What the ban on letting agency fees means for the marginalised

Much in need of some good publicity, Philip Hammond, the Chancellor, is set to announce a ban on letting agency fees.

These charges - often for administrative duties, such as inventory and background checks - are clearly unpopular. But in their efforts to find a political free lunch, the Conservatives should consider the threat the changes pose to the country’s most marginalised renters.

A landlord has little way of knowing whether a prospective tenant will be a delight, or a nuisance. It is this risk of the latter that means that landlords will keep rents low for long-term residents, knowing that they would prefer to keep the business of well-behaved occupants.

Letting fees, most of which are paid at the beginning of an occupancy, have served as one way to mitigate against the risk of a rotten tenant. If a new occupant is destructive, and must be evicted, the landlord is then more able to cover a loss of earnings while a new tenant is found.

Eliminating these charges could be to the detriment of tenants who landlords perceive to be more risky. Without letting fees, there is a concern that landlords could rely on crude race or class-based stereotyping in order to judge the riskiness of prospective tenants.

There is already evidence of discrimination in the British rental market, as well as in the US - a problem that a ban on letting fees could exacerbate. Yet despite this concern for at risk renters, the policy is likely to be a vote winner. 

Surveys confirm that the charges are not liked. Last year, Citizens Advice estimated that new private sector tenants were facing an average of £337 in letting fees. However, we cannot be sure that banning the fees will reduce the cost of renting. As the housing minister acknowledged just two months ago, landlords are likely to raise rents in order to recoup the lost revenues from a ban on fees.

Rather, the economic rationale for a ban on fees is likely to be that by eliminating upfront moving costs, would be tenants can more easily relocate, and rents can adjust more quickly.

This effect could plausibly be a boon to the UK’s labour market as well. Rising homeownership rates are associated with a subsequent increase in unemployment, perhaps because workers become less willing to move for work when the costs of moving home increase.

This could also ameliorate some of the concerns over tenant riskiness previously discussed.

If abolishing letting fees does increase rental sector liquidity, then kicking out an occupant is less likely to result in a property being left unoccupied - producing no rents - for a prolonged period. It is difficult to determine which effect - the lack of upfront revenues or an increase in tenant turnover - would be more significant.

However, reducing the transaction costs of moving could also play into the hands of landlords keen to evict tenants. As, again, the prospect of a property being left vacant becomes less of a concern.

US evidence suggests that such evictions tend to fall disproportionately on women and non-whites. Abandoning the letting fee model could make the position of these vulnerable tenants yet more precarious.

Liberalism must not surrender to the populist tide

It is now something of cliché, and not exactly wrong, to say liberalism and globalism are in retreat as populist nationalism is in the ascendancy. Fortunately, it is probably hyperbolic to think we’re seeing the end of liberalism or the death of Western civilisation. Still, protectionism, industrial strategy, and nativism have tragically blundered back into respectable discourse and seem set to shape policy and political culture in the immediate future.

This raises the question of how liberals should respond. Simply defending the status quo is unsatisfactory for a few reasons. Although globalisation, open markets, trade, and migration have made the world an infinitely better place over the last thirty years (and, indeed, the last three centuries), widespread dissatisfaction cannot be ignored. That is, unless you take Hillary Clinton’s Presidential campaign or the end of David Cameron’s career as models of success.

Secondly, liberals should not view the status quo as wholly acceptable on our own terms either. The idea of ‘neoliberal hegemony’ has always been something of a myth (or an outright lie). Regional trade agreements are, at best, a poor substitute for non-preferential multi-lateral free trade. Pernicious and nonsensical regulations have continued to restrict and distort markets, with occupational licensure and planning restrictions being obvious examples. And almost all developed countries continue to have convoluted, inefficient, arbitrary, and perverse tax regimes.

Equally liberals should not simply compromise with and capitulate to populism. If ‘protecting liberalism from itself’ means closed borders, ‘strategic’ protectionism and interventionism, disdain for the judiciary and the rule of law, the annihilation of privacy, and normalising ethno-nationalism, it’s not clear that there’s anything left that’s worth protecting.

