[Continued from yesterday’s Part 4 and the preceding Part 1, Part 2, and Part 3.]
By: David A. Smith
Now, as election day in Britain dawns, having already mocked the Conservatives’ proposal – use other people’s money and other people’s land in some process other people will figure out after we win – and the Liberal democrats’ – build new housing except if anybody anywhere objects, in which case forget we ever mentioned anything – we come to the piece de resistance – Labour’s brilliant idea:
Does my red background give you a clue?
Opinionated sources used in this post
(font colored in rough approximation of party affiliation)
The Guardian (October 6, 2014; russet font)
Financial Times (February 12, 2015; by Jim Pickard and Kate Allen, tory blue)
BBC (April 14, 2015; by Robert Peston, Lib Dem orange)
Financial Times (April 26, 2015; by Judith Evans and James Pickford, Labour red)
Previous AHI posts on issues relating to the UK’s housing policy
April 5, 2005: What price greenfield?
July 14, 2005: Struldbrug buildings
October 25, 2010: Homeownership, a road to wealth or to poverty? (5 parts)
February 6, 2012: Floggings will continue until supply improves (2 parts)
Let’s hobble landlords!
Bash somebody else!
3. “Landlords are gouging tenants”
Can’t you see we want you to do more?
Britain’s rental market is growing, with figures from the English Housing Survey for 2012/13 [Why not use 13/14? – Ed.] showing for the first time that more tenants were renting privately than in social housing.
The key words there are ‘privately’ (market) and ‘social housing’ (government public housing). To most of the world, it would be unremarkable that market renters outnumber government renters, but so constipated is the British housing production system that until Thatcher’s right-to-buy and stock transfer, virtually all the new production in Britain was direct-to-ownership; the commercial rental sector today remains fledgling, dominated by mom-and-pop Buy-To-Let landlords rather than REITs or institutional owners.
Homeownership rising, private rental collapsing … until Thatcher arrived
Thus it’s a nonsense ratio: what matters are the rates of rent increases.
Low rent increases North and East, high in London, highest in the South
And the ratios are bad (Telegraph, September 1, 2014):
Demand for UK rental property has soared over the past twelve months, with seven tenants now chasing every new property on the market, according to a report.
Faced with a shortage of apartments, what should a Labour government do? I know, punish landlords!
Under Labour’s plans, landlords would have to tell prospective tenants how much they charged the previous occupants, with a view to helping new tenants when negotiating rents.
On that theory, will tenants also have to tell landlords how much they paid for rent in their previous place, and whether they’ve recently had a raise or promotion?
I’ve changed my mind: not renting to you
Ed Miliband, Labour party leader, has given further details of measures he first proposed in 2014 as part of a number of housing market policies intended to address the supply crisis and pressures on the private rented sector.
Labour says it would legislate to cap rents over the three years so they could not rise more than consumer price inflation.
This is just lease regulation.
The party said people deserved to know “the kind of rents they’ll be paying when they start a new tenancy and not to be taken for a ride by landlords who [make] huge rent hikes”.
Of course, if the rents during a mandatory multi-year lease can rise only with CPI, what would any self-respecting landlord do before the lease signing?
David Whittaker, managing director of buy-to-let broker Mortgages for Business, said landlords would start new tenancies with higher rents “to make up for the amount they wouldn’t be able to charge during the rest of the tenancy”.
Mr. Miliband’s rent-control-without-control thus falls into the too-clever-by-half category, and would in fact make things worse for renters.
But landlords said the proposals showed a lack of understanding of the economics of the rental market. Richard Lambert, chief executive of the National Landlords Association, said the policy would exacerbate the housing crisis.
Signing a Lambert on the obvious, because somebody has to
“Capping annual price rises to inflation sounds like a great consumer-protection initiative, but wherever these formulas have been introduced, it’s proved to be counterproductive because it leads to a culture and expectation of regular increases by whatever is allowed,” he said.
Then too, it’ll make capital harder to raise, which will hurt future supply.
Business groups expressed concern that the measure would deter investors.
“Institutional investors, which are critical for building new homes, could be discouraged by plans to intervene in the rental market,” said Rhian Kelly, director for business environment at the Confederation of British Industry.
Kelly knows that homes don’t go up without money
A report by the London School of Economics has looked at Germany, where initial rents are limited with reference to market rates in the area, as an example of “good practice”.
