Dominic Cummings spate with then Chancellor of the Exchequer, Sajid Javid may have sharpened the knives for his eventual demise, but it was on policy where he will be seen to be on the wrong side of history. This was written as a response to an article in Quillette:
Advisors to rulers, wrote Machiavelli in his Discourses, would achieve their best results by “putting their case with moderation instead of assuming responsibility for it, and by stating one’s view… (from the Article)
Dominic Cummings was right about education- several of the academy schools which he instituted with Michael Gove have provided results which some might deem miraculous, given they serve poor multi-ethnic high crime communities, yet seem to outperform institutions like Eton, in terms of numbers of students going on to Oxbridge. These reforms are now providing a model for improvement for England and Wales more generally- although Scotland has elected to go a separate path, and is rapidly falling behind as a result.
Unfortunately, his spate with Sajid Javid put him on the wrong side of history in relation to housing reform. He should have recognised the UK housing market for what it is- a deeply corrupt oligopoly, both in terms of the artificial (and deliberate) failure of the largest market players to supply demand, and in relation to the death grip the practice of Land Banking has had, insofar as it has either delayed or forever eliminated the prospect of so many young people ever settling down and having a family.
Liam Halligan, an economist for the Telegraph and now news presenter for GB News has written a book on the subject, Home Truths, and whichever political party grasps the nettle and follows the recommendations contained within could potentially own British politics for the next twenty years, and facilitate a rise of the British economy which helps it outstrip that of Germany’s, in terms of GDP. Libertarian notions aside, it’s a clear case of coercion through game-rigging.
Key to the understanding of how this could happen is through an examination of what is happening in Texas, at Silicon Valley’s expense. Cynics will argue that it is all about tax, and tax is indeed a factor. But more important is the ability to house wealth-creating workers in areas which furnish housing affordability and safe communities. Texas provides both, whilst San Francisco provides neither. We have the safety, the universities, the leafy environs, restaurants and pubs which foreign visitors rave about when returning home, but the one thing we are lacking is easily affordable housing, ideal for starting a family.
Building land costs £1 million per acre in the South of England, and £300,000 in the North. In the South, this means £150K to £200 per building plot before the foundations have even been laid down. To be sure, we can learn a lot about the libertarian approach to planning and zoning which Texas has instituted, but it will all come to naught when the asset holding class decides to buy up as much land is necessary, as soon as it becomes available, in order to protect their price-gouging, upfront-rentier investments.
It’s the single biggest barrier to Britain becoming the patent generating capital of the twenty-first century.
It might well also be the case that Dominic Cummings loathing for Sajid Javid stems from this fundamental disagreement. It isn’t clear whether the grounds for disagreement is political or philosophical, but if the latter is the case then an overweening respect for private property rights has blinded Mr Cummings to the necessity of facilitating a society which is stable and a polis which is not aggrieved enough to look for drastic (and foolish) solutions. Trevelyan’s error may well have been more obvious and immediate (aggravating the Irish Potato Blight/Famine through an insistence on free markets in a time of crisis), but Dominic Cummings error might well prove more spectacular for Britain in the long-run, and not in a good way.
"the asset holding class decides to buy up as much land is necessary, as soon as it becomes available, in order to protect their price-gouging, upfront-rentier investments."
Geary my man, you are almost a member of the Cetacean Communist Party even if you don't know it yet.
Good topic. Home ownership is foundational to a free society and should be encouraged by government policy. Problem is, when you give government the opportunity to make policy, they generally hose things up worse than they found them.
Whether US or UK shortage drives price and shortage can be natural or artificial. Zoning drives shortage as does large scale land banking and house banking as a number of corps are doing in US. Not a good trend. Do I trust government to find a solution? Nope.
I think Geary is correct and he’s not advocating socialism either. The largest building companies and the banks are drip feeding land at a massively inflated rate.