Nevertheless, if only for pragmatic reasons, neoliberalism cannot be, and more importantly cannot be seen to be, inflexible market fundamentalism. It is arguable (though far from clear, let alone certain) that free trade does not benefit everyone, even if it clearly provides net benefits for each economy as a whole. But, rather than meekly accepting that this means that ‘reasonable’ protectionism can be acceptable, we must argue for distinctly liberal responses. For instance, providing a basic income could ease any transitional periods of structural unemployment for workers formerly employed in uncompetitive industries.

Similarly, we can recognise issues like in-work poverty without capitulating to socialist illiteracy or nationalist xenophobia. There are reasonable neoliberal responses, such as introducing a Negative Income Tax and abolishing, cutting or raising the threshold of National Insurance. Populist concerns can be recognised, without populist values or solutions being validated or respected.

At the same time, a radical and unapologetic defence of globalism, free markets, consumerism, and liberty is needed now more than ever. Just because alternatives are being advanced, it does not mean they have even a sliver of merit. And just because economic self-harm and cultural degeneration are fashionable it does not mean it is wise to accept this and follow suit. 

Social housing hurts the badly off

Imagine we paid benefits entirely in food stamps. If we gave recipients cash—we worry—they'd spend it on stuff we don't like, such as booze and fags. To head this off, we give them £15,000 a year each in non-transferable food vouchers. Really, they only need about £5,000 in supermarket shops a year, but since they can't do anything else with them, they eat excellent food and shop only in Waitrose, while they scrimp and save when it comes to clothes, heating, transport, and housing. You'd much rather they gave you less, but they allowed you to spend it yourself.

This is crazy policy, right? But this is exactly what we do with social housing (and, indeed, housing benefit). When you secure a council flat, you are effectively being given the difference between its market rent and what you pay as an in-kind handout. Apart from the poorer council architecture, upkeep, and administration, it's almost identical to if they were paying your rent for you. The "economic cost" of the activity includes the difference between its most valuable use and its current use. If a tenant has an income of £10,000 but gets an additional £10,000 worth of housing each year from the council, it is a bit like forcing them to spend half of their total income on housing.*

Imagine council tenants were given the money in cash, instead of this implicit in-kind benefit, and councils sold their properties off to fund the payment, to be rented at market rates. One possible outcome is that they would re-rent the properties they are currently in, at the market rate. Indeed, I suspect that if this policy were really implemented, many would do just this to begin with. But over time, it's extremely unlikely that tenants would want to spend so much of their money on renting premium land in the centre of town—they would decide to move.

It might be countered: these people probably have jobs, families, friends or other connections in the area. This is true, and the appropriate way to weigh up these claims is letting them decide for themselves. 99.9% of Londoners make the same decision themselves, with cash instead of vouchers, if you include the benefit: we trade off cost of commute, range of amenities, and distance from friends. If we were forced to spend more, in order to live in a more desirable area than we'd pick on our own, we'd be worse off than if we could just choose how to spend that money ourselves. Council tenants are no different.

In fact, my initial analogy was far from the most general I could have made. The situation is much simpler: it's the basic parable of exchange under restrictions. The council tenant has something others want—a right to live somewhere—and that others would be willing to pay the tenant for. Indeed, most tenants would almost certainly accept this payment in exchange for moving out; they'd prefer the money. Both the prospective buyer and the prospective seller could be made better off if this capitalist act between consenting adults weren't banned. But it is.

*Actually, it may be interpreted a lower fraction: applying this method to housing implies we should apply it to healthcare, education, and pretty much everything else the state pays in kind. Housing is somewhat different because it's mostly a market, with few getting most of their housing from state bodies—replacing healthcare with a cash payment would require massive change in the market, replacing council housing would not.

How to spot when a policy is not working

Imagine your city had a housing problem. Lots and lots of people wanted to buy houses there, live there. And there weren't all that many houses for them to do so in. You had some policy ideas about this and brought them into action. At which point this happens:

Housing starts in Vancouver have fallen to their lowest level in more than five years while home sales plunged 38.8% compared with October of last year.

