Too right.

For all the downsides of the bust, there are also the upsides of the boom.

What the report is seeking to do is take the “fun” out of an economic cycle in a manner that no politician seeking re-election would ever consider.

They want to have a boom during their time, and dump the cost of cleaning up the mess onto the next generation – because that is how politicians get re-elected.

A growth rate of 2% (or thereabouts) would be more sensible, but will I also see an end to doom laden “omg, the economy is collapsing” headlines from this very website if that were to be maintained? I doubt it.

puzzled by how increasing supply is supposed to decrease volatility. The supply of housing in Ireland grew very rapidly and made price volatility worse (excess supply) and supply was quite responsive in the US too, and this didn’t stop volatility. Same for Spain, I think.

I guess I can understand how having supply respond to increases in demand should keep prices more stable, but I’m not sure how to prevent what happened in Ireland and elsewhere (excess supply). Also, when there are downturns in demand, unless you quickly demolish just the right number of houses, you’re still going to get price volatility, aren’t you?

“puzzled by how increasing supply is supposed to decrease volatility. The supply of housing in Ireland grew very rapidly and made price volatility worse (excess supply) and supply was quite responsive in the US too, and this didn’t stop volatility. Same for Spain, I think.”

I imagine the volatility comes from people treating housing as an asset as well as a durable good. If your supply is responding to buy-to-letters and people who think they can leapfrog from one house to another while making money by riding a property boom then you are going to see the bust. How to prevent that happening is difficult. It almost requires a change in psychology – people need to stop thinking of owning bricks and mortar as being some kind of investment.

Why on earth would we want a continuation of the fundamentally unfair council tax when a local income tax would be far better.

Luis,

puzzled by how increasing supply is supposed to decrease volatility. The supply of housing in Ireland grew very rapidly and made price volatility worse (excess supply) and supply was quite responsive in the US too, and this didn’t stop volatility. Same for Spain, I think.

ISTM you are right about Spain.

The housing market over there has collapsed due to oversupply. There are huge numbers of unoccupied (and unpurchased) buildings – some areas are like ghost towns.

This has greatly affected the cajas – AIUI they are over-exposed to the property market and are now having to sell some of their industrial holdings.

@5: “Why on earth would we want a continuation of the fundamentally unfair council tax when a local income tax would be far better.”

Agreed – but the administration of a local income tax is more complicated and the collection costs will be higher.

At present, it makes no difference to the council tax payable for a household whether two or more people live there but there would be a difference if a local income tax were introduced. That is the reason why council tax is unfair but expect howls of protest if it seems likely a local income tax would be brought in. Whatever will the higher rate taxpayers say?

I shall read the JRF report later, but my reaction to a ‘national property tax’ being the end goal is as follows:

1. If it is a replacement for council tax I don’t see how a national scheme could work. Where would council revenue’s come from? Entirely from central grants? Eek. I generally favour more direct taxation powers to local councils, as local councillors are closer to their electorate and so should be more accountable. So make it a ‘local property tax’.

2. Why only tax properties? Part of the problem that is causing the chronic housing shortage is the under-utilisation of this country’s natural asset – its land. Much of a property’s value is simply down to the location of the land it is built on, and so much of the speculative activity in the property market is in reality activity on the land market. Tax the land value, not the property value. So make it a ‘local land tax’.

3. Instead of calling it a tax, call it a levy. So make it a ‘local land levy’, which contains alliterative fun.

“I generally favour more direct taxation powers to local councils, as local councillors are closer to their electorate and so should be more accountable.”

I’ve been none too impressed by some of the councillors that I have encountered. The staff structures of local authorities are far more hierarchical and impenetrably so compared with central government departments.

@ 9 Bob B

My concern with local councils is that people are likely to vote along national party lines, if indeed they vote at all. However, both my issue and yours are primarily to do with voter engagement: if you could get people to take a more active interest in the running of their local council, they’d probably vote for people more reflective of their interests. Maybe.

Indeed, Bob B. That’s because far too many powers have been centralised.

There’s a sliding scale of how councils could function – at one end they are administrative bodies, and at the other they are legislative. Restoring more legislative power to councils, including proper revenue-raising powers, should see this shift in function.

Since councillors have a much smaller electorate than MPs, they are inherently more accountable: your 1 vote out of ~5,000 in your ward at local elections is far more powerful than your 1 vote out of ~75,000 in your constituency at national elections.

The administrative structure of local councils in largely enforced by national government. They have a host of legal obligations that they are required to fulfil and councillors are powerless to change. Shifting the power back down to a local level to determine what the council’s role itself is (by democratic mandate) is the way to start breaking that bureaucracy.