It is harder to build houses now because the plots suddenly catapulted in price around thirty years ago. At that point a small builder in some cases could break out of sole tradership and into the bigger league.
Most building work is sub-contract to housing firms. It is labour only. the wages are good but they are limited and capped by tax brackets and vat.
This is incredibly difficult to explain. Ok. So firstly you have say 90% of builders that work the sites. They will earn between 750£ and 1500 per week. Taxed at 20% until in the 40k mark then their taxation is around 40%. Given there is no actual profit and the builders can’t afford to outlay for a plot and materials and labour and other costs they fill up their ambition on ok to decent wages exclusively to these big corporate builders.
Let’s go to the sole traders and small limited builders, most of whom are sole traders and capped at 85k vat. They never wish to turn over more than 85k as they then must charge 20% more when the tender for work and the sole traders will capture all their work. It makes being vat registered extremely difficult unless you have vat registered businesses directly passing you that work.
So back to a sole trader wishing to get rich building. First thing he’d need to do is have his customers pay his subcontractors directly so that he could take his turnover right up to the 85k threshold without it drawing him into vat land and maximising his own space within that cap. There is nothing illegal about taking out a contract but having the customer pay each tradesman individually. Given that building materials are factored into the turnover and factoring the trends of the percentages of builders who in the private sector who are sole traders and not vat registered builders it is easy to see that they are happy enough to average annual pays between 30k and 60k.
What I did the last time I got rich was to buy the worst house on the best street and for cash. Then do it up. Then save out of that 60k and buy another, do it up and rent it. After having a few houses the process speeds up. Once I had a number of houses, I had twelve. I then sold 4 to fund building 3 houses on a plot which I bought. I profited about 40% minus capital gains tax, which was 240k on that one build. The 2007/8 crash wiped me out and it’s taken me 13 years to get back to 7 houses. What I did was extremely risky to do. There is a semblence of a free market but it isn’t what most people think. 30 yrs ago I could of bought a plot for 20k, but now they’re 100k plus and that’s in the cheapest area in the UK. But the banks won’t lend us the plot and development costs, we have to self fund. You’d think they would in a free market? But we’d be able to undercut the big boys and that isn’t allowed.
The trend now is house shares.Young people are renting a house between them to reduce costs. Many people simply can’t get on the housing ladder. People that easily would of a generation ago. Some just say it’s the market and it is what it is, well fair enough, but let’s try and imagine this situation in another twenty years time following current projections. Well I’ll be 72, the 20yr olds now who will be 40 will still be renting and the house purchases will be for renters. What about 50 years from now?
Please note that the renters I’m speaking about aren’t unemployed and on government handouts, these are people who 30 years ago would have had enough surplus money to have funded a mortgage and still had a social life, people who’s own parents often did this relatively easily. Either the banks start offering better terms and/or lifetime mortgages or else in time only the very wealthy will own houses. Jeremy Corbyn turned many people toward socialism using this very argument. People who’s parents were often naturally inclined to conservatism. I find it easy to understand why. Disenfranchisement, inflation and the high cost of living. Owning your own home ought to be much more than a dream.
Geary, loved your posts on Quillette but this is a recipe for a massive meltdown in the wealth of homeowners. You need to fine-tune this attack so that you pick up land bankers etc.
You and Liam Halligan seem not to have considered who would support these homeowners suddenly far poorer due to the unintended consequences of this well-meaning but simple solution to a complex issue.
It is a common complaint from young people who refuse to save, I know two of them intimately, yet even they have finally bought into the housing market, in the middle of a boom?
"the asset holding class decides to buy up as much land is necessary, as soon as it becomes available, in order to protect their price-gouging, upfront-rentier investments."
Geary my man, you are almost a member of the Cetacean Communist Party even if you don't know it yet.
Good topic. Home ownership is foundational to a free society and should be encouraged by government policy. Problem is, when you give government the opportunity to make policy, they generally hose things up worse than they found them.