Your problem is a shortage of supply of housing. Your actions have curtailed the supply of housing. Yep, that's a failure alright.

So, what did they actually do?

Mounting public anger and a chorus of concern emanating from the country’s banks forced a turnaround in recent months. In August, the province of British Columbia instituted a 15% tax on all home buyers in metro Vancouver who are not Canadian citizens or permanent residents. Soon after, the federal government said it would close a tax loophole believed to be used by some speculators.

The city of Vancouver has proposed its own measures in recent months, from a 1% tax on vacant homes starting next year – after an attempt to do so last year was stymied by the provincial government – and a crackdown on short-term rentals, such as those done through Airbnb.

Those aren't the same as what has been proposed over here but there's a definite echo there, isn't there? Which gives us an inkling about how well the policies proposed here would work.

And of course the actual solution to a shortage of supply is to increase supply. Make it easier for people to build more houses - here in the UK that means blowing up the Town and Country Planning Act of course.

Prohibition created Skunk. It's basic economics

Probably the most common objection to ending the prohibition on cannabis and creating a legal, regulated market is that kids are no longer smoking your dad's pot, they're smoking super-strength skunk.  But it's that very system of prohibition that's lead to the creation of stronger, dangerous strains. 

It's all down to something called the Alchian-Allen effect. Say you've got two similar but not identical goods e.g. pricey top quality Pink Lady apples and  cheap bog-standard Cox apples. If there was an identical increase in price on every apple sold, say a pesky politician levied a 10p apple surchage, you'd see a rise in demand for Pink Lady apples and a fall in demand for Cox apples. 

Why is this? Well, while both products have seen identical absolute price increases, the high-grade Pink Lady apples have increased by much less in relative terms. Before the apple surcharge, a Pink Lady apple might have cost more than twice as much as a Cox apple. After the surchage that differential will have shrunk substantially. So in relative terms, Pink Lady apples are now much more attractive to consumers.

How does this apply to weed I hear you asking?  Think of different strains of weed just like Apples. You've got the pricier high-strength skunk and other weaker-strains on offer. If the relative price of one went up, all things being equal demand for the other would rise. 

We should think of cannabis prohibition as the equivalent of an across the board fixed increase in price. The law doesn't distinguish between different strains of weed, you're given the same sentence whether you're dealing skunk or weaker, safer varieties.  Dealers price in the cost of getting caught and going to prison, if that costs the same regardless of how strong the product is, then you'll see the price differential between skunk and weaker strains falls, making skunk the more attractive product. 

Far from being a reason to support continued prohibition, skunk is actually a reason to push for a legal, regulated market.

We reject the idea that Facebook must be told to tell the truth

There's a pernicious little idea floating about, that the Facebook news feed must be purged of all "fake" news stories. Endless groupuscules are calling for something to be done and insisting that if it isn't they'll thcweam and thcweam until they make themselves sick. Or something. 

The problem with this is that we cannot determine "the truth", we can only determine whose truth:

His statement pointed up how much Facebook struggles to find the balance between its mission to be a free-expression utopia for its 1.8 billion users and its responsibility to protect them from all that is defamatory, dangerous (like terrorist propaganda) and untrue.

But more to the point, it appeared to buy into the notion that truth is relative at a time when that notion has to finally go away. Do you really need an outside arbiter to determine whether a video suggesting — without basis — that Hillary Clinton was involved in John F. Kennedy Jr.’s fatal plane crash in 1999 should be allowed to stand? Really?

Yes, of course such idiocy must be allowed to stand. Because that's what the freedom in freedom of speech means. Just as it means that idiots are allowed, must be allowed, to spout other gross untruths, such as that socialism is a really great economic system, Denis MacShane is wrongly maligned and grossly undervalued and that Mom's apple pie is great, no really, it is!

