Ten initiatives to help young people: 1. Housing

Young people find it difficult to obtain housing because it is so expensive.  This is because demand is rising much faster than supply.  People live longer and occupy housing for longer.  An increasing proportion of people choose to live singly, and immigrants add to the population.  All these factors increase demand, but planning regulations prevent a corresponding increase in supply.  More homes are needed, and it should be made easier to build them, and to build ones suitable for young people. Parts of the green belt are by no means green.  Agricultural land around cities is often given over to monoculture with quantities of fertilzers and pesticides poured into it to grow huge fields of a single crop, resulting in poor habitat for birds or small mammals.

One solution would be for government to buy chunks of agricultural land around cities.  They would do so at the market prices for agricultural land, or slightly above, and from farmers willing to sell.  Government would then re-zone the land as suitable for building, and sell it, again at market prices, to developers.  Since land that can be built upon sells for many multiples of the price of farmland, government will make huge change-of-use gains.  

The sale of large blocks of such land will lower the price of building land.  The hundreds of thousands of extra houses built upon it will lower the price of housing as the supply more than keeps pace with demand.  Government could designate a proportion of the new homes specifically for young people.

The result would be extra housing where people wanted it to be, on the edges of cities instead of beyond the green belt.  Much of it would be more affordable to young people, who would then be able to live closer to where they work, without having to pay exorbitant housing costs.  With more young people finding it easier to buy homes, the pressure on rental properties would decrease, lowering the living costs of those who choose to remain and rent properties within the cities.

The programme of building such housing would boost employment, creating tens of thousands of extra jobs, including jobs for young people.  It would give the economy a significant boost.  More to the point, it would solve one of the most serious problems faced by young people today.

This sounds terribly logical which is why people are complaining

We have the delightful arrival of a government plan that is actually sensible. That being, of course, why it's unlikely to get through and also why there is much a'wailin' an' a'cryin' about it all. For to some people government isn't there to do sensible things it's there only to protect their own interests. The sensible thing is that places which have planning permission will be regarded as having planning permission. Which, given that the point and purpose of having a system of planning permissions is to indicate where people have permission to do the planned thing sounds very reasonable indeed to us:

Tens of thousands of new homes in greenfield areas in England will be given automatic planning permission amid fears that communities will have inappropriate developments forced on them. Ministers have quietly given developers the right to be granted "planning in principle" in areas that are earmarked for new housing schemes.

So there we have it, that is the change being mooted. That places where it has already been decided that houses should be built should be regarded as places where houses can be built. There are, of course, those a'wailin' an' a'whinin':

Rural campaigners said the new powers will restrict the rights of council planning officers to ensure that the design, density, size and location of homes is in keeping with local areas. Shaun Spiers, chief executive of the Campaign to protect Rural England, said: "“The country needs more house building, but the way to achieve this is through well-planned developments that win public consent. Imposing development without local democratic oversight is a recipe for discord.

No Mr. Spiers, it is precisely you and your ilk that this change is meant to defeat. We do not need that sort of detailed planning: just as we do not need Whitehall deciding how many tonnes of steel are made, of what type, and by whom. Nor wheat grown, shoe styles determined nor how people coif their hair, all things which various governments at various times have tried to dictate.

We ourselves favour no planning system at all, the complete abolition of the Town and Country Planning At 1948 and successors. But if that's not going to happen then we're quite happy with the idea that the level of the current system where the NIMBYs and the BANANAs stick their oar in be abolished. We're perhaps BANAs, build anything near anyone, but in the absence of that we're quite happy with the idea that if a piece of land has permission to build upon it then the general assumption is that permission has been granted to build upon that piece of land.

Erm, why?

Paul Mason says something that confuses us greatly. It's as if he's never actually heard of the concept of spontaneous order:

But in a smart city, you need data to flow freely across sectors that, in the commercial world, would normally be separate. The energy system needs to know what the transport system is doing. And the whole thing needs to be run like a “God game”: the city government, not the individual, must exercise control.

This is exactly the wrong lesson to take from these new technologies. But it's that old idea again, the idea that "someone" must be in control. Someone must run the country, someone must run the economy, someone must pan and detail what people and systems must do. And we've good evidence, we normally call it the 20th century, that this isn't how to make the world function effectively.

Certainly, there need to be rules, but those that work best are simply codifications, clarifications if you will, of what people are doing already. So look to society, see what people are doing, then write down what people are doing. But the idea that there needs to be a plan, a controller, over and above this is simply wrong.

