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In December 2017 Daniel Bentley at Civitas published a short book, The Land Question, which is available for free as a pdf on the Civitas website (link).

A lot of my posting over the last three years has been a protracted (and presumably largely ineffectual) attempt to wind up the PovertyLaters. One of the things that irks the PovertyLaters is that they imagine themselves being blamed for high house prices. The question of who is to blame for high house prices can be separated from the question of who benefits from high house prices. One of the groups of people who benefit hugely from high house prices but don't get a lot of attention are those who own land.

Posters here have long noted that one group of landowners (who don't always see themselves in those terms) are mortgaged owner-occupiers or people who own their own home outright and as such are thus the beneficiaries of policies and structures which drive up and sustain high house prices; buy-to-let investors are almost invariably a subset of this group who've borrowed some more money and gone a little harder into the market for land.

Another group who are much more important in terms of the addition to the supply of houses are 'people' (including legal persons such as companies and trusts) who own land, with or without planning permission, onto which new houses could in theory be built.

The heart of Bentley's argument is that the developer might get a lot of stick for the rate at which they build out but the main beneficiaries when new homes are built are the landowners who sold the developers the land. Landowners sell to the highest bidder, the highest bidder's bid is premised on the assumption that they will build out only at a rate which allows house prices in the area to remain at the price levels which informed the original bid. Bentley argues that we need a "rewiring of the incentives for landowners" to "prevent hoarding and douse speculation". A briefer roundup of Bentley's views on the problem with the UK's "market-led housing supply" (and its links to the ridiculous Help to Buy schemes) is also presented in this article; Market-led housing supply and the lure of demand stimulants in the UK.

For as long as the price of land is anchored to current prices the rate at which houses are supplied will support current prices; if society genuinely wants cheaper housing then the we need to make significant changes to how land is converted to residential use.

Edited by Jurassic Bland

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Removing all agri subs will be the first step.

I remember someone on an FT comment saying his office in Cambridge  full of highly trained employees, living in tiny bedsits, looks over fields that they sub the farmer to farm.

Cornlaws v2.

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It's the landowner and developer, assuming they're different parties. Bentley does a pretty good job of exploring the supply issues - which are fundamentally down to demand and real optionality, as he says: "exercise 'their options to delay the sale of their sites'"

This is why ideas like expecting higher private build-out rates and lower prices from planning relaxation or greenbelt development are potentially dangerous thinking. Planning determines what can be built where not the overall supply rate, and Greenbelt land like all land is owned by someone. Outcomes would be different for public housing builds on public land, but that's not where we are today.

This post and others at the blog perhaps explain it better:
https://www.fresheconomicthinking.com/2018/04/delay-or-develop-what-really-determines.html

Edited by guest_northshore

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2 hours ago, Jurassic Bland said:

The heart of Bentley's argument is that the developer might get a lot of stick for the rate at which they build out but the main beneficiaries when new homes are built are the landowners who sold the developers the land. Landowners sell to the highest bidder, the highest bidder's bid is premised on the assumption that they will build out only at a rate which allows house prices in the area to remain at the price levels which informed the original bid. Bentley argues that we need a "rewiring of the incentives for landowners" to "prevent hoarding and douse speculation". A briefer roundup of Bentley's views on the problem with the UK's "market-led housing supply" (and its links to the ridiculous Help to Buy schemes) is also presented in this article; Market-led housing supply and the lure of demand stimulants in the UK.

Some good stuff in there about the role of credit in setting those prices as well:

Quote

With the partial return to market-led housing supply since the 1970s (still roughly 20 per cent of new homes have been subsidised for most of this time), there has been one major difference with the pre1914 period: the steady amplification of demand over a long period of time. Because the supply of new homes is so dependent on the buoyancy of the market, successive governments have welcomed increases in purchasing power that provide a fillip to housebuilding output – despite the fact that higher levels of demand are quickly priced into future house (and land) values, so the benefit in raising output levels is a short-term one which only raises the affordability bar for buyers in the medium to long term. Once introduced, each new demand stimulant must then be maintained and, if the goal is to increase market-led housing construction without resort to direct public subsidies, then the political pressure builds for a further stimulant, and so on. This process has not always been by design or with direct reference to the housing market, but the effect has been no less for that.

Of all of these stimulants, the liberalisation of the credit market since the 1970s has been by far the most significant. In an incremental process starting in 1971 with Competition and Credit Control (or ‘all competition and no control’ as it was quickly dubbed), quantitative ceilings on lending were removed, the mortgage market was thrown open to the banks and the building societies were demutualised, abandoning their previously conservative lending practices along the way. It is difficult to overstate the significance of the shift in housing finance during this period, from a system in which mortgage lending was limited to the sums that had been deposited in building societies by savers, to one in which mortgage lending was provided by banks whose ability to generate credit is technically limitless. Borrowing to fund house purchases had been, until the 1970s, restricted to what had been earned in the economy already and withdrawn from consumption; since then, it has been limited only by the banks’ confidence in lenders’ ability to repay loans out of future incomes.

