Monday, Jul 16, 2007
Land supply and Planners to blame for housing woes
Daily Telegraph Online: Business comment: Bold Brown can open the door to a housing revolution
I am not advocating the position of the Daily Telegraph but I do find it interesting that the Business Comment focuses upon Land Supply and PLANNERS are the root source of today's housing woes, while acknowledging there are a range of second-order sources. I especially like "The result is that throughout the country, little Hitlers on planning committees inadvertently decide the fate of millions. Normal market pressures are suppressed. " Little HITLERs. This description matches my experiences!
The Comment was written by Roger Bootle - a person who clearly doesn't know about markets then. (This is "Tongue in Cheek" for the sarcastically challanged reader)
Posted by talking rot @ 05:53 AM (153 views) Add Comment
13 Comments
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1. George Sore Ass said...
I would disagree that planning is the major cause of problems, because countries without a perceived problem there have had similar bubbles in house prices. Take the USA... they had a bubble, but they had plenty of land being zoned for building - big country with plenty of space. Ditto Australia. Same with Dubai where I'm living. Buildings going up everywhere, but still price bubble.
No, the primary problem is cheap borrowing driving a speculative boom. The money is cheap, a few realise they can make some profit by borrowing cheap money and buying property to rent out. This edges prices up and since IRs are so low, savings are earning squat so more savings money is pulled out, a load more is borrowed at cheap rates and more property is bought. At this point, it does not matter how much you build. You can cover the whole place in cranes and it still will not be enough. The market is in speculative meltdown.
Was there a shortage of dotcom companies delivering petfood? Was there a shortage of tulips? Nope. There are plenty of empty properties in the UK. The issue is ownership, not occupation of them. If interest rates had stayed at the point where housing was a neutral investment (appreciating 3-5% per year with mortgage costs similar or slightly less than renting), there would be no bubble. Cheap money fuelled the boom, and the disappearance of cheap money will fuel the crash.
Planning may be a contributory factor, but a minor one. Countries with rampant building and lots of land have still seen similar bubbles, so it seems more logical to conclude that whatever the primary factor in the bubble is, it is present in those other countries too.
2. planning4acrash said...
Normal market pressures can result in ludicrous alterations in townscape. The beautiful countryside bricked over, only to be unpopular after the boom, the offices turned into flats, with no employment after the boom, supermarkets and shopping malls out of town that decimate city centres. Little Hitlers! That's kind of funny. Is Mr Bottle aware that planning policies take a couple of years to formalise? With builders, locals and central government making sure that they are sound?! Problem is, that developers can be like yeast, left to market forces, you would find all city centre shops and offices turned into flats, shopping moved into out of town malls, like, hey, that's exactly what happens in America and parts of Australia, where planning is more market driven! Sure, lets have a debate about Greenbelt, some restrictions are too inflexible, but this free market nonsense is rubbish, Talking Rot, given that you hate BTL'rs so much, why would you think that cities determined by their greed would be any better?! Because at the top of the market it is they who determine market forces!
3. talking rot said...
Planning4acrash
I don't hate BTL-ers so much. I think they are misguided and have played a part to play in today's housing woes, but I don't hate them. I think they will be in for an unpleasent shock when the dreams of acquiring wealth are not realised. But then, amateurs who play on the stock market face the same fate. And the housing market ahs become a speculative market, just like the stock market.
The point of the article is clear. Land supply and conservative (small c) planning policies are a hindrance to housing supply. So Gordon Brown will not be able to increase the supply of housing until he tackles those root issues. Once he has, let free market forces decide the quality and quantity of housing stock.
If you think free markets are a bad thing, please go and live in a place where markets are state controlled. I'm sure Iran and China would welcome you!
4. japanese uncle said...
If you want to know what could have become of the British urban/rural landscape, had it not been the rigorous planning, just fly to Japan, where the once renowned beautiful countryside is full of monoliths of tower blocks and unsightly advertisements. The shortest cut to stabilizing housing market is, to prevent the central banks (throughout the world) from destablizing money market by manipulating IR, just to serve the interests of those who can manuevre and benefit from the violent fluctuations. Remember, house price is the function of liquidity, period.
5. royston said...
Contrary to what some have said, it IS all about supply and demand!
This article shows how housing supply has been restricted. While at the same time, demand has mushroomed because of lax lending / securitisation and the BTL-pension phenomenon, as we are already well aware.
6. royston said...
And now the Shifty Scotsman seems intent on making housing a central issue. I know his motivation is a self-serving political one. However, it may have the effect of putting pressure on the "little Hitlers" and so loosen up supply. At the same time, the easy-credit-pipeline is breaking down, which will suppress demand. There is a possibility of recession on the horizon, which a housing market slump would exacerbate. Anyone care to make a forecast for UK house prices 2-years or 5-years out? You would really have your work cut out to defend a bullish view, now!