Which is rather the point of these new technologies. Yes, at our previous stage of technology it was necessary for people to plan cities to some extent. But the entire point of the new level is that we can just hand this back to voluntary interaction. There doesn't need to be a Fat Controller in a system where we can all effectively interact.

That's entirely the point. We're now able to make cities work, if we're to believe this smart city hype in the first place, as markets, not planned systems. And markets don't need that God running the game, they manage it quite happily on their own.

Why is Mr Osborne going to wreck the best bus industry in Europe?

In London, Belfast and most European cities, buses are regulated and run by local authorities usually through a contracting model. They require very substantial public subsidy. Outside London, mainland UK buses are deregulated with private bus companies making all the decisions about when and where buses will run and what fares will be charged. They take the commercial risk. Because London has a highly developed bus lane network combined with a congestion charge, along with high population density and a growing economy, bus use has grown considerably in recent years. Despite this high use, the regulated system is so bureaucratic that London buses need a subsidy of about £600m per year. Belfast buses make large losses, but as they do not have London funding levels, they are facing big services cuts.

Outside London 90% of buses do not require any subsidy, the rest are mostly deep rural services and a few evening and Sunday services. Where local authorities are very pro-bus, usually to protect their town and city centres from congestion and pollution, or because it is impossible to provide a bigger road network, bus use is growing and companies are providing more comfortable buses with free Wi-Fi.

Places like Nottingham, Reading, Brighton, Oxford and Edinburgh have very high and growing levels of bus use. Customer satisfaction is high. Buses carry about four times as many passengers as the rail network and have the same levels of safety.

Despite the evidence, some of our bright local authority transport officers have decided that the buses are popular in London because they are regulated rather than because of the basic economic and financial situation there. For years these officers have been trying to get buses re-regulated and pass into local authority control. They have persuaded themselves, again against the evidence, that the huge costs of contracting could be met by cutting the profits of bus companies.

The outcome would be huge losses for the local authority, which would be passed on to council tax and business rate payers, along with big cuts to the bus network. Recently Sheffield City Council which had been a bellwether for regulation, changed its mind and signed up to a partnership arrangement with the bus companies. This will cost them very little, but they already have higher bus use and less congestion and better bus services for Sheffield are being delivered.

The puzzle is that in the name of devolution Mr Osborne is unnecessarily giving local authorities contracting powers (being described as franchising – but it isn’t in reality!) with a Buses Bill due to go through Parliament early next year.

A few dinosaur led local authorities such as West Yorkshire and Tyne and Wear are likely to rush into contracting, destabilising city budgets and undoing some of Mr Osborne’s attempts and deficit reduction. If they succeed there will be knock on effects for all Britain’s bus networks, even the best, because companies will no longer be able to raise capital for new buses from the private sector and quite quickly buses will become old and unreliable. Mr Osborne will have ruined one of the Conservative Party’s best privatisations!

London is hard hit by the housing crisis

The cost of the housing shortage to London's economy is well over £1bn, says this week's report from Fifty Thousand Homes, a new campaign backed by over 100 business leaders and supported by organizations as diverse as London First, CBI London, and Shelter.  They publish data compiled by the Centre for Economics and Business Research (CEBR), data that shows the annual wage premium caused by high housing costs is currently £5.4bn annually, and will rise to £6.1bn by 2020 unless action is taken.  Furthermore, the unnecessarily high cost of housing is diverting an estimated £2.7bn from annual consumer spending, a sum that could be creating many thousand jobs in the capital. The ASI has repeatedly called for planning changes to make house-building in cities easier, including our most recent paper, "The Green Noose."  David Cameron's conference pledge of a national crusade to build 200,000 affordable new homes will be no more than a pious intent unless it is backed by real changes to make new housing possible in and at the edge of cities - the places where people want to live.

As we have said before, significant parts of the green belt are by no means green or environmentally friendly.  Building homes on some of this non-verdant land will save many middle and low income workers the long and expensive commute which high housing costs impose upon them.

Now that good economic data has emerged revealing some of the economic costs of poor housing policy, the case for change becomes overwhelming.

TfL’s proposals were filled with nonsense, but what could they do instead?

