John Muellbauer's paper not enough

james armstrong james36armstrong at
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 
Barker Review'
'a land buying agency  could gradually buy up tracts of  less distinguished  
farm land'   …..
'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 
housing land ….
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 
is stagnant.
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 
houe prices'
                               …………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 
corporate opposition.

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 
housing crisis.

'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.              
                  James Armstrong                                            

The writer contributed to the Barker Report and long ago was a student of 
economics at Edinburgh Uni.

>From: "Mark" <mark at>
>To: diggers350 at
>CC: chapter7 at, james36armstrong at
>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
>current bands.
>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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