High housing costs lower the quality and raise the cost of living in Britain. This is because the state deliberately restricts the supply and lowers the quality of housing through planning controls.
High housing costs lower the quality and raise the cost of living in Britain. This is because the state deliberately restricts the supply and lowers the quality of housing through planning controls. The state makes life more difficult and expensive for productive people.
In the spring of 2017, a snap UK general election nearly delivered a surprise defeat for the ruling Conservative Party under the incompetent Prime Minister Theresa May. The shock was how successful Jeremy Corbyn’s Labour Party had been. Many Westminster politicians of all parties used to be communists at university and are still crypto-Marxists in their hostility to individual initiative and liberty. But Jeremy Corbyn ran overtly as a Marxist with an irresponsible scheme to print money endlessly to fund nationalisation and dubious schemes like HS2, foreign ‘aid’ and subsidising more non-work.
What has this got to do with housing? Well Labour’s programme was a homeowner’s and landlord’s nightmare. It would have included much higher property taxes, rent controls, and property confiscation via a tenant’s right to buy private rental property at a discount. And yet for the first time Labour did as well in the key 35 - 50 years age group as the Conservatives. In particular Labour did very well in that election among renters. Why?
Housing costs have been pushed up hugely by a vicious combination of damaging, state (but I repeat myself) interventions. The state deliberately restricts the supply of building land available for housing. Only 10% of Britain’s land area is built on, and not all of that is residential. There is plenty of agricultural land (much of it of little value without farming subsidies). It costs, say, £10,000 - £20,00 an acre. That would be roughly equivalent to say £2,000 - £5,000 per house. That is negligible. But with planning permission building land becomes incredibly expensive overnight.
The manufacturing or build cost of a house in the UK’s South East is around £1,700 per square metre. A new 120 square metre three-bedroom house should cost little more than £200,000, and less in poorer areas of Britain. If it were not for the post war Planning Acts, lots of local builders would be building freely and cheaply at these kinds of prices – as they did in the 1930s and in the nineteenth century.
But because of the planning system, in most of Britain, houses now cost a great deal more than they should. So much so that much, or sometimes most, of a house’s value is the land it is sitting on. The difference between build cost and current house prices measures the cost to society of the planning system. On new housing developments developers, planners and builders and local authorities pocket the difference without adding much value.
At a bigger scale the rise in prices of all existing homes causes a big transfer away from young people towards older generations. Young people are much worse off because they have to borrow far more mortgage money, or pay swollen rents. They do this because previous generations had their house prices jacked up by the planning system. As anyone who has been involved in local politics knows, there are few lobbies less attractive, or more powerful, than homeowners trying to stop house building which might actually help young and poor people. The UK housing market is just another state sponsored Ponzi scheme like old age pensions. And it is just as unstable as pensions will turn out to be. Democratic Socialism can only last if each generation thinks it too will benefit from its Ponzi schemes in its turn.
But younger people increasingly understand that they are working to prop up older generations’ house values and pensions entitlements. They are not going to benefit. Indeed, they too may find themselves in negative equity as house values come to reflect economic reality.
How does one know that the planning system is to blame? Of course it is a basic economic principle that restricting supply pushes up prices. But the notion that restrictive planning systems cause needless impoverishment and disaffection also has real world evidence behind it. Take, for example, comparisons between different states in the United States. Different jurisdictions in America have different planning or zoning laws. At one end of the spectrum has been Houston, Texas, where one could basically build freely within the surrounding Harris County. At the other end are places like San Francisco and Berkeley in California where planning laws are severely restrictive. The UK system is more like California.
What happened to real, inflation adjusted house prices in Texas and California between the 1970s and a few years ago? Houses in California became up to four times more expensive. House prices in Houston did not change much. Famously the Californian cities are now severe problems of homelessness, social order and basic public sanitation. The average property price here has risen to be nearly eight times average incomes. A generation ago it used to be around three times. Rents are correspondingly higher. Many people have been pushed out of an un-affordable house ownership market into barely affordable renting. Renters in the private sector are spending around 30% of their incomes on housing. This is more than twice 1980 levels.
High housing costs hit the less well paid and the young hardest. The result is difficulty and delay in setting up households and having children. I remember that when I was a County Councillor a few years ago many constituents had borrowed heavily to buy the smallest houses in the area. They cost, say, half a million pounds or more. Husbands and wives were often both commuting considerable distances to support the mortgage rather than a family.
High property prices feed into the cost of all goods and services. The mess represents profound economic and political impoverishment. How otherwise could it lead to support for hopeless Marxist policies of theft and decay. And what the planners approve is generally unattractive. So that is moral impoverishment to boot. People have to use even ugly buildings because all buildings are deliberately kept in short supply by the planners. People have no choice. Why bother to make buildings attractive? Many prefer older, harder to maintain properties with some charm.
Holidaymakers often use their scarce time off to travel to see beautiful, densely built, diverse cities which planners would not tolerate now. Would the planners allow you to build Venice or Florence? In a free society it would be completely different. There would be no land price scam. The price of manufactured objects in general, including houses, would tend steadily downwards as innovation proceeded. The result wouldn’t be drab, depressing anti-human places. Maybe people would be allowed once more to put up attractive buildings instead. In fact you might find libertarian societies you could join with contractual rules encouraging rather attractive building.
All things considered, housing costs for the equivalent, more attractive space in a free society would be somewhere between half and a quarter of those we have now. And never forget, there would be no taxes or other state sponsored rackets. Now wouldn’t that make life so much easier?