From Mark Easton's blog at the BBC:
What proportion of Britain do you reckon is built on? By that I mean covered by buildings, roads, car parks, railways, paths and so on - what people might call "concreted over". Go on - have a guess...
The 80% of us who live in towns and cities spend an inordinate amount of time staring at tarmac and brick. On most urban roads, one can be tricked into thinking that the ribbon of grey we see reflects the land use for miles around. But when you look out of a plane window as you buckle-up ahead of landing at a UK airport, the revelation is how green the country appears.
So what is the answer to my question - have you got a figure in your head?
Until recently, conflicting definitions have made the calculation tricky but fortunately, a huge piece of mapping work was completed last summer - the UK National Ecosystem Assessment (NEA) (pdf). Five hundred experts analysed vast quantities of data and produced what they claim is the first coherent body of evidence about the state of Britain's natural environment.
Having looked at all the information, they calculated that "6.8% of the UK's land area is now classified as urban" (a definition that includes rural development and roads, by the way). The urban landscape accounts for 10.6% of England, 1.9% of Scotland, 3.6% of Northern Ireland and 4.1% of Wales.
Put another way, that means almost 93% of the UK is not urban. But even that isn't the end of the story because urban is not the same as built. In urban England, for example, the researchers found that just over half the land (54%) in our towns and cities is greenspace - parks, allotments, sports pitches and so on.
Furthermore, domestic gardens account for another 18% of urban land use; rivers, canals, lakes and reservoirs an additional 6.6%. In England, "78.6% of urban areas is designated as natural rather than built". Since urban only covers a tenth of the country, this means that the proportion of England's landscape which is built on is...
Click and highlight to reveal: 2.27%.
Thursday, 28 June 2012
Monday, 18 June 2012
House prices and immigration
When you complain that the Home-Owner-Ists deliberately pushed up house prices in the UK over the last ten or twenty years, their favourite excuse is that it was purely down to large scale immigration under New Labour and they deny that it is down to their deliberate attempts to restrict supply, i.e. NIMBYism.
Now, there is plenty of evidence to say that recent immigrants are given priority in the allocation of social housing, but let's stick to the central issue: the purchase price of houses.
We know that most countries* had a house price bubble over the last ten or twenty years, same as the UK, and a different ostensible reason is given each time, for example:
1. Ireland. The narrative is that interest rates fell after they joined the Euro, fuelling a speculative credit bubble, most of which went into land. It is noteworthy that in the boom years, the Republic of Ireland, with a population of 4.5 million, completed 75,000 new homes a year.
2. Spain. The narrative is that they had a bubble after they joined the Euro (same as for Ireland), and that this was exacerbated by Germans pouring in their untaxed money from supposedly secret accounts. Spain, with a population of 47 million completed 400,000 new homes a year during the boom.
3. Norway, where "property prices have tripled since the mid-1990s, up nearly 30% since the Great Recession as the oil-rich nation rode the coattails of the commodities bubble and has benefitted from the same “flight to safety” capital flows that have benefitted (and inflated bubbles in) other Nordic countries."
4. The USA, where the house price bubble is traditionally blamed on political interference, i.e. Clinton and Bush after him encouraged banks to advance mortgages to low income households, where house prices doubled since the mid-1990s. It is believed that there was also a construction boom, but on a national level, this is not actually true. Nationwide, with a population of 294 million, housing completions have been around 1.5 million a year since 1968, which per capita is not much more than in the UK (population 62 million, 200,000 - 250,000 new completions per year until the credit crunch). There are states with strict zoning laws with little new construction (which had the biggest house price increases) and states with liberal planning laws (which had the smallest house price increases).
5. Canada's economy is pretty similar to that of the USA, but there were no efforts to increase the level of home ownership (such as encouraging lending to low income families) and their system of banking regulation is much better than in most countries. Interestingly, the level of owner-occupation has now outstripped that of the USA. Prices there more than doubled over the last twenty-five years.
6. And so on and so on, there is always an excuse, the Home-Owner-Ists are always ready to blame specific local factors: Canada and Australia shared in the commodities and raw materials price booms, the same as Norway; in China they are building like topsy, they are building whole ghost cities but most homes are bought as 'investments' and stand empty; in the Eastern European countries, prices boomed after they joined the EU in 2004.