Madsen, Sam, Charlotte and I have already scrutinised TfL’s recently leaked consultation. The regulations would hammer innovative businesses, reduce competition, raise prices and worsen the quality of transport Londoners receive. The proposals are a conspiracy against the public. Over 130,000 have signed the counter petition. So, what could TfL consult on instead? TfL should be looking for policies that will improve the experience and lower the costs of travel in London. To do this they will need to encourage investment, cut regulation, and harness new technology. Some ideas to get them started include:

Reconsider ‘The Knowledge’ requirement – could drivers who have it certify and prominently advertise this unique selling point? Could others also drive registered hailed cars? Many drivers use mapping apps like Google Maps or Waze, which usually know where to go. These apps can also model a journey based on real-time traffic conditions.

Cut regulations on taxis – reduce the many fees taxi drivers need to pay. Support a more regular dialogue about fares. Allow a greater range of vehicles, which are cheaper and more environmental.

Support car-pooling – rather than hindering innovations, it should be encouraged. Costs are lower for passengers going the same way. It is better for air quality too.

Reconsider tolls and charges – scrap the one-size-fits all barriers of the Congestion Charge. It could be more sophisticated with micro payments based on your actual journey time, location, and number of passengers. Explore privatising major roads and the use of tolls.

Make London the world’s first true driverless car city – a vehicle revolution is coming. Driverless cars will save lives, money and time. We should allow trials on our roads and facilitate the introduction of fully automated vehicles before any other major city.

Push the button on fully automated trains – the Victoria Line pioneered the technology and the DLR operates without a driver at all. Staff could be redirected to supporting passengers.

Fix the basics – trains and the Underground shouldn’t be hurt by faulty signals, bad weather, and a few flakes of snow. When things go wrong, getting a refund could be automatic. In summer, water fountains in stations and air conditioning on trains should keep passengers cool. Barriers on the platform (like in Westminster) should stop people falling or tragically taking their own lives.

Enable drone deliveries – innovators like Amazon are testing drones to deliver packages. Regulations are going to be the biggest hurdle, not technology. Test it out and make it happen first.

Invest in transport by renting prime estate – advertising is not enough. Many transport networks are heavily subsidised by providing space for offices and retail. Hong Kong’s MTR own 13 shopping malls and is filled with underground outlets.

Transport for London could dissipate its goodwill

Transport for London has quite a good record. There have been significant improvements in London's transport, and TfL can take credit for some of them. We have the new Routemaster buses with the open back that you can hop off in a traffic jam, or hop on or off at traffic lights. There are the new wide tube train carriages that allow you to talk from one carriage into another in search of a seat. We are soon to have all-night tube services on some lines. The new traffic lights that tell pedestrians how long they have to cross are a good innovation, as is the reconfiguration of some congested crossings that were previously more dangerous to pedestrians. TfL took part in some of the consultations that led to these and other improvements.

The leaked proposals under consideration on Uber could dissipate all of the goodwill TfL has earned, however. There is no conceivable benefit to Londoners in having to wait 5 minutes before a car can pick them up, or in preventing them from seeing which cars are nearby. This is typical corrupt rent-seeking, trying to hobble competition through political lobbying in order to protect incumbents and keep up prices.

Uber has provided Londoners with a service that is more flexible, more convenient and less costly. An estimated 1.2m users have taken to it. They do so because it is of value to them. Black cabs provide a good service, too. Most cabbies are cheerful and helpful, and they know the shortcuts. There is room in London for both types of service. The way to benefit most Londoners would be to ease the regulations and costs of the black cabs, rather than to legislate away the benefits that Uber brings.

The black cab drivers' association and those representing licensed minicabs boast openly that they were behind the now-public consultation proposals, and influenced TfL to take them on board. TfL should now ditch those proposals as ones bringing no benefit and great disadvantages to Londoners. Unless they do so, they will rapidly lose all of the goodwill gained by their other, more sensible, innovations.

Simon Jenkins is quite wrong about the housing crisis

Simon Jenkins says that there is no housing crisis, and lists 11 ‘myths’ that have misled people into thinking there is. I usually really like Jenkins's pieces, but I think almost all of his rebuttals of these ‘myths’ are wrong:

1. That there is a housing “crisis”. There is none. Too many people cannot find the house they want in London and the south-east, which is where most politicians and commentators live. …Average prices in London may be £500,000, but in the north-west and north-east of England they are £150,000.

