The problem of inflated prices lies in property speculation. That’s what we need to clamp down on
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Everyone – from the government, to housing charities, to housebuilders – has bought into the conventional wisdom that the dysfunction that racks our housing market is a matter of demand and supply. We’re not building enough houses, so house prices have been sent rocketing, taking home-ownership out of reach for growing numbers of young people. But in reality, our housing problems are not a simple feature of supply and demand. Rather, our housing market has a bitcoin problem.
What has bitcoin mania got in common with house prices, especially in the capital? For starters, both are speculative bubbles. Vast sums of money have been poured into finite supplies of bitcoins and London property. Both have consequently exploded in value, albeit over different time periods. And so both have become financialised assets that deliver capital gains far in excess of people’s ability to earn income from work, or from investment in the real economy. And as with bitcoin, so with London property: speculators are convinced that prices will continue to rise for ever.
It’s speculation in the property market that is fuelling stratospheric house price rises, not shortage of supply. When the “fuel” of private capital, mortgage credit and cash from the bank of mum and dad is supplemented by government subsidies and tax breaks, house prices rise. Moreover, wealthy global and non-resident buyers have funnelled more than £100bn into London property over recent years, making the problem even worse.
So, rather counterintuitively, building more houses is not the right prescription. House prices won’t fall until the tide of cash flowing into the market abates, for example by tightening mortgage credit, or shrinking the pool of buy-to-let investors. That may already be starting to happen as real incomes continue to fall, the Bank of England toughens up buy-to-let mortgages, and stamp duty rises are phased in for second properties.
The best way to do this is through the tax system. First for consideration should be a property speculation tax (PST), as in Germany. This could be used to levy punitive rates on speculators, or those who own second homes and empty properties, encouraging them to invest their cash elsewhere.
Second, the government must manage speculative capital flows in and out of Britain by taxing them through a Tobin tax on global financial transactions. Corrupt politicians in the poorest countries and oligarchs in weak economies shift often-fraudulent cash into stable jurisdictions such as the UK. These mobile flows of capital inflate the price of Britain’s fixed supply of land.
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ReplyDeleteThat's because Positive Money are just marketeers and are completely wrong on the solutions for banking. Their suggestions have no effective control points, and they should drop them in favour of Warren's asset-side institutional control structures.
ReplyDeleteSimilarly Ann is wrong on the power of monetary policy to stabilise an economy. It requires an institutional approach (MMT).
"The best way to do this is through the tax system."
ReplyDeleteSpot the Guardian article.
Whenever you read "the best way is through the tax system" you can usually switch off at that point. Taxation is an appalling tool that certain lefties love because it involves taking things off people who previously had it. For some reason they love triggering loss aversion and resentment. Perhaps they were bullied at school.
The best approach is to proscribe mortgages, and then implement policies that force prices to fall. Landlord of last resort would be a good one - where there state enforces a lease on an empty property at a peppercorn rent. That would move empty properties to auction very quickly.
Neil always tries to impress us with his home made technical phrases like "effective control points". If he can explain what an "effective control point" is and why the lack thereof undermines Positive Money's arguments, I'd be happy to look at his arguments.
ReplyDeleteHowever I agree with Neil that Ann Pettifor is talking nonsense, as she often does. In particular she attaches no importance to the fact that it is so difficult to get permission to build houses in the UK, that land with permission to build on now changes hands for £6million per hectare. Yes: six million pounds. That compares with roughly £15,000 a hectare for agricultural land.
It doesn't take a genius to work out that making more land available and cutting that £6million to something a bit more sensible would drastically reduce the cost of housing.
I go with my heart and I like Positive Money. They are a groundroots movement and I have been on a couple of their demos up London. I was invited to their Christmas do. They're really lovely people. Due to ill health I am unable to do more for them, but when I get better I will help out more. This doesn't mean to say that I'm not a MMTer, though, both fascinate me and I'm learning.
DeleteRalph,
ReplyDeleteYou never look at anybody's arguments. You just sit in a field with your collection of straw men.
Neil, I'm splitting my sides at your claim that I "never look at anybody's arguments". I just asked you to expand on your argument above and asked you to explain your mysterious new term "effective control point". You failed to answer.
ReplyDeleteThat confirms my suspicion, referred to above, that much of your technical jargon is made up on the spur of the moment with a view to impressing everyone. But hiding behind technical jargon is a common ploy in economics, so in a sense, no big surprises there.
Now go on and set out your argument on why Positive Money's ideas lack "effective control points". Honest: I'm listening.
Process Design Through Critical Control Points
ReplyDelete