7. cyril said...
What a load of cobblers this article is. The housebuilding industry is hopeless, just like all of our manufacturing industries, which have largely disappeared thanks to foreign competition. Without any competeition the building industry has no reason to improve, and both the housebuyer and the quality of the environment suffer as a result. If you look at the statistics, all forms of performance in bulding are poor. Quality, cost, design, everything. Well said Japanese Uncle.
8. Rickyb said...
You would think that it is all about supply and demand, but I don't believe that history suggests that this is the case. I don't remember the house price falls of the 1990's being the result of a sudden glut in property supply.
9. monty said...
Rickyb
That's why it's called supply AND demand. Demand falls when there are fewer buyers in the market. In 1990 this was due to higher interest rates IIRC. The supply can stagnate, or even decrease as people pull properties off a market in free-fall but if demand decreases faster the outcome is obvious.
Always nice to see some rational debate about supply and demand though.
10. Exile said...
of course its cheap money that has fueled the HP frenzy soras is dead right, but surely its clear as day becomes night had they not taken housing off the cpi interest would obiously have had to rise so steming house prices, the labour did this simply to increase their revenues, a socialist party would believe condemning the young to a life of debt.
11. wage slave said...
I reckon all this extra 250,000 homes is a smokescreen anyway.
Gordon's problem is that the key swing voters (C2s or whatever they're known as) that he needs to vote for him are having affordability problems. Or their kids are. He knows that we're in a housing bubble and that a correction or crash is the only way to sort this affordability out but he also knows it'll take his 'miracle' economy out with it.
So he needs to be seen to be tackling the problem to make people feel like he's doing something, while at the same time not rocking the housing market boat and hence the economy.
So all he's actually saying is that a few extra homes will be along sometime in the future. Whether they do or not doesn't matter because he will be long gone by then anyway.
12. planning4acrash said...
Talking Rot, house builders have hundreds of thousands of extant planning consents that they are banking away for a rainy day. The top 10 house builders have enough to provide three years of the government's targets for building for the whole country, from Royal Town Planning Institute research, they simply aren't willing to bring forward the development. And, oh, by the way, should you wish to live in a neo-liberalist economy, be my guest and move to American Suburbia where you can live in stale suburbs and see nothing but your rear yard and a shopping mall and out of town office development at a motorway intersection.
I never called for communism, our planning system invloves developers in identifying suitable land, which is allocated through the development plan process. Councils have a duty to provide enough land to meet a specific number of years of supply, but developers don't take up the challenge. We live in a mixed economy where state gets involved when markets don't function properly, the development market is not perfect because of the short-termism of developers and purchasers such as BTL'rs who do not care about sustainability or social and environmental issues, because these issues are external to the development decision. If you believe in Adam Smith, and free markets, then you will recognise that a perfect market requires perfect information, etc to function properly. Without a planning system to bring community needs, environmental and social issues into the process it would malfunction and the market would fail to provide the needs of the community, i.e. the very people that have housing needs that the development market aims to satisfy and you would be in the peverse situation of letting the market fail to development meet the needs of the consumer market. We had that system and it failed us, in the Victorian times it created nice suburbs for wealthy people and slums for the poor, which needed clearance in retrospect. Communism doesn't work, but neither do uncontrolled free markets. The greatest example is global warming, these long term environmental issues are external to the free market because the costs can be discounted over the period of hundreds of years so are irrelevant to industrial investment decisions made today without market interventions from government. The market needs government and government needs markets. This is the third way, people are sick and tired of the yo-yo politics between left and right, what we need is to move forward and discuss the settlement between government and markets, arguing for one side or the other is simplistic nonsense.
13. planning4acrash said...
What I am suggesting, TR, is that a debate about the mechanics and balance of the development plan process, a debate about the development control process and the strength of designations like Greenbelt, is a positive move, blaming planning for all the ills of society and calling for it to be dismantled is nonsense, and, academically, a waste of time, because the system has been around since the 1940's and will outlive you. So lets get some positive debate please! I believe in radicalism, but not in anarchism to the point of destroying the mechanisms of civil society. The American's did that in Iraq and look at what happened there! If we lost the planning system tonight, we would get the equivant, in development terms, as what happened with the looting just after the fall of Saddam. You would have all the best sites cherry picked by agressive developers, with terrible developments that devalued surrounding properties, meeting the needs of BTL's and wealthy upper middle classes, leaving us in a situation where the majority are stuffed, with an even worse housing crisis than before.