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Housing Notes: Part 1 - Why There Isn't a Housing Crisis || Rent Control isn't scary when you already live in Worst Case London ||

Housing Notes: Part 1 - Why There Isn't a Housing Crisis

Aug 31, 2015

If there's a housing crisis, why aren't we acting like it? Why is the green belt a sacred cow but affordable living not?

Going back to basics:  'crisis' is an old medical work – meaning the last time at which the patient can recover. Current meaning is closer to ‘decline that impairs ability to function’. This meaning can (and is) deployed more often but lacks the urgency associated with original meaning. Each year not building enough houses is creating more work for future people to build more houses than the currently demonstrated ability to do so. There is no date at which housing can be said to have succeeded/failed. Eternal little (or in reality large) failures – but we’ll do better next year. Never said – “this is a permanent failure that requires radical action.”

People are very bad as saying ‘this has failed’ with ongoing processes. We will produce less carbon in future than our current attitude and resources suggests is likely – we will build more houses in future than our current attitude and resources suggests is likely. Tomorrow is someone else’s problem. The poor sap.

I think there's a fundamental disconnect in how people perceive ‘housing crisis’. When I talk about a housing crisis I’m thinking of a situation where:

  • Too many people living in substandard housing – with no political will to improve situation.
  • Too many people living in insecure housing (short tenure, other people with physical access, risk of evictions) - with no political will to improve situation.
  • The prices of living in this undesirable situation is constantly rising – with no political will to improve situation.
  • At a more oblique level – a moral crisis. A rentier class extracts wealth from another group who live in bad circumstances without choice – making money from human misery. This class holds reasonable lobbying power and sometimes as individuals direct political power.

What makes a ‘bad thing’ a crisis is that it is clear it will not just recover on its own. Left to their own devices all the above will get worse.

I think for most people a ‘housing crisis’ is more fundamental than that:

  • You either have a roof over your head or you don’t.

Being on the street is a crisis, rent being expensive is not. This is young people whining about being young and poor people whining about being poor. Change the record. The situation is not bad enough to re-examine fundamental assumptions (individual resistance to new local building, cultural resistance to reducing green belts).

So where is the “real” housing crisis? There’s an idea in climate change that there are ‘carbon sinks’ that absorb carbon from atmosphere but at some point they will decline in effectiveness and rise in atmospheric CO2 proceeds much quicker.  This can be reduced to a metaphor – ‘a device that commutes effect of bad thing but will eventually stop’. What are housing’s carbon sinks? For a few:

  • Private landlords used to house people councils have legal duty towards. Families housed in B&Bs for extended periods, etc.
  • Children living with parents for longer.
  • Unsustainable high proportions of income being spent on rent. Many people on brink of affordability – in crisis will be unable to afford.

First is most obvious give point – there is only so much housing that can be used as emergency housing. To avoid the very bad thing of children on the streets councils are shipping people to less expensive areas. Headlines about people being taken away from their families and lives – but reader might enter fairness paradigm at this point: ‘Why should I pay so much to have a house in London and have the life I want and someone else get it for free? If you can’t afford it you should go somewhere cheaper’ (with even poorer job prospects, etc). So safety valve on housing crisis folds into "poor people want something for nothing" as opposed to “why is there nothing affordable?”

Second point is an obvious frustration to that generation and helps hide full scale of housing shortage but again has obstacles to seeing it as a real problem.

Fundamentally people want to believe in a just world and that people get what they deserve. Children these days are just more dependent on their parents, not like we were. A series of metaphors are deployed to mark this generation as especially unable to cope outside the nest (itself a metaphor for ‘maturity involves leaving home’). ‘Bank of Mum and Dad’ is used as ‘kids will be financially irresponsible’ but also interestingly ‘too young to enter real financial world’. A requirement for inter-generational wealth transfers appears to replace the institutions and availability of capital that existed at an earlier time (and of course, family wealth is not available to everyone) – but metaphor is deployed as being between generations and reinforce idea of immaturity of youth – not a comment on the different societies different generations live in.

If a lot of people weren’t working hard to keep homelessness down (by finding enterprising ways to move people around to some form of shelter) or opting out of market (living longer with parents) there would be a far more obvious homelessness crisis. It is a good thing there isn’t! But we’re left with a perception gap.

