10 October 2010

What Is The Housing Crisis?

When house prices spiral out of the reach of the average family, they call it a housing crisis, now there are signs of price slippage, the message is similar. Tails, they win, heads, we lose. Some commentators appear to place the blame firmly with the Great British Public castigating our apparent obsession with owning a home for our ills, (See Note below) but I don't agree.

The housing crisis isn't about the level of house prices, significant as that is for aspiring and actual home-owners, but rather the housing shortage. The most relevant symptom of the UK housing crisis is the 5 million people on the council house waiting list. This is a record and a friend of mine who is in the sector tells me that many of these people will never get to the top of this particular 'waiting list'. Please don't go away with the idea that I am advocating a massive council house-building programme. Surveys show that most people would like to live in their own homes so what is the point of spending money we don't have, on things people don't want.

Instead, reflect on the incentives created by our current system of property taxes. In my apartment block of 20 flats, I reckon we spend £25,000 a year on council tax. If a similar-sized plot next door was derelict scrub, it would not attract any taxes. Seems strange that land put to productive use is highly taxed, but that in relative terms, owners of semi-abandoned land are rewarded. But this is just one feature of a British property tax system which penalises built property (council tax, rates, VAT etc) and property transactions (capital gains, stamp duty and inheritance tax).

Let us the consider the relative outcomes that arise from different ways of organising taxes on properties.

Taxes On Built Property - Taxes On Land

Housing Shortages - No Housing Shortages

Unaffordable Housing - Affordable Housing

Narrow Property Ownership - Wide Property Ownership

Poverty Trap - Incentives To Progress

Sclerotic Property Market - Dynamic Property Market

What's not to like?

Note re British obsession with owning a house - 1. I don't detect a relative lack of appetite in other countries to own a home 2. For a family the alternative to owning a home is living on a council state or depending on a private landlord. Neither is an appetising prospect.


Mark Wadsworth said...


Over the years I have got more and more rabid about this and have come to the conclusion that the way forward is to replace ALL taxes (income tax, VAT, council tax, the lot) with LVT of between £40 (not so nice/cheap areas) and £100 (the ninth decile in terms of niceness/expensive areas) and going up to about £1,000 in central London) and have done with it.

And reduce govt spending by at least a quarter as well and deal with most stuff via a Citizen's Income or Health/Education vouchers.

Lola said...

Yep, on the money. Some of the 'council house shortage' is caused by housing people who shouldn't be housed at our expense. I now that what I am now going to say is the standard categorisation of the undeserving, but I have personal information about a small number of deliberately single mums who became single mums deliberately to get their own place. In the instances I know of the parents of the single mums could provide accommodation, but the Council is obliged to house them. Therefore the deliberate single mumness is a rational response to a bizarre benefits system. THis just clutters up the available council housing for perhaps more deserving applicants.