This fundamental shift in housing finance was joined by innovations such as higher loan-to-value lending from the 1980s and, from the early 1990s, a sharp decline in interest rates, the principal tool available to the Bank of England to control lending, and so prices. The irony of the most recent house price boom, starting in the 1990s, was that it was in part the product of a policy of inflation targeting and the pursuit of price stability, which was to be achieved by raising or lowering interest rates as a way of influencing new borrowing in the economy. But asset prices, including house prices, were not included in the inflation target, and so while the purchase price of a home drifted away from average earnings, interest rates were kept low, mortgage borrowing continued to grow and house prices increased still further. In all, mortgage lending increased seven-fold, in real terms, between 1970 and 2007 (Figure 2), setting up what Offer (2013) calls the ‘property windfall economy’.

A significant portion of this borrowing was undertaken by a new generation of landlord-investors following the deregulation of the private rented sector at the end of the 1980s. Many of these were taking advantage of new buy-to-let mortgages, introduced for the first time in 1996, and were lured by the prospect of increasingly lucrative capital gains in a housing market that only ever seemed to rise. By 2011 there were 1.39 million buy-to-let mortgages outstanding, worth a combined £159 billion; twenty years earlier these mortgages did not even exist. Between 2001 and 2014/15 the number of homes owned by private landlords in England more than doubled, from 1.9 million to 4.3 million.

This financialisation of housing met with very little resistance for many years, given that it increased house prices for those who had purchased homes already, a large voting bloc. But for future generations it has increased the amount of debt they need to take on in order to make their own purchases. It has also driven land prices to levels that are a barrier to entry to smaller builders, reducing competition and diversity of provision from the construction sector, while also increasing the risks for volume builders, and so reinforcing cautious behaviour.

From ONS figures on population estimates and dwellings by tenure in Great Britain we appear to have gone from somewhere around 0.35 dwellings per capita (2.89 people per dwelling) in 1971 to 0.43 dwellings per capita (2.30 people per dwelling) in 2016, so to me it seems that this (below) matters in-and-of-itself, not as a barrier to house-building volumes:

3 hours ago, Jurassic Bland said:

For as long as the price of land is anchored to current prices the rate at which houses are supplied will support current prices; if society genuinely wants cheaper housing then the we need to make significant changes to how land is converted to residential use.

If the problem is that housing is unaffordable but not in particularly short supply then a fall in prices which might limit the rate at which new supply is added - and might eventually allow smaller builders to enter the market, and encourage a greater focus on building for the needs of owner occupiers instead of speculative investors - is not really a problem at all; but relying on companies which only profit if prices remain high to actively create the conditions for that fall in prices is.

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43 minutes ago, guest_northshore said:

This post and others at the blog perhaps explain it better:
https://www.fresheconomicthinking.com/2018/04/delay-or-develop-what-really-determines.html

I'd argue that Bentley's case is that we need to reframe the "real optionality" that landowners currently enjoy (in terms of having the option to seek the hope value of the land). Your link explains the real optionality of the status quo in more detail than Bentley offers but Bentley doesn't venture into the woods of real options because he is promoting another way in which the law of land could be written.

Land could be purchased using compulsory purchase orders so that either private house builders could sell at prices that median income first-time buyers could afford or social rent housing providers could finance builds that were ultimately underwritten by rents that were genuinely affordable (if you deny landowners the hope value that the law currently guarantee).

I'd argue that Bentley wants to alter the value the land commands under a real option analysis by changing the law. If you can't hang on in the hope of collecting the hope value (no pun intended) then you need to reprice your option to reflect how the law has changed.

Edited by Jurassic Bland

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1 hour ago, crazypabs said:

don't forget  about those developers who land bank for years until they can eek out the maximum expected profit?

I think its often a crafty tax dodge - going to have a large profit this year? Just spend it all on land until your tax bill for the year is 50p

Then if in a few years time the company hits a rough patch - sell some land to stop the balance sheet from dipping into the red.

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4 minutes ago, Habeas Domus said:

I think its often a crafty tax dodge - going to have a large profit this year? Just spend it all on land until your tax bill for the year is 50p

Then if in a few years time the company hits a rough patch - sell some land to stop the balance sheet from dipping into the red.

(Emphasis added)

Can you talk me through the T-accounts on that? My first pass would be Dr Current Assets, Cr Cash. Isn't it all balance sheet? How is it supposed to hit the P&L in the accounting period?

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8 hours ago, Jurassic Bland said:

(Emphasis added)

Can you talk me through the T-accounts on that? My first pass would be Dr Current Assets, Cr Cash. Isn't it all balance sheet? How is it supposed to hit the P&L in the accounting period? 



