—a product which has tripled its (real) price while the quality of the product is the same.

What sort of house you get for your money in 2021 is the same, often worse than in the 1980s. Most (80%+) of house sales are of second-hand properties so many are from the 1980s or older! New-builds are notoriously getting smaller. Compare this to every other consumer product. Invariably they becoming more technically capable year-on-year, and get cheaper! It’s called ‘Progress’, so why doesn’t it apply to the housing market?

What M&M fail to point out is that Housing has become more of an ASSET class rather than a consumer product, and a different form of economic analysis should be applied. This is why we have a Housing Crisis. Housing needs to become more of normal consumer item, less of an investment vehicle.

As Steve Keen (2021) puts it (why asset markets such as housing are not like ‘normal’ consumer goods markets

Once the role of credit in aggregate demand is understood, it’s easy to extend this to asset markets, in which credit plays a major role. With mortgage debt as the main means by which houses are purchased, there is a causal relationship between new mortgages—or mortgage credit—and the house price level. 

There is, therefore, a link between change in mortgage credit, and change in house prices (Zhang and Bezemer 2014). The same logic applies to change in margin credit, and change in stock prices. The correlation between change in mortgage credit & change in house prices since 1971 is 0.64, while the correlation between change in margin credit and change in Shiller’s CAPE index since 1990—when margin debt began to rise again after 50 years of being below 0.5% of GDP—is also 0.64.” (p40  The New Economics: A ManifestoApril 2021 pre-pub pdf) 

Figure 11: Change in household credit and change in house prices (Correlation 0.64)


This type of borrowing for house-purchase that drives asset price bubbles, and does precious little benefit to benefit society. We need means by which this kind of borrowing can be discouraged, while lending for productive purposed can be enhanced.

To be fair M&M realise that the usual nostrum for solving the housing crisis – ‘Build More’ – is a non-runner.

(on p4) “But low supply elasticities  - the focus of a great deal of attention [they mean sluggish housebuilders] – could not in itself account for more than a part of the rise in prices. Were the supply elasticity for new house building in the UK much higher, the rise in house prices generated by very low interest rates would likely still have been significant.”

 Inheritance spreads the wealth?

M&M contend that so long as we leave more than we have inherited, the accumulation of 'equity' benefits Society.

Housing as an asset—not as good as it might be

I have explained this elsewhere. You may withdraw equity, but that's only borrowing, usually at penal rates of interest. A house is not very 'fungible'--you either sell the whole thing, or you don't. Unlike shares is is difficult to sell part of a house.

Asset-status creates incentives for a backward house-building industry

The last thing the home owners, esp the owned-mortgage-free lot want to avoid is a flood of newer cheaper better houses. The house-builders are happy to comply, and provide their customers exactly what they want.

Hoarding as a rational strategy another reason why Build More won’t work. Good article in Guardian about landlords hoarding property, plus some silly suggestions for elderly home-owners as a ‘cure’ Landlord power is not just bad for tenants. It harms homeowners, too

But what is the asset that house-buyers crave? It is the value of the PLOT of course Unless we focus on plotvalue there is no way out of the housing crisis.

The Death of the Home-Owning Democracy, no more spreading the wealth. Dying anyway rate of O-O down from 71% to 63% ? So much for no bubble, reasonably priced houses! I’m going to look more closely at this shibboleth. Is the HOD such a good thing? It’s obviously good for the Tories as ?greedy rentiers vote Tory as the protector of unearned wealth?

Householders indifferent between owning or renting? Piffle


from IpsosMori 2017 election. How Britain voted in the 2017 election | Ipsos MORI. Home owners including those who own outright are still in the majority.

Percent by tenure in 2018. Total housing stock 23,534,000 homes, of which

Owned outright            34.4 %

Owned with Mortgage   29.3 %

Social Renting              16.9 %

Private Renting            19.4 %

 (Source English Housing Survey data on tenure trends and cross tenure analysis - GOV.UK (

 The Reference for this blog Miles, David &  Victoria Monro (Dec 2019)UK house prices and three decades of decline in the risk‑free real interest rate Staff Working Paper No. 837 Bank of England


Monday 5 April 2021



The long decline in real rates of interest was used to justify half of the inflation-busting rise and rise of house prices in the UK. That was in the first Part of my commentary on the Bank of England paper “UK house prices and three decades of decline in the riskfree real interest rate” by David Miles and Victoria Monro.

 The other half of the can be explained away because we have become are a lot richer in the last 33 years since 1980s. In technical terms Income Elasticity of Demand for Housing is measured at 1.3. This means that for every extra £100 you earn, you can be expected to spend £130 extra on housing. (This is a generally agreed figure, not controversial).

