house Prices and Rents and influencing the House Price Mechanism without taking
money away from people through interest rate rises and stamp duty
A discussion document by Bob Goodall
the Campaign to regulate House Prices and Rents
The rising Income and House price paradox; how more can turn into less
stories and commentators are now reporting how it is almost impossible to buy a
home without help from inherited money, larger mortgages, or by joining with
others to buy a property which are unfortunately all factors that also have the
negative effect of increasing the buying power in the market chasing the limited
supply of housing, and this pushes prices up even more, thereby reducing the
real benefits of this extra income available to purchase a property, wherever it
comes from. Hence ‘more really does become less’.
document may seem a bit long, I hope it might be of interest. Essentially it
looks at an an approach which might be used to tame house prices but
without the usual recourse to taking money away from people through interest
rates rises or through the effects of stamp duty.
www.housepricecontrol.org.uk have put forward what we believe to be some
positive and workable ways of reining in house prices and rents through and
wonder if you might be able to take a look at some of the suggestions we have
Land is limited in supply and therefore the price is set by the same supply and
demand factors as with any commodity.
May I ask if
you might be able to have a look at the following when you have time, at the
case we try to make that various forms of creative direct, or indirect
regulation could help keep down house prices by influencing the supply and
demand factors that relentlessly drive prices upwards?
I have a
background working in social housing and now campaign against the soaring costs
of house prices and rents. Prior to that I coordinated the Save Our Building
Societies campaign, in which I came across an interesting dilemma. Although
mutuals were able to offer lower cost mortgages to their customers the resulting
increase in buying power could help push up house prices even more, so that some
of the advantages gained by cheaper borrowing might be lost.
I have a
strong interest in Economics though I have to admit I did turn down the chance
to study it further and went to Art college instead, which seemed to hold more
interest for me at the time!
I hope the argument I’m trying to make for regulation as applied to the housing
market and the way prices are set might hold some merit. Perhaps it might mean
that my ideas are necessarily a little more creative and a little less
mainstream than they might otherwise be, but I believe they could work and that
direct and indirect regulation be used to rein in soaring house prices and
I tried to use
the recent EU ‘possible ban on ordinary light bulbs’ story as a hook for a
possible story on how regulation, or ‘enforced guidelines’ or the gentle turn on
the tiller by central Government can be helpful, just as too much of it can be
the opposite. And to try to get the media to debate how it can sometimes be a
more effective alternative to the traditional remedies employed by Government to
overcome a problem,
And then just
perhaps, whether such an approach might be applicable to the housing situation?
I hope the
following might be of interest
announced the possibility of a ban on ordinary light bulbs to save energy by
directly regulating consumer behaviour. A similar story was reported from
Australia on 21st February this year. Could we not learn from this?
and from the raft of existing levers that are already widely used across our
society to regulate whole areas of our lives, and from which we benefit greatly,
including direct intervention in different ways to help moderate the price
charged for a product or service, where the supply is limited, and is exceeded
This is surely
the case with housing, where demand exceeds supply, house price inflation
exceeds most people’s increases in salaries, and for some such in the public
sector who are virtually taking pay cuts, the situation is becoming almost
impossible -I nearly wrote unbearable.
percentage of salaries than ever before is now needed to pay for a home. This is
cutting deep into our standard of living; in fact we seem to be paying even more
for homes that are perhaps smaller in size than before. Who gains from this?
Isn’t it a case of the Emperors clothes, and should not someone be brave enough
to say at last that house price inflation is not a good sign indicating rising
prosperity in the nation, but is the reverse and in fact is downright harmful
and severely reduces our ‘real’ standard of living. A million pound house is
not any bigger than when it was perhaps bought for far less.
A house is
primarily a home not an investment contrary to what some would suggest, and in
the same way that most accept that the market must be regulated elsewhere where
supply is limited, and exceeded by demand and where the price mechanism would
otherwise work against the consumer, should we not at least start to consider
whether the same situation might apply in housing and if so whether there
might be other measures, apart from resorting to the same regimented
tramline response of higher interest rates or changes in stamp duty.
just be another way to ease this situation?