7. For example, prices in Poland went up by a third in the first few years after joining. Interestingly, while the English like to blame high house prices on immigrants from e.g. Poland, their excuse is the equal and opposite: "Joining the EU prompted purchases by foreigners, who are however limited to one dwelling each, and encouraged remittances by Poles working abroad. As the money flowed in, the Zloty gradually moved up against major currencies, encouraged also by lower inflation..."
8. The fact that other countries had construction booms and still had bubbles (Ireland: 2 new homes per 100 people; Spain: 1 new home; USA: 0.5; against UK: 0.3) seems to exonerate the NIMBYs slightly (as malevolent as their motives are); the fact that so many countries had house price booms seems to rule out immigration as a factor - if people were emigrating from e.g. India to the UK, then wouldn't house prices be falling in India? Nope. But they then have a similar excuse to Spain/German hot money: "The Indian Property Market is purported to be in bubble territory since March 2005, when the current UPA government decided to open FDI in Real Estate. This "FDI" rules ensured that Indian money stacked in Switzerland and other tax havens can be brought back to invest in high yielding Indian property market, away from low-yielding dollar assets."
This is not to deny that inwards immigration to the UK must have had some impact - if we hadn't had this, maybe house prices would "only" have doubled in ten years instead of trebling. And while New Labour's immigration policies were questionable for many other reasons, it is also true that most immigrants did come here in good faith and found a job (their unemployment is lower than for British born people of the same age) and most are not in social housing, so as individuals they are not to blame (and are welcome to join YPP!).
10. So... once you rule out all the equal and opposite excuses (it's funny how these special local factors all seem to push prices up - nowhere are there special local factors keeping a lid on prices*), what you are left with is the same basic reason everywhere: the easiest way for banks to make money is to expand mortgage lending; they make twice as much profit if they can get house prices to double, enabling them to siphon off rental income; politicians like house price bubbles because it creates the illusion of wealth and gets them re-elected; existing owner-occupiers like it because it makes them feel rich etc, it is a vicious circle.
NB: bankers are in fact indifferent whether there's new construction or not. If the NIMBYs prevail, then they can lend more on the rising price of existing houses; if there's a lot of new construction, they can lend the money to "property developers" instead.
11. And there's something else which is the same everywhere: it's the same people who end up paying for all this; that's the next generation, assuming they're "lucky" enough to get a job. Residual unemployment is racked up each recession, and never returns to its old pre-recession level. Back in the 1970s it was headline news when unemployment in the UK hit half a million and then a million. Nowadays it'll be headline news when it hits three million. And The Daily Mail will continue to blame this on the 'welfare culture' while simultaneously saying hooray to house price inflation (and boo to immigration).
* The only noteable exceptions are Germany and Switzerland, but this is probably down to the fact that their houses were so stupendously expensive to start off with - even back in 1990, pre-unification, the average house in Germany cost seven times the average household's income at a time when the average ratio in the UK was three or lower.
Now, there is plenty of evidence to say that recent immigrants are given priority in the allocation of social housing, but let's stick to the central issue: the purchase price of houses.
We know that most countries* had a house price bubble over the last ten or twenty years, same as the UK, and a different ostensible reason is given each time, for example:
1. Ireland. The narrative is that interest rates fell after they joined the Euro, fuelling a speculative credit bubble, most of which went into land. It is noteworthy that in the boom years, the Republic of Ireland, with a population of 4.5 million, completed 75,000 new homes a year.
2. Spain. The narrative is that they had a bubble after they joined the Euro (same as for Ireland), and that this was exacerbated by Germans pouring in their untaxed money from supposedly secret accounts. Spain, with a population of 47 million completed 400,000 new homes a year during the boom.
3. Norway, where "property prices have tripled since the mid-1990s, up nearly 30% since the Great Recession as the oil-rich nation rode the coattails of the commodities bubble and has benefitted from the same “flight to safety” capital flows that have benefitted (and inflated bubbles in) other Nordic countries."
4. The USA, where the house price bubble is traditionally blamed on political interference, i.e. Clinton and Bush after him encouraged banks to advance mortgages to low income households, where house prices doubled since the mid-1990s. It is believed that there was also a construction boom, but on a national level, this is not actually true. Nationwide, with a population of 294 million, housing completions have been around 1.5 million a year since 1968, which per capita is not much more than in the UK (population 62 million, 200,000 - 250,000 new completions per year until the credit crunch). There are states with strict zoning laws with little new construction (which had the biggest house price increases) and states with liberal planning laws (which had the smallest house price increases).
