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Right to buy

John McDonnell, the Shadow Chancellor of the Exchequer, thinks that housing is too expensive to buy, and that renting accommodation is too unpleasant: often poor quality, overcrowded and lacking long term security. His idea is to force landlords to sell their houses to their tenants at a government approved “reasonable” price.

This will all work out fine and there will be no unintended consequences.

Writing in CapX, Tim Worstall says everything about it than can reasonably be said. Meanwhile:

27 comments to Right to buy

  • neonsnake

    poor quality, overcrowded and lacking long term security.

    True.

    Flexible, community-based and good value could also be levelled as charges.

    I like the flexibility of renting, and I like the little micro-community of neighbours we have around us. And we certainly can’t afford to buy in London, nor would we want to tie ourselves down, so in a sense, it’s good value. Obviously I’d want it be cheaper.

    So, given my knowledge of basic economics is sketchy, my assumption is that if people start buying the rental properties, then the remaining properties available (I believe the word you economics chaps is use is “scarce”) get cheaper for those who don’t want (or can’t afford, even at reduced prices) to tie themselves down?

    Maybe those people would be immigrants, low-wage workers, young people trying to work out what they want to do with the rest of their lives and careers?

    So we’d be helping them by creating scarcity of rental properties, and scarcity pushes prices down, not up, does it, nowadays? I must have missed some pretty heavy developments in economic theory…

    Something doesn’t seem right…

  • Stonyground

    I wonder if John McDonnell owns his own house. I wonder how he would feel about it if the government decided to force him to sell it for less than it is worth. What other evidence do you need that it is the socialists who are the bad guys.

  • llamas

    Leaving aside for a minute the stunning immorality of this idea – forcing a property owner to sell his property to another at a price stipulated by neither party to the deal – let’s just consider one of many possible outcomes.

    Evil Capitalist-Roader Landlord (let’s call him ECRL) is compelled to sell his rental property at the state’s below-market valuation to Innocent Victim Of The Heartless Profit System Renter (let’s call him IVOTHPSR).

    IVOTHPSR now owns a property for which he paid less-than its market value. I hardly believe that the influx of rental homes forcibly sold to their renters will substantially-increase the supply of homes for sale on the open market, and thus will not reduce home prices by much. It is, after all, a forced sale to a specified buyer, who is only a buyer because the price is lower than the open market.

    IVOTHPSR now turns around and sells the property to a willing buyer (AWB) at a higher price than he paid. And pockets the difference.

    AWB will be tortured with hot irons ‘neath the skin before he even considers renting the property – as it can be taken from him at a price less than what he paid. Just as it was from the prior owner.

    So, two end results, which are

    – the state confiscates money from ECRL and gives it to IVOTHPSR, and
    – the supply of available rental properties is effectively reduced even-further.

    The original goals of making property cheaper to buy and improving the availability of rental properties are thus more-or-less completely unmet. However – the goal of the politician who imposes this policy – reliably securing the votes of two people (IVOTHPSR and AWB) completely at the expense of a third person (ECRL) (who was unlikely to vote for him anyway) – is completely met. Quelle surprise?

    You are ruled by thieving blackguards. If only throwing them out would not replace them with another lot just-as-thieving.

    llater,

    llamas

  • Rob Fisher (Surrey)

    “my assumption is that if people start buying the rental properties, then the remaining properties available (I believe the word you economics chaps is use is “scarce”) get cheaper for those who don’t want (or can’t afford, even at reduced prices) to tie themselves down?”

    Not sure I followed that.

    I’d imagine one thing it means is that anyone who doesn’t want to sell their house will not be able to rent it out. Maybe this means it will be left empty. Or if at all possible any tenants will be evicted before the law comes into effect so the house can be sold at full price. In any case, any rules along McDonnell’s lines increase risk and therefore cost for the landlord. Supply of rental property will be reduced. Rents will go up.

    Technically the supply of houses to *buy* goes up under this scheme. But then so does the number of potential buyers. Without increasing total supply of houses cost of housing in general will not decrease.

  • neonsnake

    Not sure I followed that.

    I was being sarcastic.

    An obvious and awful side effect (to me) seems to be that as you say, supply of rental properties will reduce as people buy them up. And what happens when supply gets scarce? Prices go up for those of us who either want to, or in a lot of cases have to rent.

    Who tends to rent, rather than buy?

    People with less money. So, that’s who will be hurt by this initiative. And that’s before you get into any argument about “what if I don’t want to buy, because it doesn’t suit my lifestyle.”