I campaign for
action against house price inflation because of the harm it does to our
community and the way it blights so many people’s lives.
might seem at first glance that today’s move by the EU could not possibly have
any bearing on how we might reduce house price inflation, or deal with a number
of other issues facing the government without resorting to the more traditional
tax or spend remedies I wonder if the following might change your mind?
Friday 9th March 2007 -
Union plan announced today involves:
A possible ban on filament light bulbs in
offices, street lights and private homes by the end of the decade
officials are working on a directive that would compel the use of modern
low-energy fluorescent light bulbs. It could come into force as early as next
Campaign for House
Our campaign would
like people to think more about the potential of regulation to influence
consumer behaviour and improve our standard of living, rather than taxation or
changes in interest rates.
In Australia a
simple regulation by the Prime Minister will in an instance save electricity and
might consider banning Trans fats and take more of interest in how fast food
is prepared and cooked, rather than banning the likes of McDonalds if such a
thing was ever suggested.
might give a real boost to our creative industries and our ingenuity if it
said to companies that for next Christmas there might be limitations on the
packaging that is used, ie by quantity or type (recyclable). If all
companies are put on a level playing field as their competitors they might
be agreeable to such a standard. As it stands a company might decide that it
is commercially worthwhile to substantially wrap a product for example where
a product is expensive to manufacture but looks insignificant because
perhaps it is small in size (an increasing feature of many products?)
Perhaps affecting the perception of its value by consumers and hence
influencing the price they are prepared to pay for it. Or use a lot of
packaging on any product where by doing this it can be sold for a far higher
To rein in house
prices the Government currently resorts to tools such as raising the interest
rate –-which also affects industry, and perhaps has more of an effect on the
less well off than the rich, or may have a devastating effect on those just
managing to pay the mortgage, who may even end up losing their home because the
interest rate has gone up. The Government may also employ stamp duty to
influence the market.
What I have in
mind is not about taking money away from people-
May I run 2 ideas
past you that might help people where the Government might use other measures
apart from interest rates or stamp duty to rein in prices. They involve
regulation, and it has being suggested to me that I might make more headway with
this campaign if I dropped the term ‘regulation’ from its title. But I’m a bit
obstinate and want to say what is on the tin.
Regulation is not
about taking money away from people. In any case the Government already do this
in the form of death duties and when people are required to sell their homes to
pay for nursing case. And the first at least fall more heavily on those least
equipped to seek or pay for advice to avoid it.
about slowing the relentless rate of increase in the price of houses, not about
taking money away from anyone, or cutting house prices. It is about reducing
potential house price increases in the future and is not about, and has never
being about acting retrospectively on the market.
example of direct regulation would be to re-introduce rent
controls of the type seen up to 1989.
This might mean
that renting property might once again become a viable option for people seeking
a home, rather than being seen as a waste of money. This might lead to a
reduction in demand for housing and hence prices. People might wait longer
before seeking to buy a house, as they would have a viable alternative and when
finally deciding to buy a house might be in a better position to afford it. This
might be linked to reintroducing the curbs such as 3 times income, so that
people live comfortably within their incomes again. This is a safeguard for
borrowers which seems to have being dropped by some lenders.
Since 1989 the
housing benefit bill has risen 4 fold to £12billion so rent controls might also
save a lot of public expenditure which could be used elsewhere.
Second home ownership reduces the number of homes available to first time
buyers. In regions such as Cornwall at one point 80% of house sales were to
people outside the county, making life impossible for local people wanting to
buy a home, particularly as local wage levels could not compete with those for
example paid in the south east.
consider using hotels again rather than buying a second home for occasional
One way to reduce
the demand for second homes might be to allow local authorities the right to set
very high council taxes for second properties.
High council taxes
on second properties to reduce demand and hence prices would be an example of
how indirect regulation could rein in house price inflation.
We should move to
a situation where all people would be given some assistance if
necessary to find a home. There are various ways this can be done and I would be
delighted to run them past you if you have time .Some are on our website. I
believe this can be done.
This would have
wider social consequences. For example single women for example might for
example find a home without needing something like pregnancy to come within the
statutory guidelines for help, so perhaps in some cases this really important
life choice might be made at a time when they more wanted or felt more ready for
Rowntree gave a presentation in 1996 which suggested an overall saving could be
made in government expenditure by reducing the housing benefit bill, if the
Government reverted to 100% start up grants for social housing schemes. It has
dropped to 50-60% to save money.
