Simon Jenkins is quite wrong about the housing crisis

Simon Jenkins says that there is no housing crisis, and lists 11 ‘myths’ that have misled people into thinking there is. I usually really like Jenkins’s pieces, but I think almost all of his rebuttals of these ‘myths’ are wrong:

1. That there is a housing “crisis”. There is none. Too many people cannot find the house they want in London and the south-east, which is where most politicians and commentators live. …Average prices in London may be £500,000, but in the north-west and north-east of England they are £150,000.

There are even cheaper houses in the Scottish Highlands, Spain and Bulgaria. The point is that London and the south east are not just where ‘most politicians and commentators’ live, they’re where most of the best jobs are being created, and hence where people want to live — from 2007 to 2011, “London’s economy (GVA) grew by a nominal 12.4% compared to between 2.3% and 6.8% across other UK regions.” There’s a good case for trying to rebalance but for now it’s easier to build houses where the jobs are than move the jobs to where the houses are.

2. That an average is a minimum. It is not. Housing hysteria is based on averages. When someone asks “How can I possibly afford £500,000?”, the answer is: you cannot, but somebody presumably can. But go on Zoopla and there are houses in parts of London for £180,000. Even the poorest newcomers seem to find somewhere (usually private) to rent.

The problem here is that the average house is not affordable for the average earner. So the cheapest houses Jenkins can find in London go for £180,000 (actually, I’m not sure this is true because I can’t find any on Zoopla) – where does that leave people on the lowest salaries? So ‘the poorest newcomers seem to find somewhere (usually private) to rent’ – never mind if those places are squalid, far from work and cost half those people’s incomes, eh?

3. That there is a national “need” for 250,000 new houses a year. … Housing need implies homelessness. It should refer to the 60,000 people currently in temporary accommodation, who ought to be the chief focus of policy attention. All else is “demand”.

The 250,000 new houses a year figure is based on the number of new houses needed to stabilise affordability. True enough, people’s wish to have more in their lives than food and shelter – a bit of disposable income for themselves or their kids – is ‘demand’, not ‘need’. They won’t die if they don’t have it, they’ll just have worse lives.

4. That the solution to house prices lies in building more new houses. …The chief determinant of house prices is the state of the market in existing property and the cost of finance. During the sub-prime period, prices soared in America and Australia despite unrestricted new building. It was cheap money that did the damage. The house-builders lobby equates housing to “new build” because that is where their interest lies.

No doubt interest rates have an impact on the price of houses, as with any investment good. Simon Wren-Lewis explains why here. But think of interest rates and housing supply as two blades of a scissors: the only reason houses are an investment good rather than a simple consumer good is because the supply is so inelastic. There is no investment market in TVs or cars because the supply of these things responds to changes in demand for them.

The story Jenkins gives of the US housing bubble is a popular one but isn’t well supported by the evidence. Jenkins is extraordinarily ignorant if he thinks that building was or is ‘unrestricted’ in the US – planning controls mean that US GDP may be 13.5% lower than it would otherwise be. Houston, Texas, which (in)famously is the only major US city with no zoning code, actually escaped the subprime collapse virtually unscathed, and Texas issues so many building permits annually that median home prices in Texan cities are a fraction of that of tightly-controlled California.

5. That the solution lies in the green belt. This is an anti-ruralist’s version of myth four. Even were the green belt obsolete, which few accept, or partly so (which I accept), it will not dent the pressure of overall demand. Nor is sprawl remotely “sustainable” development. It requires new infrastructure and puts more pressure on roads and commuting. It is bad planning.

Jenkins does not explain why he thinks building more houses in places people want to live ‘will not dent the pressure of overall demand’ so it’s hard to rebut this. There is plenty of land around existing train stations into London that could be built on. Certainly new infrastructure would be required. I’ve discussed some ways to capture planning gain and use impact fees to fund other new infrastructure here.

6. That high buildings are the answer. They are inefficient as the higher you build the more is spent on servicing. London’s most popular and economic housing is “high density/low rise”. Towers have supplied mostly empty pads for the rich, housing no one.

I mostly agree with Jenkins here. “High density/low rise” housing is popular because it is relatively cheap, as he suggests. There is a clear price premium for lower density terraced and semi-detached housing – compare similarly units in the same areas in almost any part of London. This is the sort of thing people seem to want to live in, if we built enough for them to afford it. The reason we can’t do this is – you guessed it, and Jenkins later acknowledges it – planning laws.

7. That the answer lies in new social housing. Security of tenure and low turnover – not to mention right to buy – renders the fixed stock of public housing inflexible and immobile. Increasingly it has become a generous donation by the taxpayer to a fortunate few, for life.

Yes. Very few people actually want to live in social housing – 80-84% say they’d like to own their own home, if they could. But Jenkins seems to want neither social housing nor much private housing to be built.

8. That people have a “right” to live where they or their parents lived before. Localities benefit from stable populations, but conferring and bequeathing such a right to discriminatory subsidy is in no book of rights.


9. That there is also a “right” to home ownership. The state has a housing obligation for those who need help. Home ownership is capital accumulation, developed out of the Tories’ mortgage tax relief as a form of saving for old age and to endow offspring. It promotes inequality and cannot be termed a right.