  • neonsnake

    I’d imagine one thing it means is that anyone who doesn’t want to sell their house will not be able to rent it out. Maybe this means it will be left empty.

    Also: yes.

    I also own my own property, which I spend 2-3 nights per week at, when I’m not at my girlfriend and sister’s flat. If the time comes that I rent full-time with my other half, then what? I vaguely was considering renting it out, which I’d be utterly idiotic to do, under this proposal. I don’t yet want to sell it, it’s happily making money as an asset. So, I’ll let it stand empty then, and deprive someone of the ability to rent it from me.

    How does this even begin to make sense?

  • Nullius in Verba

    “How does this even begin to make sense?”

    Because it forces landlords into taking the next step, restricting supply and raising prices, which justifies Labour taking further steps to stop them.

    Authoritarians use public sympathy for certain ‘downtrodden’ groups to justify taking power. They provoke a hostile reaction from their opponents by means of this support, then highlight that reaction to justify their need to take yet more power to protect the downtrodden. It’s a positive feedback loop.

    It’s the same as minimum wage laws, which also hurt the poor. The damage done by the policy itself, as well as any attempt to mitigate the damage is presented as the result of heartless greed on the part of the downtreaders (is that a word?), and used to generate yet more support. The more the sympathy group is hurt by all this, the angrier the people get, the more sympathy is evoked, and the stronger the support gets for their power grab gets.

    The soviets did it – when their economic policies resulted on productive workers stopping work, they were denounced as ‘wreckers’ trying to sabotage the socialist revolution and sent to the gulag, leaving even fewer productive workers and even greater shortages to blame on the capitalists. Venezuela has been seen doing it to. And it’s a theme in Atlas Shrugged. The worse things get, the more the state of emergency is supported. When you implement socialism and things get worse, it’s a sign you didn’t implement socialism hard enough.

    Tactically, it makes perfect sense. It’s only if you believe a word they say that it seems like madness.

  • Snorri Godhi

    Without increasing total supply of houses cost of housing in general will not decrease.

    This, from Rob’s comment, is all that really needs to be said…
    Except that i would have said: supply of housing (including flats), rather than supply of houses.

  • neonsnake

    Because it forces landlords into taking the next step, restricting supply and raising prices, which justifies Labour taking further steps to stop them.

    It’s possible that I might understand that.

  • Itellyounothing

    None we have an overabundance at this point.

    And there voters don’t impress me much either.

  • Gavin Longmuir

    Question — Didn’t the UK have a big “Buy-to-Rent” movement a while ago, in which politicians & bankers persuaded Brits to put their savings into housing (since the price of housing just goes up & up — especially if the politicians are manipulating the market with growth restrictions, etc)?

    In that case, would it not make sense for politicians now to stick it to the same people they had tricked into investing their savings in housing? The price paid by the government will cover the bankers’ outstanding loans, for sure — even if not much else.

  • Julie near Chicago

    Mr. Worstall:

    “This is, of course, the straight out theft of the assets of those landlords.”

    Pretty much says it all.

    Private property, right-of-contract, and morality in general: Who needs ’em. I say, put ’em in a sack along with plenty of cement and throw the whole thing into the Bosphorus.

    .

    However, getting into some of the sub-issues of the idea, lots of good stuff here and in the rest of Mr. Worstall’s piece.

    (Although for some reason he seems to restrict his discourse, or anyway part of it, to the position of specifically-female property-owners. I’d think it would apply to males as well. Oh well….)

    .

    Rob, thanks for throwing in the comment from Mr. Niemietz. Sounds like logical questions to ask of anyone who doesn’t seem to get what’s wrong with McDonnell’s proposal.

  • Ed Turnbull

    The economic illiteracy of John McDonnell is further proof, should any be needed, of why the policy of ‘care in the community’ was a really bad idea…

  • Nicholas (Unlicenced Joker) Gray

    Julie, landlords are not human beings! Only Labour-voters are really human! Got it?

  • JohnB

    Nullius in Verba – Indeed, sir. Well said. That is what it is about.

  • Runcie Balspune

    The effects of this lunatic proposal go even further than just the availability of housing supply, a debtor will probably opt for foreclosure (simply by missing repayments) if their house is suddenly no longer worth the collateral of the loan, either the lender will agree to the reduced sale and take the hit (or be forced to by the government), or they’ll be left endlessly chasing the ex-debtor for the balance who will probably declare bankruptcy anyway. I understand McDonnell is not the banker’s best friend, but the inevitable consequence is likely to be a drastic shortage of lenders either unwilling to take the risk or unable to find the insurance underwriting the loan, making the housing market even more restrictive for those who under normal circumstances could afford it instead of renting.

