Debate Magazine

Allister Heath's Disappearing Homes Conundrum

Posted on the 02 May 2014 by Markwadsworth @Mark_Wadsworth
From City AM[The Labour Party] knows that landlords are hated – and blamed for pushing up house prices – just like bankers and energy suppliers, so its proposals [to try and cap rent increases] will be popular, even though they will merely exacerbate the problem.  Anything that cuts the returns to providing rented accommodation, or increases the inherent risks (by making contracts harder to end) will make marginal producers less viable and reduce supply.  Given that the buy to let bubble will probably burst when rates go up, this policy will reduce the supply of rentable properties, push up rents and may increase homelessness.  ???? He's playing the "disappearing homes" card, just like he always does when somebody suggests any policy or tax change which might harm the Home-Owner-Ist cartel (landlords and bankers).  If landlords exit the market because rents are low, there'll be more homes for people to buy. So house prices will go down. If rents go up as a result of rents being reduced (I'm not kidding - he actually says this) then landlords will come back into the market etc.  Any tenant who can afford to pay rent will never end up homeless, he'll continue renting or he will buy one of the homes which landlords might sell. Rent controls are clearly a second-best policy, but they "work". That is because houses sell for the capitalised value of the rents, so cap the rents and you cap house prices. As long as that capitalised value is more than the construction costs, it is no disincentive to build more houses.  And the "return on capital", i.e. rental income expressed as a percentage of the selling price of a house, stays constant anyway. A £100,000 house with a rental value of £5,000 is just as good an investment as a £1,000,000 house with a rental value of £50,000. So if the rent for the latter house is capped at £5,000, its selling price falls to £100,000 but it is still no better or worse an investment than it was before.  The idiot refers to the 1930s as an example of good housing policy, when we were building three times as many houses as now. As a Faux Lib, he glosses over the fact that at the time we had had rent controls, Domestic Rates (quasi-LVT) and sensible lending rules, all of which he would dismiss as "dangerous government intervention".  I tell you, what he doesn't know about economics is well worth knowing.

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