There are even cheaper houses in the Scottish Highlands, Spain and Bulgaria. The point is that London and the south east are not just where ‘most politicians and commentators’ live, they're where most of the best jobs are being created, and hence where people want to live — from 2007 to 2011, "London’s economy (GVA) grew by a nominal 12.4% compared to between 2.3% and 6.8% across other UK regions." There’s a good case for trying to rebalance but for now it’s easier to build houses where the jobs are than move the jobs to where the houses are.

2. That an average is a minimum. It is not. Housing hysteria is based on averages. When someone asks “How can I possibly afford £500,000?”, the answer is: you cannot, but somebody presumably can. But go on Zoopla and there are houses in parts of London for £180,000. Even the poorest newcomers seem to find somewhere (usually private) to rent.

The problem here is that the average house is not affordable for the average earner. So the cheapest houses Jenkins can find in London go for £180,000 (actually, I'm not sure this is true because I can't find any on Zoopla) – where does that leave people on the lowest salaries? So ‘the poorest newcomers seem to find somewhere (usually private) to rent’ – never mind if those places are squalid, far from work and cost half those people’s incomes, eh?

3. That there is a national “need” for 250,000 new houses a year. ... Housing need implies homelessness. It should refer to the 60,000 people currently in temporary accommodation, who ought to be the chief focus of policy attention. All else is “demand”.

The 250,000 new houses a year figure is based on the number of new houses needed to stabilise affordability. True enough, people’s wish to have more in their lives than food and shelter – a bit of disposable income for themselves or their kids – is ‘demand’, not ‘need’. They won’t die if they don’t have it, they’ll just have worse lives.

4. That the solution to house prices lies in building more new houses. …The chief determinant of house prices is the state of the market in existing property and the cost of finance. During the sub-prime period, prices soared in America and Australia despite unrestricted new building. It was cheap money that did the damage. The house-builders lobby equates housing to “new build” because that is where their interest lies.

No doubt interest rates have an impact on the price of houses, as with any investment good. Simon Wren-Lewis explains why here. But think of interest rates and housing supply as two blades of a scissors: the only reason houses are an investment good rather than a simple consumer good is because the supply is so inelastic. There is no investment market in TVs or cars because the supply of these things responds to changes in demand for them.

The story Jenkins gives of the US housing bubble is a popular one but isn’t well supported by the evidence. Jenkins is extraordinarily ignorant if he thinks that building was or is ‘unrestricted’ in the US – planning controls mean that US GDP may be 13.5% lower than it would otherwise be. Houston, Texas, which (in)famously is the only major US city with no zoning code, actually escaped the subprime collapse virtually unscathed, and Texas issues so many building permits annually that median home prices in Texan cities are a fraction of that of tightly-controlled California.

5. That the solution lies in the green belt. This is an anti-ruralist’s version of myth four. Even were the green belt obsolete, which few accept, or partly so (which I accept), it will not dent the pressure of overall demand. Nor is sprawl remotely “sustainable” development. It requires new infrastructure and puts more pressure on roads and commuting. It is bad planning.

Jenkins does not explain why he thinks building more houses in places people want to live ‘will not dent the pressure of overall demand’ so it’s hard to rebut this. There is plenty of land around existing train stations into London that could be built on. Certainly new infrastructure would be required. I’ve discussed some ways to capture planning gain and use impact fees to fund other new infrastructure here.

6. That high buildings are the answer. They are inefficient as the higher you build the more is spent on servicing. London’s most popular and economic housing is “high density/low rise”. Towers have supplied mostly empty pads for the rich, housing no one.

I mostly agree with Jenkins here. “High density/low rise” housing is popular because it is relatively cheap, as he suggests. There is a clear price premium for lower density terraced and semi-detached housing – compare similarly units in the same areas in almost any part of London. This is the sort of thing people seem to want to live in, if we built enough for them to afford it. The reason we can't do this is – you guessed it, and Jenkins later acknowledges it – planning laws.

7. That the answer lies in new social housing. Security of tenure and low turnover – not to mention right to buy – renders the fixed stock of public housing inflexible and immobile. Increasingly it has become a generous donation by the taxpayer to a fortunate few, for life.

Yes. Very few people actually want to live in social housing – 80-84% say they’d like to own their own home, if they could. But Jenkins seems to want neither social housing nor much private housing to be built.