    The last time the government encouraged the banks to increase lending support resulted in the sub-prime crash, so how McDonnell plans to dig out of the next mess is even more than uncertain.

  • Rob

    So, according to Labour:

    1. Buying a council house at a discount, selling at market price for a profit – evil
    2. Buying a rented property at a discount, selling at market price for a profit – FINE!

  • neonsnake

    making the housing market even more restrictive for those who under normal circumstances could afford it instead of renting

    That seems accurate to me.

    So, so far, we’ve decided it’s bad for home owners, landlords, prospective landlords, prospective home owners, renters and prospective renters. We should totally go for it!

    Even taking into account NIV’s astute comment above, I’m left thinking “is there a nuance to this that I’m missing? Even if he’s playing on the old Rachmannism fearmongering trick, it’s surely just a tad clumsy?”

    Or is the mask just slipping?

  • pete

    There’s no point worrying about this because it will never happen.

    Far too many so called liberal and progressive people on good salaries buy houses to rent out and so it will never stand a chance of becoming law.

  • Perhaps it is a good sign – for us – that McDonnell is campaigning on issues from the early 80s. This sounds to me like some ‘witty’ reply to the Tory right-to-buy (state-owned) houses policy of that time. I’m sure it was thought brilliant by his colleagues on the Greater London Council right up to the moment when Margaret Thatcher abolished the GLC, and I daresay he, Ken Livingston and others were sure it would have crushed her if only the Labour party’s sell-out not-left-enough leaders had not refused to go that far left. (Among the select leftie band who admired Ken Livingstone in those years, there was a great belief in voters so maddened by Labour’s weak-kneed moderation that they rushed out and voted Tory in protest.)

  • Jim

    Labour have form on this sort of thing – they introduced the retrospective change to agricultural tenancies in 1976 such that there was a legal right for succession for 2 generations beyond the existing tenant. So landowners who had signed tenancies that entitled them to regain the freehold upon the retirement of the tenant suddenly found they had effectively lost control of their land for the foreseeable future – the 3 generation rule meant anywhere from 50 to 100 years would have to pass before they could regain their land. Values of such land plummeted to about 2/3rds of open market value. It also meant that owner occupiers refused to rent out land in any form as if they allowed a tenant to gain possession they could then apply to the relevant government body to get a formal tenancy under the legislation. It completely destroyed the market for agricultural land rental. Existing tenants did very well – rents were strictly controlled, but anyone seeking to get started in farming found it impossible to get land to rent – the risk was too high.

    It wasn’t until the introduction of the Farm Business Tenancy in 1995 which allowed fixed term tenancies at market rents that land became available to rent again.

  • Roué le Jour

    neonsnake
    I’m glad you mentioned Rachmann because that was the first thing that came to my mind. In response the government gave tenants rights which made private renting uneconomic for landlords which made things worse for the people they claimed to be helping.

  • Eddie Willers

    Ah! No discussion of rental housing in the UK would be complete without an invocation to the ne plus ultra of ‘evil landlord’ that was Perec Rachman (what would be an analogy to ‘Godwins Law’ in such a circumstance?).

    Thing is, the UK has artificially restricted the construction of property-to-rent since forever; certainly since 1945. If only local authorities could build-to-rent, and there was no incentive for them to be careful with other-people’s money, then the process becomes politicized and corrupt.

    Why did the UK never have apartment blocks of the type commonly found across North America? Wood-frame buildings with shingle rooves may not last as long as more traditional brick and slate but allows for rapidity at a favourable price-point. Sprinklers mitigate the fire-risk and an overhaul of the law would provide for cost-effective, short-term housing.

  • djc

    Rent controls were introduced during the 14-18 war, hence the huge amount of private owner-occupied mortgage-funded house building in the 1930s. 1947 planning act restricted supply, rent controls drove out the remaining landlords, home-ownership politically sensitive so ‘pay mortgage rather than rent’ became a sure bet. Negative equity in the 1990s might have brought an end to that illusion but with general inflation and interest rates falling build and buy-to-let stepped in as the only sure investment.

  • Rowdy

    I wonder how Lady Fourbellies, owner of several ex-council houses, feels about this proposal?

  • Paul Marks

    The fact that John McDonnell, a Marxist and a supporter of regimes that murdered tens of millions of human beings, is Shadow Chancellor should tell everyone all they need to know about the Labour Party.

    The left are not nice people who happen to have an intellectual disagreement with us – the left, now the “mainstream” left, are people who want to either enslave or exterminate us.

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