Labour plans longer tenancies and rent control

chucky

Generali wrote: »

If you don't build infrastructure how do people get to work?

The government spent most of the period from 1950-1980 showing why they shouldn't build housing. Google Roman Point to see why.

The same argument is why build more schools or train more teachers when you can build x,xxx number of houses.

The one dimensional arguments from the usual suspects not understanding the bigger picture is getting tedious now.

princeofpounds

British house builders are hardly building high quality housing. In fact, I believe after the crash when the government tried to get Housing Associations to buy up unwanted new-builds they couldn't because they didn't meet the basic size/quality standards they have in place.

There are a variety of reasons for this.

One of the biggest, as I mentioned earlier, is that building is not how these companies make their money. It's the annoying tiresome activity they have to do in order to monetise the planning permission they have managed to gain.

OK, I over-dramatise, building on building land can just about wash its face in terms of profitability, otherwise it wouldn't happen.

But think about this - when you take an acre of agricultural land it probably costs you about £10k. Turn it into building land and it's probably worth about £1500k.

your return on capital is 15,000%.

If you can build 16 houses on that plot, the land value per house is about 94k. you might spend another 150k on construction (thereby costing you 244k of capital) and sell it for 305k to make a good 20% development margin.

your return on capital is 25%

which process are you going to devote most care to?

your absolute priority is going to be getting you money out of housing and back into landbanking and planning permission. If that means you only have to build a cardboard hut to sell it quick as possible, great. your added returns on your capital for delivering a quality building product are going to be peanuts.

The numbers are for illustration only, very rough estimates and it varies across the country. I would also add that the difference is not quite as stark as presented here as planning can take a long time and is not as guaranteed to be successful as a house build (although that's only because the rules are so tight, finding land is not inherently speculative, only gaming the planning system is).

Graham_Devon

wotsthat wrote: »

The taxpayer builds the houses (£xbn), pays the rent for the occupants in-perpetuity and then, because the occupant has 'paid' the rent for x years they get gifted the property and sell to private landlords.

No money lost there.

Theres 3 issues which we need to break down here to have any semblance of decent discussion on this.

1. Yes, the taxpayer builds the houses at £Xbn.

2. It's disingenuous to suggest that all tenants will then get the rent paid for them for life. A) because no one has suggested the homes should only house those on benefits and because the housing benefit system itself does not allow for it. So this point seems a hugely wild exaggeration.

Secondly it's surely got to be more cost effective to own the building and "pay" rent (read: take a loss on the possible rent income) via housing benefit than it is to pay rent to priavte landlords. You control not only the costs, but also the admin. The housing benefit bill is running at £25bn per annum and has more than doubled in the last decade. If you can cut out the cost housing a family with a private landlord, and instead house them in your own assets, great.

What you appear to be suggesting is that it's better to rent a space in a storage facility at £20 per month for 5 years (£1,200) than it is to buy yourself a shed at a one off payment of £350.

3. There is no reason why RTB could not be removed. It's not a given that just because something happened in the past it will ultimately have to happen again.

princeofpounds

Surely a lot of it must have? I have no idea of the figures, and obviously there were some disasters that had a very short life, but surely most council housing has had a long enough life span to have covered the cost of building it?

A lot of people who take this sort of line on council housing do not understand the concept of an opportunity cost.

It is not enough to simply return the money at some point to make an investment worthwhile. If there were better economic things that could be done with the money, provide a higher return, then there was a benefit, an alternative opportunity, that was sacrificed.

A very intuitive way of conceptualising this is to imagine me asking you a favour. I want to borrow 100 quid from you. I will pay you back 1.01 pound a year for 100 years.

Even if I guarantee you get your money back and you will cover the cost or lending to me and more, you are not going to take me up on the offer.

This is the same reason that merely claiming council house 'covers its costs over time and makes a profit' is not justification for anything. So does my deal above.

Anyone seeking to justify council housing on economic grounds needs to have a better argument. (obviously there are other arguments pro/con, this line of argument is just a particular bugbear of mine as it comes from the playground school of economics).

CLAPTON

princeofpounds wrote: »

There are a variety of reasons for this.

One of the biggest, as I mentioned earlier, is that building is not how these companies make their money. It's the annoying tiresome activity they have to do in order to monetise the planning permission they have managed to gain.

OK, I over-dramatise, building on building land can just about wash its face in terms of profitability, otherwise it wouldn't happen.

But think about this - when you take an acre of agricultural land it probably costs you about £10k. Turn it into building land and it's probably worth about £1500k.

your return on capital is 15,000%.

If you can build 16 houses on that plot, the land value per house is about 94k. you might spend another 150k on construction (thereby costing you 244k of capital) and sell it for 305k to make a good 20% development margin.

your return on capital is 25%

which process are you going to devote most care to?

your absolute priority is going to be getting you money out of housing and back into landbanking and planning permission. If that means you only have to build a cardboard hut to sell it quick as possible, great. your added returns on your capital for delivering a quality building product are going to be peanuts.