Further, what we really don't want to go back to is what is being lusted after:

It’s easier said than done. The combination of attacks seeking to delegitimize serious news organizations and a drop in overall trust in the news media has made many people wary of legitimate fact-checking. And, as my colleague John Herrman noted last weekend, politicized voices can easily drown honest journalism all too easily on social media.

There is growing talk of an ambitious journalistic collaboration to beat back the tide. Industry thinkers and leaders are coming together online to brainstorm solutions, as Jeff Jarvis, the City University of New York journalism professor, and Eli Pariser, the Upworthy co-founder, have done. (Check them out online.) And I’d say it’s high time that television news — with its still-huge audiences — gets into the act with more than just token gestures at fact-checking.

Because what America used to have was exactly that, a system in which the major media very carefully rinsed their pages of everything that wasn't Good Think. It wasn't a particularly vicious thing but it was very much there. The news media leans hugely Democratic (with, according to one story, the WSJ staff doing so even more than the norm) and what was just the received opinion of what was mainstream was what was actually mainstream to the highly educated left of centre liberals running said media.

We rather saw the remains of this in the recent election, it only being the newer alternative media that had even a hope of understanding Trump and his winning coalition. 

One final point. What is a fact checked truth depends upon the beliefs of those doing the fact checking. Clearly Hillary didn't aid in killing JFK Jr, it was his own machismo which achieved that. But who thinks that pieces which argue that minimum wage rises kill jobs are going to pass through some media filter of fact checking? Because believe us when we say that if we had control of those filters then pieces which say that minimum wage rises do not kill jobs never would pass through it.

And that we would indeed do that means that no one should have this power. Simply on the entirely liberal grounds that you should never try to claim a power that you don't want your enemies to have. Pre-publication censorship -  for that is what an insistence upon only the truth being published would be - will be a power abused by whoever has it. So, don't let anyone have it.

Sajid Javid will make British cities great again by making houses soar higher

This article appeared in the Telegraph, but it was behind their Telegraph Premium paywall, so I've shared it in full here.

People living in Britain's cities, especially London, face staggering rents and mortgage payments, often for tiny properties. Families have to move miles out of the city centre to afford the space for children. At the same time there is fierce resistance to new developments that would ease some of the pressure of the housing crisis. Designs are bland at best—reruns of post-war monstrosities at worst—and locals themselves derive next to no benefits directly. Sajid Javid's latest housing idea is the first bright prospect in decades of urban policy: scrapping some height restrictions to encourage the kind of Pimlico-style development people actually like.

People call them NIMBYs, but it's easy to understand why locals oppose most developments when they're so aesthetically unappealing. Where regular, they are endlessly uniform, unchanging and blank; where varying they are contorted into seemingly-random "iconic" shapes. There is no consistent, harmonious variation within a pattern, windows are dull squares with no decoration. Blocks abound with tiny seemingly-pointless balconies and the materials fade and stain over time. Most people find them baffling—I certainly do.

But what locals usually don't know is that these are effectively deliberate decisions of the planning system. Planners are systematically biased to award more permission when developers employ "starchitects" who have won awards for iconic designs. And social enterprise Create Streets has shown how they ban the narrow streets, steep staircases, and thin properties that are necessary ingredients of widely loved Georgian terraces in Notting Hill, Islington and Greenwich. Even the balconies are down to a requirement for all flats to have a certain amount of outside space. By contrast, properties that are in traditional styles typically fetch higher prices, given similar characteristics otherwise.

After the second world war utopian city planners believed that terraces were unhealthy and antiquated, and that the future was not in urban, multi-use, cosmopolitan living, and mass transit, but the car. They forced those living in un-bombed houses out, and replaced swathes of London with tower blocks. In so doing, they actually substantially reduced the population and density of inner London, which is still far from recovered. And bits the bureaucrats didn't get to are some of the most popular in London—two-up two-down workers houses on Roupell Street in Waterloo will fetch perhaps £1.5m.