8. That people have a “right” to live where they or their parents lived before. Localities benefit from stable populations, but conferring and bequeathing such a right to discriminatory subsidy is in no book of rights.

and

9. That there is also a “right” to home ownership. The state has a housing obligation for those who need help. Home ownership is capital accumulation, developed out of the Tories’ mortgage tax relief as a form of saving for old age and to endow offspring. It promotes inequality and cannot be termed a right.

No, there isn’t and shouldn’t be a ‘right’ to home ownership or to live where your parents lived, but nor should home ownership be seen as capital accumulation only. As per above, houses are part consumer good (because people use them), part investment good (because they are scarce and valuable and their supply is inelastic). People want to own their own homes – we don’t need to use the empty language of rights to think it’s worth trying to give them that.

10. That renting is stupid. Renting is buying a service. About 60% of Germans rent. They do not think of buying until their 40s. Booming Berlin has 90% of its population renting. Renting aids labour mobility and channels savings into productive investment. As a result, Germany has little house price inflation and no “ladder” advantage to owning not renting.

Renting is great – Jenkins is entirely correct here. But a dysfunctional housing market also means a dysfunctional rental market. Rents seem to be less elastic than house prices, though they are rising, but quality and choice are dropping. A minor anecdote in evidence of this: flats that lettings agents used to show to people individually are now being shown to large batches of people, and there is a mad rush to be the first person to secure any half-decent flat that comes onto the market.

A second point: when people like Jenkins and Robert Shiller warn against owning a home, I tend to agree, but I have to wonder whether they are renters themselves. If not, why not?

11. That buy to let is evil. The poorest people rent from the private sector. The more houses are available to rent, the more flexible is the housing stock and the lower are rents for those who do not buy. Whether buyers-to-let should enjoy tax breaks and whether rents should be regulated are quite different matters.

This seems right to me. Buy to let has been demonized unfairly, although there are bad tax loopholes that distort the market in favour of it. But if you accept the logic that renting is desirable for at least some people you must accept that some people will need to act as landlords. They effectively bear the risk involved with investing in housing that renters do not want.

Jenkins's 'realities' are worth reading but are all fairly lacklustre. The goal should not just be to put roofs over people's heads: it should be houses people want to live in, in places people want to live, at prices they can afford.

Proof that it's the permits that matter

Am interesting little statistic from over the Pond:

....in every year since 2007, the combined number of building permits issued for single-family homes in the Dallas and Houston MSAs has outnumbered all of the permits issued for single-family homes in the entire state of California.

The population of Dallas and Houston together is some 12 million. That of California some 39 million. The population density in Dallas and Houston is very much higher than that in California.

The median home price in Dallas is $150,000, in California $400,000.

It would seem that the solution to the problem of creating affordable housing is to issue more permits allowing people to build affordable housing.

It's all so complicated, isn't it? When there's more of something it seems to become cheaper. We'll have to see if we can find someone to codify this idea for us.....far too difficult to just be true in and of itself, surely?

TfL and the cabbies are conspiring against the public

James and Charlotte have already written about why Transport for London's (TfL) proposed regulations of private hire taxis like Uber are a bad idea. I have not yet seen any defence that the regulations will improve standards for Londoners – they appear to be wholly designed to protect black cab drivers. And that seems to be exactly what's going on.

Back in August, Steve McNamara, General Secretary of the Licensed Taxi Drivers' Association, wrote in Taxi Magazine (p. 3 at that link) that "all of the proposed regulatory changes were proposed by the trade in our response", which were said to be:

• A five minute period between booking and pick up
• Operators must not show vehicles available for immediate hire – either visibly or virtually, via an app
• The fare must be specified at the time of booking
• Drivers to only work for one operator at a time
• No ride sharing
• Operators must offer a pre-booking facility – up to seven days
• Operators will have to record destinations at time of booking
• Operators to have a landline
• PH operators will be required to have Hire and Reward insurance policy for their fleet
• Satellite or temporary event licenses will be scrapped

These – published a month ago – are almost word-for-word what TfL is now proposing. And the Licensed Taxi Drivers' Association has a seat on TfL's board. This is regulatory capture, pure and simple.

That the LTDA have been able to dictate TfL's policy so precisely seems like virtually 'smoking gun' evidence that TfL – with London Mayor Boris Johnson as its Chairman – is regulating against the public interest to protect black cab drivers from competition from Uber and similar firms.

Nobody thinks these regulations will help consumers. This isn't misguided regulation, it's a conspiracy against the public. We're being stitched up here.