The numbers are for illustration only, very rough estimates and it varies across the country. I would also add that the difference is not quite as stark as presented here as planning can take a long time and is not as guaranteed to be successful as a house build (although that's only because the rules are so tight, finding land is not inherently speculative, only gaming the planning system is).

are you saying that most house builders buy a significant amount of the building land at agricultural prices and so benefit from the windfall price gain when planning permission is granted?

princeofpounds

are you saying that most house builders buy a significant amount of the building land at agricultural prices and so benefit from the windfall price gain when planning permission is granted?

Housebuilders, landowners, government in varying amounts.

All supernormal profits, caused by an artificially imposed scarcity, paid by anyone seeking to house themselves.

http://wiki.answers.com/Q/Types_of_profits_in_the_long_run_in_oligopoly

Of course, you then get the indirect beneficiaries, such as landlords who see increased rental demand. They also get the bonus of a subsidised funding market due to the BoE printing money like confetti - trebles all round! (for those with capital in the form of land, anyway)

GeorgeHowell

By some of the comments on here it's clear that another Labour con job is successful in certain quarters, just like the capping energy prices fiasco. I have a feeling that since such stunts can only possibly sway those at the lower end of the intelligence scale, it's probably preaching to the converted and boosting support from the misguided who would vote Labour anyway.

princeofpounds

By some of the comments on here it's clear that another Labour con job is successful in certain quarters, just like the capping energy prices fiasco.

It's a mix really, some good ideas in there, especially on security of tenure, mixed in with a few ideas from the soviet union school of regulation.

Personally, I find it a bit sad that most people think the way to improve a dysfunctional market is always regulation, rather than reforming the market.

It's the economic equivalent of a doctor treating someone with a broken arm and recommending amputation and a prosthesis rather than putting it in plaster and letting it mend of its own accord.

But I guess this is about a good a package of rental reforms as we are going to get for some time. Might force the tories (who I support on more things if i'm honest) to actually give the issue some more serious thought.

If Labour have the weakness of spending and regulation, some tories fail to realise that market economics are not always optimal if the market structure itself is deficient in some way (and renting certainly is). As much as many Labourites learn their economics from Stalin, many Tories learn theirs from Rand, and both are caricatures of economic theory in their own ways.

wotsthat

Graham_Devon wrote: »

What you appear to be suggesting is that it's better to rent a space in a storage facility at £20 per month for 5 years (£1,200) than it is to buy yourself a shed at a one off payment of £350.

I'm not sure why you think I have to make a choice between paying people's rent or paying to build them a house. I have to pay my own 'storage costs' - why can't they? My definition of 'need' is very much at odds with a politicians definition - we're increasingly treating capable grown adults like children.

If we stopped making people rich just because they have the money and persistence to get planning permission many of the problems would disappear.

Graham_Devon wrote: »

3. There is no reason why RTB could not be removed. It's not a given that just because something happened in the past it will ultimately have to happen again.

Yes, we'll build lovely well designed houses, ensure they're allocated based on true need, anyone that subsequently falls outside of the criteria will be asked to pay a market rent and required to find their own housing. And never will they be sold at a discount to the tenant.

Can you hear oinking overhead?

GeorgeHowell

princeofpounds wrote: »

It's a mix really, some good ideas in there, especially on security of tenure, mixed in with a few ideas from the soviet union school of regulation.

Personally, I find it a bit sad that most people think the way to improve a dysfunctional market is always regulation, rather than reforming the market.

It's the economic equivalent of a doctor treating someone with a broken arm and recommending amputation and a prosthesis rather than putting it in plaster and letting it mend of its own accord.

But I guess this is about a good a package of rental reforms as we are going to get for some time. Might force the tories (who I support on more things if i'm honest) to actually give the issue some more serious thought.

If Labour have the weakness of spending and regulation, some tories fail to realise that market economics are not always optimal if the market structure itself is deficient in some way (and renting certainly is). As much as many Labourites learn their economics from Stalin, many Tories learn theirs from Rand, and both are caricatures of economic theory in their own ways.

Security of tenure (along with controlled rents) is what killed off private renting in the 1950s and 1960s. If people think they can't get their property back when they want it, they are far less likely to rent out in the first place. What's wrong with binding contracts, where both parties know where they stand from the outset regarding both length of tenure and rent ? Why should Westminster or Whitehall impose restrictions on such freely negotiated contracts ? Private renting is not an industry with a few large suppliers creating a cartel or oligopoly situation. If it is deemed nevertheless to be a suppliers' market, then doing anything to restrict the supply is only going to make that worse. How stupid do people have to be to fall for this claptrap ? I suppose the answer is -- stupid enough to vote Labour.