Duncan Stott: You haven’t yet described how a greater focus on local revenue-raising and so on would avoid the obvious problems from the great wealth disparity between council areas. My local North-East council has very little scope for raising revenue through taxation, but has to provide considerably more services than a council for a wealthy area which could easily raise taxes, because it faces higher unemployment, higher poverty, and the various side-effects of those.

Dealing with that gap requires central government to either provide (substantial) direct funding or redistribution from high-income areas, or to directly provide (rather than funding Councils to provide) those services through national taxation.

Greater flexibility over what services must be provided is similarly risky – local authorities can justify a central government grant if it’s spent on legally required services. Convert those services to only being practically required, and the government can decide not to fund them without breaking any legal requirements.

I’d be interested in reading your solutions to those issues.

@ 8. Duncan Scott

I fully support a land value tax (and love your alliterative local land levy!). How to get this firmly on the political agenda?

George McLean

“I fully support a land value tax (and love your alliterative local land levy!). How to get this firmly on the political agenda?”

You don’t I’m afraid – the government is filled with wealthy landowners – and I’m afraid the class system ensures they always will.

@11: “Indeed, Bob B. That’s because far too many powers have been centralised. ”

IMO that is nonsense. Councils have important and challenging jobs to do in prioritising spending of the funds received from central government and collected locally and in ensuring that council services are managed efficiently and in response to the expressed needs of the local electorate.

Unfortunately, local electorates in local elections often do vote on national issues – when they bother to vote at all – but that doesn’t absolve the councillors from their responsibilities. Many electors in my experience don’t think much of the basic competence of councillors – part of the case of electors being the ridiculously high salaries paid to chief officials in local government which are often well in excess of salaries paid in the civil service for greater national responsibilities.

As for balance in the housing market and the volatility of house prices, additions to the housing stock in any year are relatively small compared with the size of the existing stock.

The implication is that if there is a surge in the finance becoming available for new mortgages then house prices are likely to rise sharply, especially so if the construction industry is unable to respond sufficiently to meet the greater demand. It is up to government departments and the monetary authorities to ensure there is a better balance between new mortgage finance and the supply of new housing coming onto the market. Yet another issue is the present affordability of housing and the suppky of social housing.

@ 14

“You don’t I’m afraid – the government is filled with wealthy landowners – and I’m afraid the class system ensures they always will.”

Come off it. Over the years we’ve won male sufferage and universal sufferage and got rid of poll tax. The political agenda has on several occasions moved power away from the wealthy landowners. Changing council tax into something fairer would be simple by comparison.

Many folk are late filing their annual tax returns to HMRC so I doubt they will be quicker or more enthusiastic about sending in income tax questionnaires to their local councils – so they will have to be chased, which costs.

Probably, the simplest way for councils to garner local income tax revenue is for councils to make an additional percentage levy on top of the amount of income tax being paid by their residents to HMRC. Let’s not pretend this is going to be popular.

Boom and bust in anything is the price you pay for coupling a free market with human behaviour.

I want the most money I can get you’re charging £1m for your house, but mine’s much better so I’ll sell it for £2m. Wait it’s not that much better I’m upping my price to £1.5m. Yes it is – £2.5m.

And so on. Which is fine when people can afford to pay that. Hit the limits and in theory the price should gently drop. Instead:

No-one’s buying my £2.5m house I’ll drop it back to £2m. Wait that might mean someone buying your house instead of my £1.5m; I don’t want that – £1m.

Free-fall until the buyers glut and the sellers realise they can charge some more and still sell. Then the price goes back up and the cycle repeats.

Increasing the supply won’t change that, faffing with council bands or stamp duty won’t change that. The only thing that will temper it is the creation of a stock house at a fixed price (relative to inflation) which serves as a base reference point. Except you can’t do that as location is a key part of the value of a property.

More importantly something needs to be done about the trade in holiday homes. Where I live, local people can no longer buy houses due to so many of them being owned by rich people from London who set the market price. We have whole villages that lie deserted for much of the year.

The middle class owners of these rural bolt-holes don’t use local schools (which are then closed down due to lack of demand), shops (they bring all their groceries with them when they drive down here) or anything else for that matter. However, for some bizarre reason these parasites are viewed by both local and national government as somehow benefiting the local economy, while they are driving young local people out to the cities – where for the most part they do not wish to go as they have no family support structures or friendship networks.

Very few new houses need to be built in this country, what we do need is the freeing up of the holiday stock for residential use, and the refurbishment of many semi-deralict properties in urban areas – and we need it fast.