John Muellbauer's paper not enough
james36armstrong at hotmail.com
Sat Mar 31 22:32:19 BST 2007
John Muellbauer's paper.
'the rise in house prices is explained by demand increasing in the face of
stagnant housing supply'
'much rests therefore on the reforms of planning proposed in the latest
'a land buying agency could gradually buy up tracts of less distinguished
'for development of new towns and villages'
'planning permission raises the price of farmland one hundred times or more'
profits- from sale of some land to developers could fund social housing ..'
'the basic point is that the land price differential between farm and
and the huge capital gains of landowners who receive planning permission,
are policy constructs'
'So is the housing affordability problem. '
'all that is needed is a government with vision.'
I suggest that there are some omissions from this scenario.
House prices of both the existing stock and new build are now so high that
solutions must address not only future policy but the existing level ,
since current prices are unsustainable.
In the 1920's a two-bedroomed cottage in Oakwood Road, Hampstead Garden
Suburb was built and sold for £250. This represented about one and a
half year's income of someone earning (then) £3 per week.
To day the same cottage might have a value 27 times the annual minimum
wage of £12,000 p.a.. The scale of the problem suggests causes more deep
rooted than 'planning constraints.'
A closer reading of the Barker Review of Housing Supply suggests WHY supply
Corporate house builders monopolise building land with permission or
potential permission for houses (The largest housebuilder, Persimmon, in
2004 held sixteen years' supply, and Barker Reports that housebuilders make
more profit from land speculation than they do from building houses.
The paper exposes the drivers of demand (economic growth and population
growth and immigration ) but fails to expose the drivers of the stagnant
supply - the landowners who the paper identifies as making windfall gains
include the housebuilders, city institutions, banks
The withdrawal of local and central government from building houses leaves
to this deformed market the responsibilty for supply - yet it is in the
supplier's' interest to drive up the price of houses, and with it the value
of their landbanks and also ensure even rosier prospects for the future, and
this they do by buying up all the potential building land around population
centres. The Planning Departments helpfully identify this land in their
five and fifteen year plans.
Here the limitations of relying on the market are exposed. It is unlawful in
UK and under EU law to manipulate a market against the public interest .
The refusal of the Competition Commission to prosecute monopolist,
landhoarding builders ( I have persistently asked the C.C. to act on this
front) does not suggest, as the paper does ' The government has a concern
for poverty and social exclusion'
On the contrary, it suggests that the government has an interest in
prolonging out-of- reach-house prices, which stimulates GDP , gives a 'feel
good, factor to existing house owners, stimulates High Street spending by
increasing the equity on which the credit boom is based, and it allows the
MPC of the Bank of England to tweak the economy using the Bank Rate and to
misuse use the housing 'market' - Barker uses this expression again and
again- tangentially to encourage 'growth' in the economy without general
'Unfortunately you can't have growth in the economy unless you have rising
Mervyn King, ex Governor, Bank of
England recently on BBC Radio 4.
House price inflation is of course wildly out of control but the MPC and
the Treasury choose not to acknowledge this, rather eliding a problem into
a triumph by defining it as 'a strong housing market'.
The paper looks to the prospect of building both more private and more
social housing. Yet more private housing at out-of-reach prices will not
solve the problem. Neither is more 'Social housing' the answer. Only a
tiny fraction of people in stress of housing qualify for so-called
'affordable housing'. Most have too large incomes to qualify (yet cannot
afford to buy on the private market.) Others have too low incomes to afford
the rents and repayments under the different 'part buy' arrangements.
Here is another instance which suggests housing has a very low priority for
the Government. The social Housing Grant has recently risen from
£0.8billion to £1.4 billion . - about the same sum as the provision for
'Special Downing Street Advisers' . Stamp Duty from the sale of property
brings in to the Treasury £5.5billion
.. To-day's press reports Alliance
Boots is valued at £10billion. The social housing provision is quite
There are solutions to the crisis. 'Social housing' could make a
significant contribution, if the present ratio perhaps 1:9 private to
social is reversed. The power of the opposition to be expected from the
land lobby (which is entrenched at the very highest level, including the
monarchy, in parliament , amongst farmer/landowners, the building
corporations , the financial houses etc can be judged from the last effort
to tax land in 1909 when the Government's Finance Bill was lost and a
constitutional crisis developed
The failure , after decades , of the Land Registry to date to identify and
publish details of land ownership is also relevant. The land buying agency
would need constitutional representation if it is to withstand the expected
The paper identifies the main factor in the crisis as the windfall gains
landowners receive when land gets permission for houses. Requiring the name
of the would be occupier on the permission for a new house would empower the
demand side vis a vis the landowner or builder and reduce the value of land
to the landowner. Prioritising self build, increasing the Social Housing
Grant, reversing the ratio of private to social, would all help.
