Hhhm.
The housing charity Shelter criticised irresponsible lending to people who could not afford the repayments.
The thing is, what’s the alternative? Those with bad credit records not being allowed to borrow at all? Thus not being able to buy a house and thus, umm, being reliant on those buy to let landlords that people criticise so much?
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Yeah, ff only there was some kind of low-cost housing, perhaps subsidised by the state, available to people who couldn’t afford market housing. That would be great.
Tim adds: Indeed. Or we could relax the State imposed planning laws that make housing so expensive in the first place. Why subsidize when you can remove the thing causing the problem in the first place?
I think you’re forgetting something called ‘construction costs’. Remember the ‘£60,000 house’ competition? That figure referred to the construction costs only with *zero* cost for land and *zero* cost for infrastructure, not to mention leaving out developer profits. You’re living in la-la land if you think housing is ever going to be cheap enough for everyone to afford to own, especially in locations where anybody might want to live, which I would have thought is sort of the point.
Tim adds: As it turned out, costs were around £80k. Agricultural land is around £ 8 k a hectare. At light densities with large gardens, about £81 k a house then. Given that the average dwelling (ie, not house, but all dwellings) is around £200 k right now, there’s at least 50% of our problem, isn’t there? The planning system. So let’s get that sorted first shall we, then see what problems we have left over after we’ve cleared the government interference out of the market. Sounds like a plan to me!
“costs were around £80k”
‘Costs’ or ‘price to buyer’, Tim?
I don’t know why you think a ‘free market’ in land would bring the costs of all land everywhere down to the currently – artificially suppressed, after all – average value of agricultural land, either. Equal values suggests that all land would have to be equally connected to all required infrastructure, which is a little fanciful, not to say expensive.
Tim adds: Agricultural land is currently artificially expensive: remember EU subsidies? These are now based on ownership of acreage: so they push up the capital value of land, just as a rise in any other rent would.
But if land is going to be built on in any significant way it needs infrastructure of all kinds to be planned for it, and any land which has such infrastructure planned for it is going to become a lot more valuable than land that doesn’t.
The idea that house prices will suddenly halve if more land is released presumes that the supply response will be perfectly elastic. Can you think of any reason why that might not be? And can you think of any rather key players in the market who might not want the price to fall so much and who might, as they already do, restrict the flow of new homes being built even on huge sites which they could build out all at once if they wanted to?
Tim,
I am dealing with a case at the moment where, given my client’s particulars and circumstances, I am positively salivating at the possibility of citing the CEO of a major high street bank to explain just why they extended my client with five figures worth of unsecured credit.
Isn’t house ownership dead capital in the long run?
Any row – back in the good old days (circa the 50s) were not most houses rented?
Tim adds: OK; so they were rented: but from someone, so the “dead capital” idea doesn’t really matter, does it? Someone owned them and had capital invested in them.
“And can you think of any rather key players in the market who might not want the price to fall so much and who might, as they already do, restrict the flow of new homes being built even on huge sites which they could build out all at once if they wanted to?”
Wasn’t there a report recently that showed that once builders had everything clear for them to proceed, they were on site within 3 months?
Somebody claimed that 97% of permissions were followed by ‘start on site’ within 3 months. Since start on site can consist of digging a hole and buggering off again, it’s meaningless.
Jim,
This whole thing is a lie to try and justify why we should have more “social housing” by showing private developers in a bad light.
A much higher average time (2 years?) was presented as evidence that developers were “sitting on land”. This time was calculated as the time from when developers were granted initial planning permission, which is not the time that developers can get on site (due to lack of access, utilities and so forth).
“Since start on site can consist of digging a hole and buggering off again, it’s meaningless.”
And why would they do that? Developers are interested in making money, and building on land makes a lot more money than sitting on it.
“building on land makes a lot more money than sitting on it.”
Not if building ‘too fast’ floods the market and brings prices down. Supply and demand.
Tim adds: for which you need a cartel. Claiming that the UK building industry is an oligopoly now, collusion to set prices?
It certainly is an oligopoly in many locations, so much so that they don’t actually need to actively collude on prices. How can it not be when one developer is sitting on hundreds or thousands of planning permissions in an area and there aren’t any other large sites?
Tim adds: I don’t believe that is so for a moment but let’s assume that it is. So, what should we do? How about get the monopolies commission to intervene? Why not release more sites even? It still comes down to hte same problem though, doesn’t it? The planning system is not making enough land available….thus we must reform hte planning system.
You do know that in areas with the highest prices (ie cities) there tends not to be very large amounts of land just sitting around not being used, right?
Tim adds: Nor are the large developers the people who do development in cities. Precisely because it is infill development, that tends to get done by the smaller independents. Even less likely to be part of the price raising oligopoly, eh?
But we also know how to increase the amount of land “near” cities: build on hte green belt.
“Nor are the large developers the people who do development in cities. Precisely because it is infill development …”
Er no, that’s not true. There are a lot of very large sites here in London, and it’s the very large developers who are building them out, very slowly. Come back to me when you know what you’re talking about, please
“build on hte green belt.”
I’ve no great objection to building on low quality green belt land where it’s done properly, which includes to a reasonable density to ensure it’s environmentally sustainable. Presumably your proposed solution is to just let developers build whatever they fancy, which apart from being slow to arrive given what we know about their risk-aversion will be very low density, because that’s what they find easiest, which will of course mean much less homes per hectare and therefore much less impact on prices. Another reason your imaginary halving of house prices will never happen.
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