This can also be
used as an example of wider debate where by spending more initially the
Government can save money later as well as making it easier for people to work
and not rely on benefits)
limited in supply. We prefer to limit development through the green belt and
planning laws to protect our country from resembling the urban sprawl say of
Japan. However this example of regulation in the housing market, although
laudable further restricts supply hence prices are pushed up.
We need to also
consider other factors. Not all people’s salary levels are the same and we need
a wide range of people to make our society function. We seem to have
adopted an ostrich like position in terms of how large numbers of people are
expected to find a home. What are shop workers and people on the minimum wage
meant to do?
Some other facts as I see them
The term key
worker is an anachronism. I worked at one housing organisation administering
a key worker scheme where one employee said –what about us?!! Many different
types of people are needed to make a community work. Who pays the taxes that
pays the salaries of the sort of people usually suggested as key workers ie
‘nurses’ ‘teachers’ –the money is paid by ordinary people from shop workers
to office workers who also help keep our community functioning and they need
help finding a home too! Many may also be paid far less than those termed as
in areas with expensive areas will be the first to feel the effect of
rampant house price inflation when people doing the basic jobs in their
community are forced to leave the area to find a place to live themselves.
Other parts of
social policy unwrap as the elderly need to turn to the state to be looked
after when they might not have needed to in the past-the destructive effects
of house price inflation on our social fabric may have changed this where
for example the children who might have helped their aged parents before may
now have to move away to other parts of the country to afford a home
societies and efficient financial organisations help?
organisations because of their structure, or the hard work and efficiency of
their staff may be able to provide lower cost mortgages to borrowers, or
increasingly both partners may go out to work, but the financial advantages
gained from this can be lost or heavily reduced because this extra buying power
chasing a limited resource serves to push house prices up even more. Financial
organisations or individuals have no control over, or cannot regulate a market
and the way the price is set, nor should they be able to, but this is something
our elected government could seek to influence. They have it within their gift
to do far more to rein in house prices and rents than they are doing at present.
are illusory wealth?
The idea that
you are necessarily wealthy if you own an expensive house; is in reality,
illusory wealth? You may in many ways and by various indicators be actually
be less well off than you think you are.
Ie in terms of
social factors such as the quality of local services, possible shortages of key
workers and proximity of family members and friends and financial factors such
as higher insurance and council tax bills and higher costs for essential
services and people needed to maintain the property ie plumbers. The costs of
day to day requirements such as food and perhaps public transport may also be
higher, if in the latter case, they are available at all.
With buses as one
example, some elderly people for example may live in expensive areas where many
residents, perhaps the younger people who have recently moved in either have an
alternative in terms of their own transport or do not need a local bus service
at all, and this reduction in demand combined with a shortage of people to drive
the vehicles (or if people can be found, they may need to be paid more than in
low cost areas), can make running a local service less viable.
If labour is
brought in from abroad, these workers may themselves attempt to move to cheaper
housing areas as soon as they can, to afford a home, so this strategy to meet
labour shortages caused by high house prices may only in fact be a stop gap.
That the capital
in the house is only released on the sale of the property, and because of the
way the house price bubble has engulfed our nation that this is now even
difficult to do by moving to another part of the country, even if you wanted to
move away from family and friends to do so. Prices have increased everywhere,
and there is less house price differential by region than in the past.
The increase in
second home ownership, the increasing potential of new technology to allow
people to work from previously remote areas and the interest in investing in
property are some reasons that have helped increase prices faster in previously
low cost areas relative to the more expensive parts of the country, thereby
flattening the market.
aboard, if that is seen as an option, is starting to upset local people. I
think in certain cases buying overseas is unethical .In certain areas like
Brittany the local people are literally fighting back.
Other effects of
rising house prices
prices increase the cost of living and hence has a bearing on wages, People
may be paid more than ever before but this does not translate into higher
standards of living as the money is gobbled up by rising house prices.
House price regulation would I believe significantly ratchet up the real
standard of living of the people of this country
increasing income/ higher housing costs curve and how this could be reversed.