'Trident' has a £20billion plus budget (c.f. Social Housing at £1.4bn, p.a.)
The rationale for Trident is to defend or deter against (hypothetical)
nuclear attack on the U.K. which could only make sense if targeted at large
population centres. It is around these areas that national builders
monopolise landownership . Dispersing the population into new villages is
logical if we must have Trident. Discouraging mono-design estates and
replicating local building styles and materials would enhance not destroy
the beauty of the landscape. Such a policy also uses the 'less
distinguished farmland' of the paper to solve the very real and current
'the problem is a policy construct'
What is needed is a government prepared to address the problems of those in
housing stress and not the profits of the landowners/builders/mortgage
lenders and a government prepared to rerun the battle of 1909.
The writer contributed to the Barker Report and long ago was a student of
economics at Edinburgh Uni.
>From: "Mark" <mark at tlio.org.uk>
>To: diggers350 at yahoogroups.com
>CC: chapter7 at tlio.org.uk, james36armstrong at hotmail.com
>Subject: Policies that pass on inequality through the generations
>Date: Fri, 30 Mar 2007 16:49:45 +0100 (BST)
>Policies that pass on inequality through the generations
>By John Muellbauer
>Published: March 26 2007
>Almost all advanced countries have annual property taxes. Britain's
>council tax is shockingly unique in one respect and very unusual in
>another. It is unique because Britain is the only country where those
>living in £20m houses pay the same every year as those living in £1m
>houses. It is also unusual because of the system of council tax bands.
>Everywhere else in the world, the tax bill rises with the value of the
>house and, in some countries, taxes are progressive so that the tax rate
>rises with value. The British system privileges multi-millionaires at the
>expense of the middle classes. The top rate of stamp duty on property
>purchases at 4% kicks in for houses valued at £500,000. The overall
>property tax burden on the middle classes living in houses valued between
>£500,000 and £2m is therefore far greater than on property
>The Lyons Review of local government finance offers a fig-leaf of reform
>by suggesting one new higher band of council tax which only slightly
>touches the £20m-house owners, especially in inner London, but would take
>proportionately more from the affluent middle classes. Rather wistfully,
>Sir Michael Lyons recommends that the government should, in the longer
>term, reconsider a return to a "point value tax" under which bills are
>based on a set percentage of property value every year, instead of the
>There was an obvious alternative, however. Bands make no sense for the
>highest values. There, the potential tax revenues greatly outweigh the
>modest costs of valuing a small number of houses. Sir Michael could have
>argued for valuing the £2m plus houses and taxing in proportion to value,
>even if the bands were retained for the rest.
>The Lyons Review rejected a land value tax as an additional or alternative
>source of business rate, despite its merits. However, it points in welcome
>directions. Sir Michael proposes reform to tax exemptions for empty
>properties and agricultural land and a closing of the loophole whereby
>owners choose dereliction to avoid business rates.
>The government has a concern for poverty and social exclusion, backed by a
>proliferation of means-tested subsidies. Yet, the past 10 years have seen
>one of the greatest rises in social exclusion in postwar history. This is
>the pricing out of the housing market of people without pre-existing
>housing equity or family connections with such equity. This perpetuates
>disadvantage through the generations. As the Barker reviews of land-use
>planning argued and our research confirmed*, the rise in house prices is
>explained by demand increasing in the face of stagnant housing supply.
>Demand was driven by economic growth and population growth, fuelled by
>immigration and to a lesser extent by lower interest rates. The government
>contributed to stagnation of new building by tightening planning
>restrictions and continuing the cuts in building of social housing which
>began under former prime minister Margaret Thatcher. It is plain from the
>Lyons Review that tax reform will not play a significant role in improving
>the demand-supply balance. Much rests, therefore, on the reforms of
>planning proposed in the latest Barker review.
>These would be made more effective by the following policy change. A
>land-buying agency could gradually buy up tracts of less distinguished
>farm land without planning permission. As the portfolio grew, so would the
>opportunities to assemble pieces of land for development of new towns and
>villages. A diversified portfolio would also be useful in offering barter
>trades to farmers willing to relocate after selling up. If the entry of a
>large buyer on the market for farm land raised prices excessively, the
>Lyons recommendation of bringing higher priced farm land under the
>business rate (or under inheritance tax) could damp prices.
>Since the granting of planning permission raises farmland prices a hundred
>times or more, the profits from the sale of some of the building land to
>private developers could fund social housing and infrastructure
>development. Both social and private housing supply could expand
>substantially. This would release one of the most serious constraints on
>the growth of the British economy and reduce social exclusion. The basic
>point is that the land price differentials between farm and housing land,
>and the huge capital gains of landowners who receive planning permission,
>are policy constructs. So is the housing affordability problem, at least
>in the long run. All that is needed is a government with vision.
>* CEPR Discussion Paper 5619, April 2006
>The writer is professor of economics at Oxford University
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