Of course, the planners were wrong: cities still had much more to offer, and successful cities like London, Oxford, Manchester, and Cambridge are sucking in people from around the country, continent, and world. Sajid Javid's scheme offers us a way to correct the bureaucrats' mistakes in a way that involves and benefits members of local communities: they can stop ugly tower blocks and develop in a way they like. But they can allow the development that brings them more shops, restaurants, businesses, jobs and money.

Javid proposes removing height restrictions, to allow people to add storeys onto their houses, and to allow whole streets to be turned into terraces, in a patchwork, voluntary fashion. His dream, like that of Prince Charles, is a London of mid-rise mansion blocks, four and five storey terraced houses, and tenements—a London more like central Barcelona and Paris and less like suburban Moscow. His method may work: the urban forms he covets fit in a lot more floor space for a given plot.

One benefit would be allowing more people to live in London and other growing cities. Many cities in the UK are thriving, but too many Brits are unable to live in them: our planning system blocks most potential developments, and local residents block many more. Javid's plan offers a way around this, by giving control back to locals, who can decide whether they want the windfall gain from extending their building up, or selling it to others to develop. The reform also offers families a chance to have a bit more space. Research, including the Redfern Review, released on Tuesday, suggests that it is rising income, rather than more people, that drives housing demand. When people get richer they are less willing to live in cramped conditions.

Britain's cities were once unimaginably grand. We cannot take back the damage the Luftwaffe and city planners have inflicted on them, but we can rebuild them anew. We have far more wealth and technological ability than the Edwardians, Georgians and Victorians ever had, and yet many of our city centres are drab, dingy, and dead. Sajid Javid's housing plan offers us a chance to restore cities to their former glories—and go beyond—at zero cost to the exchequer, and in a way that gives citizens control. Hurrah for the housing minister!

Why social housing hurts the badly off

Imagine we paid benefits entirely in food stamps. If we gave recipients cash—we worry—they'd spend it on stuff we don't like, such as booze and fags. To head this off, we give them £15,000 a year each in non-transferable food vouchers. Really, they only need about £5,000 in supermarket shops a year, but since they can't do anything else with them, they eat excellent food and shop only in Waitrose, while they scrimp and save when it comes to clothes, heating, transport, and housing. You'd much rather they gave you less, but they allowed you to spend it yourself.

This is crazy policy, right? But this is exactly what we do with social housing (and, indeed, housing benefit). When you secure a council flat, you are effectively being given the difference between its market rent and what you pay as an in-kind handout. Apart from the poorer council architecture, upkeep, and administration, it's almost identical to if they were paying your rent for you. The "economic cost" of the activity includes the difference between its most valuable use and its current use. If a tenant has an income of £10,000 but gets an additional £10,000 worth of housing each year from the council, it is a bit like forcing them to spend half of their total income on housing.*

Imagine council tenants were given the money in cash, instead of this implicit in-kind benefit, and councils sold their properties off to fund the payment, to be rented at market rates. One possible outcome is that they would re-rent the properties they are currently in, at the market rate. Indeed, I suspect that if this policy were really implemented, many would do just this to begin with. But over time, it's extremely unlikely that tenants would want to spend so much of their money on renting premium land in the centre of town—they would decide to move.

It might be countered: these people probably have jobs, families, friends or other connections in the area. This is true, and the appropriate way to weigh up these claims is letting them decide for themselves. 99.9% of Londoners make the same decision themselves, with cash instead of vouchers, if you include the benefit: we trade off cost of commute, range of amenities, and distance from friends. If we were forced to spend more, in order to live in a more desirable area than we'd pick on our own, we'd be worse off than if we could just choose how to spend that money ourselves. Council tenants are no different.

In fact, my initial analogy was far from the most general I could have made. The situation is much simpler: it's the basic parable of exchange under restrictions. The council tenant has something others want—a right to live somewhere—and that others would be willing to pay the tenant for. Indeed, most tenants would almost certainly accept this payment in exchange for moving out; they'd prefer the money. Both the prospective buyer and the prospective seller could be made better off if this capitalist act between consenting adults weren't banned. But it is.