Whether US or UK shortage drives price and shortage can be natural or artificial. Zoning drives shortage as does large scale land banking and house banking as a number of corps are doing in US. Not a good trend. Do I trust government to find a solution? Nope.
I think Geary is correct and he’s not advocating socialism either. The largest building companies and the banks are drip feeding land at a massively inflated rate.
It is harder to build houses now because the plots suddenly catapulted in price around thirty years ago. At that point a small builder in some cases could break out of sole tradership and into the bigger league.
Most building work is sub-contract to housing firms. It is labour only. the wages are good but they are limited and capped by tax brackets and vat.
This is incredibly difficult to explain. Ok. So firstly you have say 90% of builders that work the sites. They will earn between 750£ and 1500 per week. Taxed at 20% until in the 40k mark then their taxation is around 40%. Given there is no actual profit and the builders can’t afford to outlay for a plot and materials and labour and other costs they fill up their ambition on ok to decent wages exclusively to these big corporate builders.
Let’s go to the sole traders and small limited builders, most of whom are sole traders and capped at 85k vat. They never wish to turn over more than 85k as they then must charge 20% more when the tender for work and the sole traders will capture all their work. It makes being vat registered extremely difficult unless you have vat registered businesses directly passing you that work.
So back to a sole trader wishing to get rich building. First thing he’d need to do is have his customers pay his subcontractors directly so that he could take his turnover right up to the 85k threshold without it drawing him into vat land and maximising his own space within that cap. There is nothing illegal about taking out a contract but having the customer pay each tradesman individually. Given that building materials are factored into the turnover and factoring the trends of the percentages of builders who in the private sector who are sole traders and not vat registered builders it is easy to see that they are happy enough to average annual pays between 30k and 60k.
What I did the last time I got rich was to buy the worst house on the best street and for cash. Then do it up. Then save out of that 60k and buy another, do it up and rent it. After having a few houses the process speeds up. Once I had a number of houses, I had twelve. I then sold 4 to fund building 3 houses on a plot which I bought. I profited about 40% minus capital gains tax, which was 240k on that one build. The 2007/8 crash wiped me out and it’s taken me 13 years to get back to 7 houses. What I did was extremely risky to do. There is a semblence of a free market but it isn’t what most people think. 30 yrs ago I could of bought a plot for 20k, but now they’re 100k plus and that’s in the cheapest area in the UK. But the banks won’t lend us the plot and development costs, we have to self fund. You’d think they would in a free market? But we’d be able to undercut the big boys and that isn’t allowed.
The trend now is house shares.Young people are renting a house between them to reduce costs. Many people simply can’t get on the housing ladder. People that easily would of a generation ago. Some just say it’s the market and it is what it is, well fair enough, but let’s try and imagine this situation in another twenty years time following current projections. Well I’ll be 72, the 20yr olds now who will be 40 will still be renting and the house purchases will be for renters. What about 50 years from now?
Please note that the renters I’m speaking about aren’t unemployed and on government handouts, these are people who 30 years ago would have had enough surplus money to have funded a mortgage and still had a social life, people who’s own parents often did this relatively easily. Either the banks start offering better terms and/or lifetime mortgages or else in time only the very wealthy will own houses. Jeremy Corbyn turned many people toward socialism using this very argument. People who’s parents were often naturally inclined to conservatism. I find it easy to understand why. Disenfranchisement, inflation and the high cost of living. Owning your own home ought to be much more than a dream.
Geary, loved your posts on Quillette but this is a recipe for a massive meltdown in the wealth of homeowners. You need to fine-tune this attack so that you pick up land bankers etc.
You and Liam Halligan seem not to have considered who would support these homeowners suddenly far poorer due to the unintended consequences of this well-meaning but simple solution to a complex issue.
It is a common complaint from young people who refuse to save, I know two of them intimately, yet even they have finally bought into the housing market, in the middle of a boom?