My expectation would be

Dr Land (Fixed Asset) Cr Cash/Bank

They can revalue the land in accordance with IAS16 up or down, i.e. increase in Land Market Value:

Dr Land (Fixed Asset) Revaluation Res Cr PnL

or Down

Dr PnL Cr Land BS Revaluation Res

or they could use IAS 11 superseeded by IFRS15 to value the land based on a construction contract and the WIP. Take your pick, lots of opportunity to massage some PnL into different periods for maximum tax efficiency.

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11 hours ago, crazypabs said:

don't forget  about those developers who land bank for years until they can eek out the maximum expected profit?

Very much like a bank, earning accrued interest compounding.......store of growing value.😉

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12 hours ago, spyguy said:

Removing all agri subs will be the first step.

Yes. Indisputable.

11 hours ago, crazypabs said:

developers who land bank for years until they can eek out the maximum expected profit

Purely and utterly, 100% and only a result of State-forced low interest rates + State-enforced planning permission. 

Utterly impossible in a free market with interest rates at 7%+

9 hours ago, Jurassic Bland said:

Land could be purchased using compulsory purchase orders

Fascism. Are you naive enough to think that the politically well-connected won't use that to steal people's honest living at fire sale prices? Don't bother to invoke "hurrrr we'll make the politicians honest". That is a mentally-handicapped child's fantasy.

 

If you want to solve this problem, there are 3 essential steps.

1. End farm subsidies

2. Abolish planning permission

3. End the government's ability to set interest rates

 

The problem is entirely caused by State interference. The solution is not more State interference.

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10 hours ago, Jurassic Bland said:

I'd argue that Bentley's case is that we need to reframe the "real optionality" that landowners currently enjoy (in terms of having the option to seek the hope value of the land). Your link explains the real optionality of the status quo in more detail than Bentley offers but Bentley doesn't venture into the woods of real options because he is promoting another way in which the law of land could be written.

Land could be purchased using compulsory purchase orders so that either private house builders could sell at prices that median income first-time buyers could afford or social rent housing providers could finance builds that were ultimately underwritten by rents that were genuinely affordable (if you deny landowners the hope value that the law currently guarantee).

I'd argue that Bentley wants to alter the value the land commands under a real option analysis by changing the law. If you can't hang on in the hope of collecting the hope value (no pun intended) then you need to reprice your option to reflect how the law has changed.

Yes his supply perspective amounts to the same thing but reframed as solutions to social and policy failure, rather than explanation of the economic/monopoly problem or power mechanism origin. This is reasonable when considering he works for a think tank that has to tread slowly to promote change + its own continuity.

i.e. More future uncertainty = greater future optionality added to landowners' rights = higher present value and power. A policy such as compulsory purchase (or other restrictions or taxation) would remove future landowner options, reduce incentives to delay sales/builds, and lower the present value.

I'd guess he knows that even compulsory purchase wouldn't increase net supply rates - unless it's to build public housing for rent, build public housing for sale but retaining ownership of the underlying land (like Singapore), or we break the link between those speculating on land prices and those actually building houses (e.g. via ongoing land value capture).

But that doesn't necessarily matter if the problem is mostly about price demand, tenure and expectations of future optionality and discounted present value.

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14 hours ago, spyguy said:

Removing all agri subs will be the first step.

I remember someone on an FT comment saying his office in Cambridge  full of highly trained employees, living in tiny bedsits, looks over fields that they sub the farmer to farm.

Cornlaws v2.

At least the farmer gives them food.  I used to live in a crowded flat, a few roads away a friend who is a pro single parent was living in a nice house which the tax payer (including me) subsidized 100% to live there.

(I am sure someone will come along and defend the practice or say some platitudes about it).

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1 hour ago, Locke said:

If you want to solve this problem, there are 3 essential steps.

1. End farm subsidies

2. Abolish planning permission

3. End the government's ability to set interest rates

 

The problem is entirely caused by State interference. The solution is not more State interference.

Agree 100% ...... but what about money creation ..... who creates it? ..... and what should the rate of money creation be?

This, IMHO, goes to all the ills of the world. I don't have the answer  but this money creation issue IS the right question.

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8 minutes ago, iamnumerate said:

At least the farmer gives them food.  I used to live in a crowded flat, a few roads away a friend who is a pro single parent was living in a nice house which the tax payer (including me) subsidized 100% to live there.

(I am sure someone will come along and defend the practice or say some platitudes about it).

yes, but some argue she is 'providing' children .....  they are our fewcha y' know..... sigh.

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1 hour ago, Locke said:

 

If you want to solve this problem, there are 3 essential steps.

