Some further thoughts on economics and housing

  I was watching an interview with Angela Rayner in which we asked about building houses. Everyone seems to believe we lots more houses.  She realises that unless we get councils building more we are not going to tackle the crisis in housing and the huge size of the waiting list. The interviewer then asked about the sale of council houses and the governments plans to cut access to these.

  It is at this point I begin to lose faith in the abilities of our politicians and our press. The problem is the shortage of housing, selling council houses does not increase the stock of houses and currently reduces the stock of affordable housing. So in what way does selling council houses to existing tenants do anything to solve the crisis of affordable housing, In fact it probably does the complete opposite. 

  If there is to be a valid argument that because someone has paid rent for 5 years they are entitled to buy the property and that was a good thing why not extend it to all rented housing or farms etc.  There would be an outcry that this was unfair, it always amazed me that the high court agreed that the government was able to do this to property owned by the ratepayers. Norwich city council tried to stop the sale but some judge decided it was OK. It does make one wonder about the integrity of the judiciary.

  However there are other implications of the thinking about the shortage of housing. It would seem likely that "free market" economists would assume that the market would somehow adjust and deal with the shortage. One way would be to reduce the demand by increasing prices or even by increasing production.The first of these proposals would create a huge increase in homelessness which as a society we have decided is a "bad thing", though perhaps those who are devoted to the "free market" would not be concerned. As a consequence we have the current dilemma. The only solution that I can see is to create council housing and ban the sale until the waiting lists have become essentially trivial. Let me emphasise that I mean council housing and not housing association which appear to be a throw back to the Victorian era where support for the poor was in the hands of the "Great and Good". 

  In this situation it is clear the market does not provide for a stable and happy society, controlling demand by pricing things out of people grasp does not work. Now consider the ways of central banks and inflation. Their only solution to inflation is to increase interest rates, that is drive up the cost of money in the hope this will cut demand and so reduce inflation This very crude and hits those with low incomes and little savings much more severely that anyone else. But the present cause of inflation is not high demand but a lack of production, perhaps a little like housing, most of which has nothing to do with any actions taken by the UK or its citizens. The question is how will increasing interest rates help to cut inflation in these circumstances? I have no idea but the consequences will be to make life much harder for the poorest. 

Thoughts on Economics Part 1

 For some time I have been concerned that the way that economics is understood and used has some fundamental mistakes.  It is clear that in order to try to understand the economy a standard of measurement is needed. Often to try to see how something works something is measured. In finance and economics this has been money. When we measure GDP, government borrowing, the benefit of a policy they all get referred to pounds or dollars or some other  currency. However this makes the basic assumption  that all pounds are the same which I believe is false and such analyses always benefit those who are better off, and the better off someone is, the more they benefit from such analyses.

 Let me give two anecdotal stories which illustrate how this works. The first is personal and relates to my father. he was an hourly paid worker. How did he cost things? Was something worth paying for?  He did not look at the cost in pounds, shilling and pence. No, his simple analysis was based on how many hours he needed to work to pay for the item/event. Another example was at a time when a Labour government introduced a maximal pay rise that could be granted, this was in 1975 and I think it was £6. A friend who worked for USDAW (Union of Shop, Distributive and Allied workers) most of whom were in low paid jobs, explained that for their workers this was a much heralded pay rise. For higher paid workers it was seen as insulting.

 Recently Andy Burnham announced a reduction of VAT on electricity bills. It was claimed that this was trivial as it would only save £40 a year. To most people that might seem trivial but for families with children on school meals that might mean they can afford to feed their children during school holidays, It was not that long ago that Marcus Rashford campaigned to help families in that situation. To a person who has a low income and is struggling to reach the end of the week with only a pound in their pocket, it could make a significant difference. So forty pounds is a lot of money to some people.

  It is important to see how this consideration needs to be brought into our thinking about tax and benefits and I will return to that in a later post.