Wednesday, June 03, 2015

The Benefits of Housing

Two things popped up on my radar today and there is a connection.

First a report on the Huffington Post.

Almost 40% Of Homes In The UK Purchased With Cash, As Average House Prices Continue To Rise
Mr Gardner said: "The significant rise in the share of cash transactions occurred in the wake of the financial crisis, where a tightening in credit conditions and a deterioration in the labour market limited the number of people able to buy with a mortgage."
He said the low interest rate environment in recent years, which has resulted in poor returns for savers, is likely to have supported the flow of investors' cash into property.
No shit Sherlock. If you’ve got spare cash and you’re not getting a decent rate of interest then why not invest in the buy-to-let market? And then there are the overseas buy to leave speculators.

But this is the thing. This boom in supply on the rented market is not reducing rents. This is not supposed to happen, it’s not in the Economics 101 textbook. The number of private rented households in work and claiming housing benefit has almost trebled in the last five years.


So, the taxpayer (those who actually pay tax) is acting as surrogate for low interest rates for investors (who generally avoid or evade tax). And it’s going to get worse.

Cui bono

Further reading:

Half a million more people claiming housing benefit under coalition

How the promise of a property owning democracy turned into a nation of Renters.

2 comments:

  1. Thought provoking and demonstrates that housing is not simply a case of supply and demand. Rent controls, charge business rates on buy to let, better rights and protection for renters. Other countries have healthy rental markets. Need to redress the balance as it favours the landlord too much.

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  2. I think it's too general a statement that investors avoid or evade tax. Large investment companies have accountants who ensure that they take full advantage of the tax laws but they are on dangerous ground when they start using evasion. Small investors, who own perhaps one or two rented properties, do not have the resources to manipulate the tax laws. Purely anecdotaly, it seems quite a few people who have inherited a house from their deceased parents are choosing to let it rather that sell it and earn 0.5% interest on the capital. I wish I had.

    If the boom in supply in the rental market hasn't caused the prices to drop, I would assume that the demand must still be oustripping supply.

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