5. Canada's economy is pretty similar to that of the USA, but there were no efforts to increase the level of home ownership (such as encouraging lending to low income families) and their system of banking regulation is much better than in most countries. Interestingly, the level of owner-occupation has now outstripped that of the USA. Prices there more than doubled over the last twenty-five years.
6. And so on and so on, there is always an excuse, the Home-Owner-Ists are always ready to blame specific local factors: Canada and Australia shared in the commodities and raw materials price booms, the same as Norway; in China they are building like topsy, they are building whole ghost cities but most homes are bought as 'investments' and stand empty; in the Eastern European countries, prices boomed after they joined the EU in 2004.
7. For example, prices in Poland went up by a third in the first few years after joining. Interestingly, while the English like to blame high house prices on immigrants from e.g. Poland, their excuse is the equal and opposite: "Joining the EU prompted purchases by foreigners, who are however limited to one dwelling each, and encouraged remittances by Poles working abroad. As the money flowed in, the Zloty gradually moved up against major currencies, encouraged also by lower inflation..."
8. The fact that other countries had construction booms and still had bubbles (Ireland: 2 new homes per 100 people; Spain: 1 new home; USA: 0.5; against UK: 0.3) seems to exonerate the NIMBYs slightly (as malevolent as their motives are); the fact that so many countries had house price booms seems to rule out immigration as a factor - if people were emigrating from e.g. India to the UK, then wouldn't house prices be falling in India? Nope. But they then have a similar excuse to Spain/German hot money: "The Indian Property Market is purported to be in bubble territory since March 2005, when the current UPA government decided to open FDI in Real Estate. This "FDI" rules ensured that Indian money stacked in Switzerland and other tax havens can be brought back to invest in high yielding Indian property market, away from low-yielding dollar assets."
This is not to deny that inwards immigration to the UK must have had some impact - if we hadn't had this, maybe house prices would "only" have doubled in ten years instead of trebling. And while New Labour's immigration policies were questionable for many other reasons, it is also true that most immigrants did come here in good faith and found a job (their unemployment is lower than for British born people of the same age) and most are not in social housing, so as individuals they are not to blame (and are welcome to join YPP!).
10. So... once you rule out all the equal and opposite excuses (it's funny how these special local factors all seem to push prices up - nowhere are there special local factors keeping a lid on prices*), what you are left with is the same basic reason everywhere: the easiest way for banks to make money is to expand mortgage lending; they make twice as much profit if they can get house prices to double, enabling them to siphon off rental income; politicians like house price bubbles because it creates the illusion of wealth and gets them re-elected; existing owner-occupiers like it because it makes them feel rich etc, it is a vicious circle.
NB: bankers are in fact indifferent whether there's new construction or not. If the NIMBYs prevail, then they can lend more on the rising price of existing houses; if there's a lot of new construction, they can lend the money to "property developers" instead.
11. And there's something else which is the same everywhere: it's the same people who end up paying for all this; that's the next generation, assuming they're "lucky" enough to get a job. Residual unemployment is racked up each recession, and never returns to its old pre-recession level. Back in the 1970s it was headline news when unemployment in the UK hit half a million and then a million. Nowadays it'll be headline news when it hits three million. And The Daily Mail will continue to blame this on the 'welfare culture' while simultaneously saying hooray to house price inflation (and boo to immigration).
* The only noteable exceptions are Germany and Switzerland, but this is probably down to the fact that their houses were so stupendously expensive to start off with - even back in 1990, pre-unification, the average house in Germany cost seven times the average household's income at a time when the average ratio in the UK was three or lower.
Saturday, 9 June 2012
How much tax would you like to pay?
Our policy is to shift from taxing incomes and output to taxing the rental value of land. We all know that the Home-Owner-Ists always wail on about "Poor Widows In Mansion being forced to downsize", but who would be the winners under such a tax shift, and by how much?
If we wanted to replace all existing taxes (see footnote 1) with ad valorem National Domestic and Non-Domestic Rates, the tax would be seven per cent per annum on the current selling prices of UK land and buildings (see footnote 2) and the following charts show the break even points (see footnote 3).
To give an example:
- A single earner with no children who earns £16,740 a year and lives in a median value home worth (currently) of £150,000 currently pays £7,000 in tax. Some of this - the Employer's National Insurance and VAT - is stealth taxes which people aren't really conscious of, but they still reduce that person's income/spending power.