*Actually, it may be interpreted a lower fraction: applying this method to housing implies we should apply it to healthcare, education, and pretty much everything else the state pays in kind. Housing is somewhat different because it's mostly a market, with few getting most of their housing from state bodies—replacing healthcare with a cash payment would require massive change in the market, replacing council housing would not.

Don't give money to them, give the cash to us, to us!

We're in the run up to the Autumn Statement so everyone and their grandmother is urging that our cash be spent on their pet projects. This always brings out the worst in people, of course:

Ahead of the autumn statement next week (Report, 18 November), we urge the chancellor not to answer calls from oil producers in the North Sea for another round of government subsidies. Instead, Philip Hammond should put an end to the taxpayer-funded bonus for oil and gas companies and set the UK on a pathway to a more prosperous, clean energy future. If the world is to deliver on the Paris agreement on climate change, most of the known oil, gas and coal reserves must remain untapped. Yet in spite of warnings about risks of stranded assets from the governor of the Bank of England, the UK continues to promote the production of yet more oil and gas.

Those people over there are blue meanies who shouldn't get any sweeties.

 the government must acknowledge that the transition to a low-carbon future offers a much larger benefit to the UK

But our ideas are perfectly formed and we should have all the sweeties there are.

There's an intellectual consistency to our position, which is that no taxpayer pockets should get picked for any of these varied desires and proposals. There's also such consistency is stating that government should just do everything - we obviously don't agree with that position but it is at least consistent.

But these cries that those pockets must be picked to spend upon the desires and incomes of those crying for pockets to be picked we find, well, repellent actually.

Shelagh Whitley Head of climate and energy, Overseas Development Institute,Stephen Kretzmann Executive director, Oil Change International, Mika Minio-Paluello Programme coordinator, Platform UK, Marc Stears Chief executive, New Economics Foundation, Dylan Tanner Executive director, InfluenceMap, Peter Wooders Group director, energy, International Institute for Sustainable Development, Mike Barrett Acting executive director, global programmes, World Wildlife Fund UK, Simon Bullock Senior campaigner, climate change and energy, Friends of the Earth England, Wales and Northern Ireland, Richard Dixon Director, Friends of the Earth Scotland

Something of a list of shame there really, don't you think? A list of people who insist that you must pay for their desires.

This is not a good idea, no, just not a good idea

We're pretty sure that someone around here is losing their minds:

The grass is always greener than the gas on the other side, according to a British businessman who claims grasslands could provide enough gas to heat all of the UK’s homes.

Dale Vince, the chairman of renewable energy company Ecotricity, is investing £10m in the first of a generation of what he calls ‘green gas mills’ that he says could compete against gas from fracking.

The company said its Hampshire plant at Sparsholt College, which has planning permission and is slated to be operational in 2018, will take grass harvested from nearby fields and break it down in an anaerobic digester.

Grass at the plant would be turned into biomethane within 45 days and then injected into the national network, providing the heating needs of more than 4,000 homes.

This might be sensible, might not be. Without seeing the numbers it's difficult to tell of course. However:

A report by Ecotricity on Thursday said there are around 6m hectares of suitable grassland in the UK, not including arable land for crops. It argued this would be enough to match the amount of gas the National Grid forecasts homes will consume by 2035, but doing so would require the building of around 5,000 mills akin to the Hampshire one.

Vince admitted that getting to that point would be a huge challenge, given no other country had done it before and it was a new approach in the UK.

“It would be a massive undertaking but it would be permanent. Grass keeps growing, it doesn’t run out, unlike gas from fracking. Most of the value would be in the hands of farmers who, post-Brexit, may be in need of it,” he told the Guardian.

Each of these green gas mills requires about 4 acres of land. So, we're to put 20,000 acres of land underneath factories. Entirely gut the total livestock industry by diverting its major feedstock, God's green grass. As opposed to drilling a few holes in Lancashire.

And we're going to do this in the name of preserving the environment? 

Someone around here has lost their minds and we're really pretty sure that it's not us.