The cost of
housing affects the wages we need to earn to afford a home, but also affects the
price of every good and service we purchase by affecting the wages paid to those
making the product or providing the service. So that house price inflation may
have a far wider effect in increasing costs and reducing our standard of living
than we realise.
If the percentage
of income needed to pay for a home perhaps returned to earlier levels, we could
enjoy a higher standard of living relative to the salary we earn or expect to
We might even
achieve a situation where we could afford to take lower pay increases than
before helping our industry compete more effectively by price across the
world but by regulating our most basic necessity housing -so that this takes up
increasingly less of our income as a percentage , we could actually become
increasingly better off with falling increases in income. A captain of
At the moment we
have a catch22 situation. The more we earn the harder it is becoming to increase
our standard of living as this increase in income is not only used to meet
increasing housing costs but drives prices up even more! Regulating the price
of housing could be how we reverse this paradox.
Jobs can be
driven overseas where wages are lower because the cost of living is lower. A
significant factor behind the lower cost of living in other countries are
lower house prices. China is now seeing house price inflation, and this may
have a bearing on the increase in the cost of their products. There have
been calls in China for the control of house prices
A recent news
report featured concerns of people in Sri Lanka losing their jobs to India and
China. It would be interesting to compare the price of housing in these
countries and the UK with the export or retention of jobs.
If we make
savings in other parts of our economy; for example the price we now pay for
food has dropped, this can lead to more money becoming available for paying
for a home, hence increasing the buying power available in purchasing a
home. This means that this cost saving in the economy is lost as the market
adjusts to the resulting increase in income available to chase the limited
resource of housing, and house prices go up.
We gain with one
hand and lose with the other as increases in efficiency, productivity or cost
savings in our economy are snatched away by the untamed house price mechanism
driven by demand over supply. This is a regular and repeatedly seen feature of
the way the house price mechanism frustrates our efforts to increase our
standard of living.
spending a higher percentage of their income before on housing but there may
also be sections of the community who have now being left behind completely
and now have no hope of getting on the first rung of the housing ladder.
What are they to do? What incentive does this offer them for working for the
future if the housing market has being made impossible for them and there is
nothing they can do about it?
are putting off until much later to have children, if at all so there is
quite a major social consequence here.
Many of the
current initiatives to help people buy homes such as people clubbing together to
pay a mortgage, or parents paying their children’s mortgages have the effect of
increasing buying power chasing the limited supply of housing and hence will
push up prices.
There seems to be
a real concern about what will happen when this unwieldy pyramid falters. There
is an urgency verging on desperation to maintain the number of first time buyers
entering the market to maintain the level of the market, but the number of first
time buyers starting to fall.
response to those who feel the idea of regulating the market puts people off the
idea. This may in the end happen but the way it happens may be that policy
makers will do it but do not refer to the ‘R’ word - regulation as they do it.
I have written to
Michael Meacher about his property portfolio suggesting he might consider
selling his 9+ homes in recognition of how second home ownership helps drive up
house prices and makes it harder for first-time buyers, and to suggest that if
he were to set an example to the nation by doing this, he might also give a huge
boost to his campaign for leadership of the labour party. While resolving some
of unanswered questions about why he owns so many homes when he has already
acknowledged the harm caused by multiple home ownership, and to show where his
priorities would lie if he became leader.
acknowledged receipt of my email to him but so far he hasn’t replied.
Housing & regulation
The media seem
awash with programmes about making money out of property and the Government is
to introduce measures that will further inflate house price inflation and
encourage ownership of second homes. Local people particularly in areas
like Yorkshire find it nigh on impossible to purchase a first home.
"housing costs are directly linked to costs to industry as people have to
earn more if the cost of living rises, making UK industry less competitive."
people to variety of jobs, many of whom are vital but relatively poorly paid.
Such people cannot compete in an unregulated housing market against people from
outside who may be in much higher paid (though not necessarily as useful) jobs.
"Indirect measure might include higher council taxes for second
properties which would reduce demand, increasing the supply of houses which
would lead to a fall in prices.
We might consider the ethics of owning a second home and perhaps in time
the case could be made for a ban on owning more than one property."
as a free fiscal tool available to Government: 23.2.06
Background to the use of Regulation to help our communities
A couple of months
ago the news featured story on house prices and a Devon village where the
actions of the villagers to restrict purchase and re-purchase of the affordable
homes to local people is perhaps an act of regulation, which is a free fiscal
tool available to government.