People who need to believe there is a crisis (because they can stop construction of required housing in the right places) don’t. This is a large part of the problem.

Rent Control isn't scary when you already live in Worst Case London

Apr 26, 2015

A 2000 Paul Krugman article arguing the problems of rent control was going round twitter yesterday in response to Miliband rent control proposals in the UK. Ignoring the fact the Miliband's rent control is a controlled-rise system rather the the traditional set-up Krugman attacks, anyone who finds his San Francisco example scary doesn't really understand the current problems in the housing market:

On the other side, consider an article that appeared in yesterday's New York Times, ''In San Francisco, Renters Are Supplicants.'' It was an interesting piece, with its tales of would-be renters spending months pounding the pavements, of dozens of desperate applicants arriving at a newly offered apartment, trying to impress the landlord with their credentials. And yet there was something crucial missing -- specifically, two words I knew had to be part of the story.

Not that I have any special knowledge about San Francisco's housing market -- in fact, as of yesterday morning I didn't know a thing about it. But it was immediately obvious from the story what was going on. To an economist, or for that matter a freshman who has taken Economics 101, everything about that story fairly screamed those two words -- which are, of course, ''rent control.''

After all, the sort of landlord behavior described in the article -- demanding that prospective tenants supply resumes and credit reports, that they dress nicely and act enthusiastic -- doesn't happen in uncontrolled housing markets [emphasis mine]. Landlords don't want groveling -- they would rather have money. In uncontrolled markets the question of who gets an apartment is settled quickly by the question of who is able and willing to pay the most. And so I had no doubts about what I would find after a bit of checking -- namely, that San Francisco is a city where a technology-fueled housing boom has collided with a draconian rent-control law.

I find it hard to be too scared by this doomsday vision of prospective tenants at the mercy of strange landlord demands because this is pretty close to what I've actually experienced. I've written about it before but one place we almost moved the landlord, despite the fact the letting agent would do a reference check, demanded to see bank statements and have a meeting with us before accepting our offer.  This wasn't a friendly meeting, it was an aggressive "how do I know you won't leave early", "how stable are your jobs", "you don't have friends and parties right" meeting. You got the impression quickly he was of the "unexpected visit" school of bad landlords and having come from another bad landlord situation we got the deposit back and moved into another place. Here we spent the next year dealing with mould, rats, mice and cockroaches, but the choice we made was absolutely the right one. That would not have been a good landlord to have.

This can't be dismissed as "just one creep". Looking at bank statements is a practice defended on landlord forums because of the "risk" landlords take by being landlords. Another place wasn't even interested in renting a two double-bedroom place to a group of three because they were looking for "professionals" rather than people who knew each other - essentially they wanted people with few connections who would treat the place as a dormitory rather than a place to be lived or socialised in (with the "risks" that might entail).

But London doesn't have rent control - if the landlord had so many offers that they could afford to be picky why don't they just raise the price? Don't they just want money? The way to make sense of this is that the wrong people operate the private rental sector. In 2010 a private landlord survey found that:

  • Eighty-nine per cent of landlords were private individual landlords responsible for 71% of all private rented dwellings, with a further 5% of landlords being company landlords responsible for 15% of dwellings.
  • More than three quarters (78%) of all landlords only owned a single dwelling for rent, with only 8% of landlords stating they were full time landlords.

Small-scale landlords are the major player in the rental sector and they're not always going to be good capitalists. The ones that act like the above are risk-adverse and want their investment bothering them as little as possible. If the amount of money you are willing to accept to balance the greater perceived risk is greater than the difference between the price where you have one buyer and and the price where you have enough choice to chose less risky tenants, you will charge less than you can and screen.  People who will put up with this before even moving in are likely to be less troublesome, less likely to make demands of work that cost money/require attention, less likely to understand their legal situation, etc. This is a better and more comfortable position for the investor-landlord. The rate of return is still ridiculous regardless.

When people say that rent control means that properties won't be maintained and landlords will have invasive and offensive tests of potential tenants I'm not scared of rent control - I'm scared people don't seem to understand the full extent of the problem. We clearly do not live a housing market where tenants are only discriminated against on the size of the wallets - when your uncontrolled situation is pretty close to the controlled bogeyman something has gone very wrong.