 This gives rise to a curious conclusion: Housing as measured by economists is not a necessity, it is a luxury item!

( Explainer for those a bit rusty on economic theory: When Income elasticities of demand are greater than one, consumers will buy proportionately more of a particular good compared to a percentage change in their income. Consumer discretionary products such as premium cars, boats, and jewellery represent luxury products that tend to be very sensitive to changes in consumer income)

There is no bubble here: How did Miles & Munro reach that conclusion?

 So you want somewhere to live? Rent or buy? Let’s assume that, so long as costs are equal you don’t mind which. Here’s the logic used by the authors Miles & Munro of the Bank of England to show there is no bubble.

 “…we use a widely used model of the housing market to show that the sharp rise in house values [true] and substantial decline in rental yields [true] can be reconciled with a fundamental equilibrium [in the assumption of house-buyer indifference].

 “rational expectation would plausibly have been that average real rents would grow at around the rate of real incomes. How much might reasonable people have expected real rents to grow? Figures show that average rents have been stable relative to incomes.

 “…[Thus] house prices would have been expected to grow in line with average future real incomes. [and as you can see from the graph rents have not risen more than incomes]

รจ  “….there is no evidence for a `bubble' here.


Conclusion (by Miles & Munro)

“The conclusions are stark — since 1985, the observed decline in index-linked gilt yields and other changes in the cost of home ownership are associated with an increase in house prices of around 90%; income rises account for about a further rise of 80% - between them these factors account for all of the observed rise.”

SO I’M WASTING MY TIME? Houses are not over-priced. The price of houses does not need to be stabilised or reduced by Squeezing the Banks, Land Value Tax, or even Land Nationalisation. Pushing for change is pointless?

 M&M (the authors of this paper) do some sensitivity analysis especially of elasticities and conclude that maybe the price rise need not have been +156% above inflation, it might have been as low as +40%.

 M&M make no attempt to explain why TWO of the G7 countries in their study had NO nett house price increase in their 33-year study. Why have Japan and Germany finished up with real houseprices the same today as they were in the 1980s?




Reference for this blog: Miles, David ,&  Victoria Monro (Dec 2019)UK house prices and three decades of decline in the riskfree real interest rate Staff Working Paper No. 837 Bank of England


Friday 2 April 2021



No, house prices are not a credit-fuelled bubble. Thanks to the long-run in interest rates (and rising incomes) house-prices and rents are actually a bit cheaper than you’d expect.

The source of this amazing conclusion is a Bank of England paper “UK house prices and three decades of decline in the riskfree real interest rate” by David Miles and Victoria Monro. So this is a credentialed paper from an authoritative source. David Miles is a professor at Imperial and on the BoE ‘expert committee’. This is the credible, logical, rational voice of economic orthodoxy!


Here is the ‘money-shot’. As you can see long-term, real, gilt, risk-free interest rates have been sinking year-on-year in an almost straight line. The authors have great fun mocking the Cassandras whose forecasts of inflation and rising interest rates, especially after bouts of QE have turned out so wrong.

 Nobody expected the steady decline of interest rates!

 What this means for the housing market

 How much you can afford to pay for a house depends on three things according to David Miles’ 1994 model — he is the doyenne of these things.

    1. elasticity of supply and demand.

    2. changes in real incomes, and

    3. user cost—how much it costs to buy and run a home.

 Elasticities are fairly stable, so long as market conditions remain much as they are, I’ll deal with the effect of rising real incomes on demand for housing in the next blog.

 So User Cost is the main focus here, and of course the main cost of buying a house is the size of the mortgage payments. So Miles and Munro do their sums and reach the following conclusion:—

 House prices in the UK have risen +156% in the 33 years from 1985-2019 but just over half of that rise is an illusion. Because of falling interest rates, which have led to cheaper mortgages home-buyers can service much bigger loans. There is of course a sting in the tail.

 If interest rates were to rise by 1% then expect house-prices to crash by 20%

 But the authors (like all the experts before them) expect stable and continuing interest rates. As a consequence house prices will not fall.

 This paper is closely argued and fairly easy to follow (until it lapses into algebra). Read it, but pay attention to the rich detail. The Reference for this blog Miles, David ,&  Victoria Monro (Dec 2019)UK house prices and three decades of decline in the riskfree real interest rate Staff Working Paper No. 837 Bank of England

Miles, D (1994). ”Housing Financial Markets and the Wider Economy”. John Wiley