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Wednesday, 21 April 2021

CPS — Tory thinktank -- STILL FLOGGING THE DEAD (economists’) HORSE OF “BUILD MORE TO BRING PRICES DOWN”

 SO, NO, MAKING MORE PLOTS AVAILABLE WITH P.P.  WON’T FIX THE HOUSING CRISIS

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.]

IMAGINE MORTON’S SURPRISE THEN, 
WHEN HE DISCOVERS THAT 
DOUBLING OF PP’S GRANTED IN THE LAST 10 YEARS 
HAS NOT RESULTED IN A GREATER SUPPLY OF NEW-BUILDS


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 (cps.org.uk)

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

 

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