No, there isn’t and shouldn’t be a ‘right’ to home ownership or to live where your parents lived, but nor should home ownership be seen as capital accumulation only. As per above, houses are part consumer good (because people use them), part investment good (because they are scarce and valuable and their supply is inelastic). People want to own their own homes – we don’t need to use the empty language of rights to think it’s worth trying to give them that.

10. That renting is stupid. Renting is buying a service. About 60% of Germans rent. They do not think of buying until their 40s. Booming Berlin has 90% of its population renting. Renting aids labour mobility and channels savings into productive investment. As a result, Germany has little house price inflation and no “ladder” advantage to owning not renting.

Renting is great – Jenkins is entirely correct here. But a dysfunctional housing market also means a dysfunctional rental market. Rents seem to be less elastic than house prices, though they are rising, but quality and choice are dropping. A minor anecdote in evidence of this: flats that lettings agents used to show to people individually are now being shown to large batches of people, and there is a mad rush to be the first person to secure any half-decent flat that comes onto the market.

A second point: when people like Jenkins and Robert Shiller warn against owning a home, I tend to agree, but I have to wonder whether they are renters themselves. If not, why not?

11. That buy to let is evil. The poorest people rent from the private sector. The more houses are available to rent, the more flexible is the housing stock and the lower are rents for those who do not buy. Whether buyers-to-let should enjoy tax breaks and whether rents should be regulated are quite different matters.

This seems right to me. Buy to let has been demonized unfairly, although there are bad tax loopholes that distort the market in favour of it. But if you accept the logic that renting is desirable for at least some people you must accept that some people will need to act as landlords. They effectively bear the risk involved with investing in housing that renters do not want.

Jenkins’s ‘realities’ are worth reading but are all fairly lacklustre. The goal should not just be to put roofs over people’s heads: it should be houses people want to live in, in places people want to live, at prices they can afford.

TfL and the cabbies are conspiring against the public

James and Charlotte have already written about why Transport for London’s (TfL) proposed regulations of private hire taxis like Uber are a bad idea.

I have not yet seen any defence that the regulations will improve standards for Londoners – they appear to be wholly designed to protect black cab drivers. And that seems to be exactly what’s going on.

Back in August, Steve McNamara, General Secretary of the Licensed Taxi Drivers’ Association, wrote in Taxi Magazine (p. 3 at that link) that “all of the proposed regulatory changes were proposed by the trade in our response”, which were said to be:

  • A five minute period between booking and pick up
  • Operators must not show vehicles available for immediate hire – either visibly or virtually, via an app
  • The fare must be specified at the time of booking
  • Drivers to only work for one operator at a time
  • No ride sharing
  • Operators must offer a pre-booking facility – up to seven days
  • Operators will have to record destinations at time of booking
  • Operators to have a landline
  • PH operators will be required to have Hire and Reward insurance policy for their fleet
  • Satellite or temporary event licenses will be scrapped

These – published a month ago – are almost word-for-word what TfL is now proposing. And the Licensed Taxi Drivers’ Association has a seat on TfL’s board. This is regulatory capture, pure and simple.

That the LTDA have been able to dictate TfL’s policy so precisely seems like virtually ‘smoking gun’ evidence that TfL – with London Mayor Boris Johnson as its Chairman – is regulating against the public interest to protect black cab drivers from competition from Uber and similar firms.

Nobody thinks these regulations will help consumers. This isn’t misguided regulation, it’s a conspiracy against the public. We’re being stitched up here.

The housing crisis has a simple solution: build, baby, build

Over at the IB Times I’ve written about the government’s housing targets (not worth the paper they’re written on, basically), and why we want to concrete over the green belt – well, at least some of it:

By freeing up green belt land the supply of housing could grow enough to let prices fall considerably. All of this would actually require very little green belt land to be built on – less than 1.5% of it would give us the space we’d need to build an extra 1.4 million new homes. We could build one million homes around London on just 3.7% of the capital’s green belt.

Could the private sector do it? It already has – during the 1930s housing boom, private construction rose from 133,000 houses per year in 1934-45 to 279,000, in just one year – and these houses were affordable. If you come, they will built it.

The cost of extra infrastructure could be more than covered by capturing “planning gain”, with the government buying green belt land, reclassifying it and selling it at the market rate to the private sector, keeping the gains for itself.

Trimming the edges of the green belt would suffice, but I’d like to go further. Much of the countryside is worth protecting, but much of the green belt itself is not. It doesn’t provide amenity to anyone who doesn’t live there already, it’s bad for the environment, and it makes housing cripplingly expensive.

Read the whole thing. I’ve tried to make it as comprehensive as possible, as a useful ‘cut out and keep’ piece to send to people who haven’t thought about how easily we could solve the housing crisis.

Maybe Cuban refugees did hurt unskilled Miamians after all

How do refugees affect the wages of natives in the places they settle? I’ve written on the (few) studies of this effect that I’ve seen, but a new paper contradicts one of them.