Germany’s entire ownership market is vastly different, with heavily regulated buy-sell price constraints, so it’s a meaningless comparison in isolation.
Germany’s (third from right) regulatory structure is 5x more intrusive than the UK’s (firth from left) or the US’s
Roughly 60% of Germany’s housing stock is in the private rented sector, against 17% for the UK and 10% in Ireland.
Germany’s “private rental sector” is heavily regulated, and rent-capped – and the result of that regulation is as expected:
It found the country had lower levels of housebuilding and that “it has become extremely difficult to find private rented accommodation” there.
In other words, the country Labour cites as a comparable has a housing shortage, including a rental shortage, and the country is moving implacably if unconsciously toward nationwide rent control:
In March, German legislators passed new measures to cap rents in areas deemed to have housing shortages.
That will be a guaranteed failure, and is not something Britain should emulate – especially with Britain constantly agitating to be excepted out of onerous Franco-German-led Eurozone mandates – or out of the EU entirely, especially because of housing shortages (Telegraph, November 27, 2014):
David, don’t distractedly pull your cufflinks when I’m telling you to do something you don’t like
Britain must have the right to make European migrants wait four years before receiving welfare or council houses, David Cameron will say, as he warns that he could be prepared to leave the European Union.
In his long-awaited speech on Europe, the Prime Minister will, for the first time, say that he will “rule nothing out” if fellow leaders reject his plans to overhaul the benefits system and suggests that he could be prepared to lead the campaign for a British exit.
Mr Cameron will say that he wants to ban foreign jobseekers claiming benefits and deport them from the UK if they do not find work within six months.
Britain’s Prime Minister David Cameron speaks as part of the Conservative Party’s European and Local Election campaign at JCB in Newcastle-Under-Lyme…Britain’s Prime Minister David Cameron speaks as part of the Conservative Party’s European and Local Election campaign at JCB in Newcastle-Under-Lyme, central England May 2, 2014. REUTERS/Darren Staples (BRITAIN – Tags: BUSINESS POLITICS ELECTIONS)
Unwilling to make Britain’s housing shortage worse by giving flats to unemployed immigrants
If capping rents won’t crate supply, then labour has another great idea: fine bad landlords:
Meanwhile, so-called “rogue landlords” whose properties fall below basic standards would face tax relief cuts.
I’m all for rigorous enforcement of building code standards, and for pressuring slumlords until they get out of the business, but that won’t do anything to improve supply.
Mr Miliband defended the policy on Sunday with reference to Ireland, where rents can be reviewed only once a year and cannot exceed the market rate.
After a six-month probationary period, Irish landlords cannot end a tenancy, except for certain specified reasons, until four years have passed.
“In 2004 they introduced this system and it has worked. There are more people renting in the private sector in Ireland than there were 11 years ago. This is the right policy,” Mr Miliband said.
Do you remember the EU’s Irish cramdown, Mr. Miliband?
What Irish cramdown?
Newly released [November, 2014] documents suggest that Ireland was pressured into a controversial 67.5 billion euro bailout that left taxpayers rescuing crippled banks, reigniting a fierce debate about the international aid that Dublin accepted after the financial crash.
Brian M. Lucey, professor of finance at Trinity College, Dublin, said the letter showed that the European Central Bank was more involved in the details of the bailout than he expected and that “they were trying to make things up as they went along — there were no clear rules.”
The fact the bank was “throwing its weight around” did not help the image of the bailout, Professor Lucey said, adding that while most Irish citizens accept that Ireland made big mistakes, they resented the shape of the rescue.
Unlike you, I’ve worked on affordable housing in Ireland, and if you think the cure to a housing shortage is to crash your economy, I advise you to experience an economic crash before you make it a policy mandate.
Today, May 7, 2015, Britain votes.
None of these groups have a proper clue.
However, we are carefully studying the issues
- The Conservatives want to use Other People’s Money and Other People’s Land.
- The Liberal Democrats want to build more housing but only in Narnia, where nobody anywhere might object.
- Labour think that bashing landlords will induce them to build more.
‘How’ is largely left unsaid
Pundits speculate it’ll be a weak coalition at best, with minority parties like the UKIP and SNP having an outsize influence on the post-election government-forming maneuvering. In the least-bad of worlds, the Lib Dems would gain substantially, but polls suggest they’re being eaten up by the Tories.
Votes are political equity. They come with no guarantees, and this time they come with even fewer than usual.
There’s the candidate, with his silly manager, and his silly wife