- The same single earner on the same wages in the same house would also pay £7,000 in tax (£150,000 x 7% = £10,500 NDR minus £3,500 Citizen's Income).
- So a single earner who owns a median value home who earns more than £16,740 would be better off.
- If he or she earns (say) £30,000, then the chart also gives a guide as to how much they would be better off. These calculations are tricky, but broadly speaking the gain would be between half and three-quarters of the difference between the current income and the break even point, so such a single earner would be at least £7,000 a year better off (half of £30,000 minus £16,740).
Footnote 1: Total revenues for 2012-13 according to the Public Sector Finances Database from income tax, National Insurance, VAT, corporation tax, Business Rates, Council Tax, TV licence, capital gains tax, inheritance tax, Insurance Premium Tax, Stamp Duty and Stamp Duty Land Tax, bank asset tax = £497 billion.
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Footnote 2: If we retained the extra rate of corporation tax on North Sea Oil and increased the bank asset tax to something sensible like 2%, National Domestic & Non-Domestic Rates would need to raise £447 billion. The total value of UK residential land and buildings is currently £5,600 billion, and commercial land buildings are a seventh as much again. £447 billion divided by £6,400 billion = 7 per cent*. So the tax on a home currently worth £200,000 would be +/- £14,000 a year (before deducting Citizen's Income); the tax on a supermarket currently worth £10 million would be £700,000 a year, and so on.
* Strictly speaking, Rates would apply to the "site only rental value assuming optimum permitted to use" which is more subtle concept, so the 7% figure is only a rough guide and an average. On some homes, the tax would be more than 7% and on others it would be less.
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Footnote 3: A household's current tax bill takes into account income tax, National Insurance, Working & Child Tax Credits, an estimate of 7% of earned income for VAT and 1% of the value of the current home for other taxes such as Council Tax, Stamp Duty Land Tax and Insurance Premium Tax. A household's tax bill under the system proposed here assumes that the entire welfare system is replaced with a Citizen's Income of £3,500 per annum for each adult and £1,750 for each child, which would be deducted from the households NDR bill or paid out in cash if it exceeds it.
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If we wanted to replace all existing taxes (see footnote 1) with ad valorem National Domestic and Non-Domestic Rates, the tax would be seven per cent per annum on the current selling prices of UK land and buildings (see footnote 2) and the following charts show the break even points (see footnote 3).
To give an example:
- A single earner with no children who earns £16,740 a year and lives in a median value home worth (currently) of £150,000 currently pays £7,000 in tax. Some of this - the Employer's National Insurance and VAT - is stealth taxes which people aren't really conscious of, but they still reduce that person's income/spending power.
- The same single earner on the same wages in the same house would also pay £7,000 in tax (£150,000 x 7% = £10,500 NDR minus £3,500 Citizen's Income).
- So a single earner who owns a median value home who earns more than £16,740 would be better off.
- If he or she earns (say) £30,000, then the chart also gives a guide as to how much they would be better off. These calculations are tricky, but broadly speaking the gain would be between half and three-quarters of the difference between the current income and the break even point, so such a single earner would be at least £7,000 a year better off (half of £30,000 minus £16,740).
Footnote 1: Total revenues for 2012-13 according to the Public Sector Finances Database from income tax, National Insurance, VAT, corporation tax, Business Rates, Council Tax, TV licence, capital gains tax, inheritance tax, Insurance Premium Tax, Stamp Duty and Stamp Duty Land Tax, bank asset tax = £497 billion.
Back to Top
Footnote 2: If we retained the extra rate of corporation tax on North Sea Oil and increased the bank asset tax to something sensible like 2%, National Domestic & Non-Domestic Rates would need to raise £447 billion. The total value of UK residential land and buildings is currently £5,600 billion, and commercial land buildings are a seventh as much again. £447 billion divided by £6,400 billion = 7 per cent*. So the tax on a home currently worth £200,000 would be +/- £14,000 a year (before deducting Citizen's Income); the tax on a supermarket currently worth £10 million would be £700,000 a year, and so on.
* Strictly speaking, Rates would apply to the "site only rental value assuming optimum permitted to use" which is more subtle concept, so the 7% figure is only a rough guide and an average. On some homes, the tax would be more than 7% and on others it would be less.