1. End farm subsidies

2. Abolish planning permission

3. End the government's ability to set interest rates

 

The problem is entirely caused by State interference. The solution is not more State interference.

Looking at housing benefit would help as well.

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11 minutes ago, iamnumerate said:

At least the farmer gives them food.  I used to live in a crowded flat, a few roads away a friend who is a pro single parent was living in a nice house which the tax payer (including me) subsidized 100% to live there.

(I am sure someone will come along and defend the practice or say some platitudes about it).

Ha!

I think the field commented on was maize, going straight to an anaerobic digester to generate subbed power ....

Where I am, its sheep. It would be cheaper to grow pineapples in a heated greenhouse.

At least therre's more people who eat pineapple than mutton.

 

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1 minute ago, cnick said:

yes, but some argue she is 'providing' children .....  they are our fewcha y' know..... sigh.

I think you are playing devils advocate.

We could import immigrants - as in this case she is an immigrant then it would have the same result - just a lot cheaper.

Also when we don't subsidize pro single parents we had more children, so it does not seem to help increase our population (even if we wanted to, which I don't).

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2 hours ago, crazypabs said:

My expectation would be

Dr Land (Fixed Asset) Cr Cash/Bank

They can revalue the land in accordance with IAS16 up or down, i.e. increase in Land Market Value:

Dr Land (Fixed Asset) Revaluation Res Cr PnL

or Down

Dr PnL Cr Land BS Revaluation Res

or they could use IAS 11 superseeded by IFRS15 to value the land based on a construction contract and the WIP. Take your pick, lots of opportunity to massage some PnL into different periods for maximum tax efficiency.

Adjustments up or down in the fair value of investment property (including land for development) create neither a taxable charge or deduction. 

In the uk the accounting treatment is independent of the tax treatment so the application of accounting standards isn't relevant. 

You can't dodge tax by buying land for development. 

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1 hour ago, cnick said:

but what about money creation ..... who creates it? ..... and what should the rate of money creation be?

Whoever wants to.

Almost everyone is stuck in this paradigm of "Oh someone has to use violence to enforce the use of money" but this is Statist propaganda.

For millenia, physical things with value were currency, and it worked perfectly well. Gold, silver & copper happened to be the most convenient for a long time, because they are rare and hard to fake.

Paper money is just a receipt of value and is "gold-backed" when a unit of currency can physically be traded in for a set amount of gold. Perhaps in the future, money will bit crypto based, if people choose to trust that rather than precious metals.

 

The natural order is that there are competing currencies, such as gold, fiat, silver, seashells etc and the one which people like the most has the most value and market share. Silver and gold actually compete against each other as currencies.

 

The very idea of "legal tender" is disgusting and evil.

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1 hour ago, iamnumerate said:

Looking at housing benefit would help as well.

Yes, but it's a vanishingly small contribution to house prices that those 3 steps would cure 95% of the overvaluations.

Plus, if the government couldn't set interest rates at the point of a gun, they would quickly run out of cash to run these evil schemes.

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2 hours ago, Locke said:

Whoever wants to.

Almost everyone is stuck in this paradigm of "Oh someone has to use violence to enforce the use of money" but this is Statist propaganda.

For millenia, physical things with value were currency, and it worked perfectly well. Gold, silver & copper happened to be the most convenient for a long time, because they are rare and hard to fake.

Paper money is just a receipt of value and is "gold-backed" when a unit of currency can physically be traded in for a set amount of gold. Perhaps in the future, money will bit crypto based, if people choose to trust that rather than precious metals.

 

The natural order is that there are competing currencies, such as gold, fiat, silver, seashells etc and the one which people like the most has the most value and market share. Silver and gold actually compete against each other as currencies.

 

The very idea of "legal tender" is disgusting and evil.

A barter economy? Gold as money? Seashells?

What flaring nonsense.

 

 

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8 minutes ago, zugzwang said:

A barter economy? Gold as money? Seashells?

What flaring nonsense.

Pilpul. 

2 hours ago, Locke said:

such as

 

2 hours ago, Locke said:

the one which people like the most has the most value and market share

 

2 hours ago, Locke said:

Perhaps in the future, money will bit crypto based

 

2 hours ago, Locke said:

Gold, silver & copper happened to be the most convenient for a long time

 

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On 19/06/2018 at 22:17, crazypabs said:

don't forget  about those developers who land bank for years until they can eek out the maximum expected profit?

Piece in The Telegraph yesterday which touches on the conclusion that the Letwin review reached on this issue:

Quote

The only “land banking” that does exist, he has concluded, is as a result the "absorption rate", which sees builders sell new properties over a longer period of time because putting a large number of similar homes onto the market at the same time was depressing prices.

Source: Greater variety of homes needed to solve housing crisis, says Oliver Letwin, Telegraph, 23 June 2018

Edited by Jurassic Bland

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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