And I think the
Exmoor National Park is considering something similar.
On a wider scale
regulation might be the way to control skyrocketing house price inflation.
Direct regulation on house prices might be difficult to introduce (although it
could be reintroduced in the rental market where it existed up to 1989) but
indirect levers on house prices might be more acceptable and could used to cool
And I feel in
light of recent government proposals to encourage investment in property as part
of pension provision it might be topical to not only warn of the disadvantages
of this but also of the great benefits our economy and society would get from
cooling the market through some form of regulation, direct and indirect.
The media has
been running with the housing market recently. One featured calls for an
interest rate cut to stimulate the housing market and mentioned the
controversial self-invested personal pension scheme that would see residential
properties been used as part of pension provision.
I think this is a
huge mistake not so much because of the lost revenue to the Exchequer but
because it will further inflate the housing market and housing costs are
directly linked to costs to industry as people have to earn more if the cost of
living rises, making UK industry less competitive. Essentially countries
overseas are increasingly able to undercut us because their cost of living is
much lower. And the biggest cost to anyone is the cost of providing a home.
Far from boosting
house prices the government should be trying to bring them under control. House
price inflation harms our economy and UK industry as well as harming the social
fabric of our communities.
funds would be boosted by a rising stock market and this could be achieved by
radically reining in house costs not the reverse. It seems the government is
pushing things the other way. Also if people were able to spend less on housing
it would boost consumer spending.
whatever any government does the whole pyramid like structure of over inflated
house prices will come crashing down ie they will run out of ideas or money to
sustain it although perhaps it will not occur on their watch.
It would also be
helpful for our economy and people’s pensions for the government to encourage
people to invest in industry not offer them attractive short-term alternatives
speculating in housing.
Regulation is both
an overused and underused free fiscal tool that the government has. Overused and
in some cases there is too much red tape. Various forms of token monitoring
required by government departments sometimes achieves less than it should and
can waste a lot of time while providing a misleading fig leaf of respectability,
suggesting sometimes consumers are content with something or are listened to
when in fact in reality they may not be and bad practice may be present
(ie an example of
this in housing may be the numerous so-called tenant participation initiatives
in social housing which give perhaps the illusion of a close working and
inclusive relationsip between tenants and social housing departments, when in
fact this might not be the case) . Another example can be badly designed report
forms which police have to complete and which can require hours to fill in,
thereby taking many police officers off the streets, (where perhaps these forms
need to be streamlined to achieve what is required with less time).
So any regulation
can carry a cost. It needs to be well designed and carefully thought out.
However there is
an ingenuity about regulation that in some cases can bring great benefits to the
already abounds, regulating the quality of food sold as just one example has
made the nation much healthier. It does not carry a financial cost to government
which I see as one of its strengths. Governments do not have to own the
factors of production but they can regulate them.
Just a few
examples of potential regulation to illustrate the point might be for example
around the issue of improving the protection of the environment.
If the government
regulated the amount of packaging a product could have, companies in theory
would be happy because they would be on the same level playing field as their
competitors. (Industry would need given a reasonable lead in to such changes).
They would invest more in their design teams to produce attractive packaging
based more on good design and ideas rather than sheer mass of packaging
material. This would save raw materials and save on disposal and landfills later
down the line.
might be recycling paper. There is some resistance to using it because recycled
paper can appear to be a bit muddy and less attractive to consumers. Say however
the government regulated that new printing dyes needed to be used that were
easier to wash out this would lead to cleaner recycled paper which would be more
Or if a 30year old
idea was brought back that plastic containers had to bio-degrade in time ie in
sunlight then this would also help our environment.
The whole concept
of how regulation could help the world might be something that could
fire readers imaginations. I’m sure the ideas are out there and they could
really develop and extend the concept and its application in their own areas of
life and expertise.
Regulation is as
old as the hills and can in this case I believe help tackle house price
inflation that is slowly strangling our communities and our economy.
There are a lot of
vested interests who will cry foul but in light of the new government proposals
to further inflate the housing market perhaps it is now time for an alternative
scenario for the future direction of the housing market price-wise to be
I hope this is of