David Card’s 1990 study of the Mariel Boatlift, where 125,000 Cubans fled the Castro regime to settle mostly in Miami, found that there was no negative effect for unskilled natives. Card’s results suggested that the city’s existing garment and agricultural industries absorbed the extra workers and the influx did not cause downward pressure on the wages of unskilled workers already in Miami.

But a new working paper by Harvard’s George Borjas seems to undermine Card’s conclusions. Borjas looks at a particular sub-section of Miami’s unskilled workforce, high school dropouts, and compares Miami to a different set of cities to Card which, says Borjas, were more like Miami in terms of employment growth before the Boatlift took place.

When you do that, the Boatlift seems to have affected high school dropouts’ earnings very badly: they fell by between 10 and 30 percent, relative to the wages of high school graduates and college graduates. The gap between white and black workers’ wages grew substantially too – black workers’ wages fell by 20 percentage points.

The chart below shows the percentage difference in high school dropouts’ wages relative to college graduates’ wages during this period – the different ‘placebos’ show how dropouts’ wages performed in other samples of cities over the same period.

Screen Shot 2015-09-18 at 13.36.19

Borjas concludes that the Boatlift put significant downward pressure on the wages of natives with skills similar to those of the migrants, which may also be the case with other similar influxes of immigrants.

It’s an important paper for anybody interested in the immigration debate. But there are also some important things that should make us cautious about extrapolating too much from this.

Most notably, the relative wages of high school dropouts recover entirely by 1990 – the effect Borjas has found only holds in the short-run. And Borjas’s study shows that the impact was negative for people at the bottom, but Card’s conclusions about the impact on native workers more generally still seem reasonably solid.

The Mariel immigrants were ‘exogenous’ to Miami’s economy – they did not come primarily to get jobs, but to escape Cuba. So the effect might not apply at all to economic migrants from other EU countries who are coming to the UK to work. But for refugees fleeing war, Borjas’s findings might well be repeated.

David Card may reply with some objections that throw doubt on some of Borjas’s choices, and as some people have pointed out a very influential paper by Borjas from 2003 was later undermined itself by replication and slight changes to assumptions. This doesn’t mean we should be skeptical of Borjas in particular, but it is a reminder to avoid drawing firm conclusions from just a couple of studies. Whatever their findings, more research like this can only be a good thing.

It’s free speech that will defeat Islamist preachers in universities

I suspect most readers of this blog will agree with Barack Obama’s basic point in the video above, which is that by banning racist books and right-wing speakers to ‘coddle’ oversensitive types, universities are failing students.

This is a problem we have in the UK as well – Brendan O’Neill and Tim Stanley were barred from speaking at a debate about abortion they’d been invited to take part in at Oxford last November, and certain parts of the social justice movement have been waging a quiet war against ‘trans-exclusionary’ radical feminists (and vice-versa, perhaps) by having them barred from university conferences and events, heckling them when they speak, and so on. People like James Watson have been made untouchable for suggesting that there may be genetic differences in IQ between different races.

This is not entirely a left-wing phenomenon. Today David Cameron has ‘named and shamed‘ universities ‘that regularly give platforms to hate preachers who are determined to undermine British values’. It’s not clear to me what ‘British values’ are, or what’s so bad about wanting to undermine them. Is belief in the NHS a British value, making free marketeers dangerous too? Is belief in democracy, excluding Jacobite restorationists from campuses and the like?

The obvious response to this is that these people will not just ‘undermine British values’ but actively encourage students to kill other people. Of course we already have laws against incitement to violence (excessively strict ones, some would say) but perhaps these don’t work here. A roundabout suggestion that the, ahem, Zionists are controlling the media and, you know, maybe these ISIS fellas aren’t so bad after all is not – and should not be – illegal, but might plant a seed in enough people’s minds to lead them to kill.

No doubt there is something rotten in British universities, but I wonder if part of the problem is that opponents of these speakers are heavily restricted by the sort of people Obama attacked yesterday.

How easy is it to oppose Islamism on university campuses? Being anti-abortion is unpopular, but Islamophobia is so forbidden that Ed Miliband proposed to make it a hate crime. Last year Plymouth University’s Islamic Society tried to have a speaker from the anti-Islamist Quilliam banned from speaking there. The year before that, a mob of students blocked Israel’s deputy Ambassador to Britain from giving a lecture at the University of Essex. There is no shortage of other examples either.

So perhaps institutionalised political correctness is allowing Islamists to get a free pass at universities without being challenged, as it has arguably contributed to child abuse in Rotherham and elsewhere. If feminist comedian Kate Smurthwaite is too edgy to be allowed to perform to Goldsmith University students, what hope do harsh critics of Islamism like Maajid Nawaz or Douglas Murray have?

Banning hate preachers would mean we must also accept the principle of banning Maajid Nawaz for pushing back against them, Tim Stanley for opposing abortion, and Germaine Greer for showing insufficient respect to Caitlin Jenner. It concedes too much.

Open debate is too valuable to give up in places where it is supposed to thrive. It shouldn’t be harder for Islamists to speak at universities – it should be easier for their enemies to contradict them. The problem is not what is being said, but what is not being said.