London’s housing non-shortage
Ian Mulheirn

What people fail to grasp is that if a market is unfair and dysfunctional, then housing will still be unaffordable for some groups in society even though there is a chronic over supply of it.

Housing “costs” are not too high in the UK. The problem is that they are too low, and counter-intuitively it is this causes all the problems.

Economists are quite rightly against rent controls as they act as an implicit state subsidy, causing misallocation and over consumption of housing. Yet these economists then fail to apply the same logic to all participants in the market.

Freeholders are not currently required to pay a land value tax as compensation to those they exclude from valuable locations. That they do not is an implicit state subsidy worth around £180bn pa. The value of which is capitalised into rental incomes and selling prices, pushing them up by 200%, while also leading to excessive vacancy and under occupation

It is this capitalisation that acts to transfer incomes from those that own relatively little land by value, compared to the taxes they currently pay, to those whom the opposite is true. Causing affordability issues for the former and excessive inequalities for our society.

Thus only the application of a 100% tax on the rental value of land will make housing optimally affordable for typical working households and allow the market to optimally allocate it.

When we increase the supply of housing where demand is highest, we simply move the margin of production. While this may help lower prices in the very short term, observation shows that by increasing agglomeration effects, we increase output, demand and ultimately aggregate land values. This is good. Things only go wrong when those values are not equally shared.

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