Back to Top
Footnote 3: A household's current tax bill takes into account income tax, National Insurance, Working & Child Tax Credits, an estimate of 7% of earned income for VAT and 1% of the value of the current home for other taxes such as Council Tax, Stamp Duty Land Tax and Insurance Premium Tax. A household's tax bill under the system proposed here assumes that the entire welfare system is replaced with a Citizen's Income of £3,500 per annum for each adult and £1,750 for each child, which would be deducted from the households NDR bill or paid out in cash if it exceeds it.
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Tuesday, 5 June 2012
Just how bad can it get for young people? (1)
If you think it's hard to get a foot on the career ladder here in Blighty, spare a thought for your Spanish and Greek cousins. Under 25's in the EU's most under-performing economies now face over 50% unemployment. Have a look at this graph, that "ZeroHedge" have dubbed "Europe's scariest chart":
What did they get so wrong? Have they even admitted they got it wrong? And most of all, how bad will they let things get for young people before they realise they are wrong? This will be a long running theme here. How many young peoples' futures will needlessly be sacrificed on the baby boomers' alters of pride, greed and stupidity. What will it take before they admit they were wrong, are still wrong and are headed in entirely the wrong direction?
Saturday, 2 June 2012
Nationwide nearly joins the dots
In their May 2012 house price report, they include a couple of interesting charts.
i) The chart at the bottom of page 1 shows that since 1952, the Retail Price Index has risen from 100 to about 2,500 but their house price index has risen from 100 to nearly 9,000:
It would be more meaningful to compare house prices with earnings (which themselves rise a couple of per cent a year faster than the RPI) but the general observation stands that as the economy advances, house prices grow super-proportionately, i.e. they increase as a share of the economy, i.e. compared to normal shop prices (which gradually fall relative to wages), houses are three-and-a-half times as expensive as sixty years ago.
For sure, some of this extra increase has to do with the credit bubble and supply restrictions, but only some of it.
ii) The chart at the bottom of page 2 shows housing affordability in the ten English regions:
We observe that there is a more or less straight line between the dots - in the North, rents are 20% of earnings and houses cost three times earnings; and in London, rents are nearly 40% of earnings and houses cost over six times earnings, with all the other regions in a straight line in between. The explanation for this, which appears to elude Nationwide, is exactly the same as in i).
You just have to remember that a) average earnings are very low in the North and very high in London (with the other regions in a straight line in between), which draws people towards regions with higher earnings; b) these earnings differentials cannot be competed away (in the short or medium term); and c) actual day to day living costs are much the same anywhere.
As a result, that surplus which higher earners in higher earning regions have available - after paying for living costs - is not competed away by new arrivals (there is only so much space, and in any event, higher population density would push up average earnings yet further) and is simply soaked up in higher rents and house prices.
So we could assume that the economy is the North is less advanced and in London it is more advanced; so comparing London with the North is like comparing 2012 with 1952. The observation that rents as a share of earnings increases when/where the economy is more advanced holds either on a temporal or spatial basis.
i) The chart at the bottom of page 1 shows that since 1952, the Retail Price Index has risen from 100 to about 2,500 but their house price index has risen from 100 to nearly 9,000:
It would be more meaningful to compare house prices with earnings (which themselves rise a couple of per cent a year faster than the RPI) but the general observation stands that as the economy advances, house prices grow super-proportionately, i.e. they increase as a share of the economy, i.e. compared to normal shop prices (which gradually fall relative to wages), houses are three-and-a-half times as expensive as sixty years ago.
For sure, some of this extra increase has to do with the credit bubble and supply restrictions, but only some of it.
ii) The chart at the bottom of page 2 shows housing affordability in the ten English regions:
We observe that there is a more or less straight line between the dots - in the North, rents are 20% of earnings and houses cost three times earnings; and in London, rents are nearly 40% of earnings and houses cost over six times earnings, with all the other regions in a straight line in between. The explanation for this, which appears to elude Nationwide, is exactly the same as in i).
You just have to remember that a) average earnings are very low in the North and very high in London (with the other regions in a straight line in between), which draws people towards regions with higher earnings; b) these earnings differentials cannot be competed away (in the short or medium term); and c) actual day to day living costs are much the same anywhere.
As a result, that surplus which higher earners in higher earning regions have available - after paying for living costs - is not competed away by new arrivals (there is only so much space, and in any event, higher population density would push up average earnings yet further) and is simply soaked up in higher rents and house prices.
So we could assume that the economy is the North is less advanced and in London it is more advanced; so comparing London with the North is like comparing 2012 with 1952. The observation that rents as a share of earnings increases when/where the economy is more advanced holds either on a temporal or spatial basis.
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