Housing policy and the expenses scandal

(This article develops ideas in an earlier article linking the parliamentary expenses scandal with the benefit system.)

Some people might think that the parliamentary expenses scandal is a sideshow, and not relevant to the good administration of the country. “What does it matter if MPs fiddle a few quid”, they might say, “as long as they run the country well?”. I argue that, on the contrary, MPs’ greed is instrumental in sub-optimal policies being pursued.

Consider housing.

The average house price in the UK is £224,000 (as of May 2009). Median income is about £23,000, so house prices are almost 10 times income, which is clearly unaffordable. The area of the country with the cheapest house prices is Blaenau Gwent where the average price is £80,000, a multiple of almost 4 times income, which someone would be unlikely to get a mortgage for (and arguably it’s not in the interest of the economy for people to get mortgages of such a high propiortion of income that they may well default). And note that the average income in Blaenau Gwent is going to be a fair bit lower than in the whole of the UK.

So the average person cannot afford to buy the average house. Is this because houses are fantastically expensive to make, and affordability is thus constrained by humans’ inability to exploit nature to do our bidding (such as the inability of the average person to afford their own spaceship would be)? No: houses are in fact quite cheap to make. In this they are similar to other manufactured goods, which are cheap because of technological advances, and the global market economy.

For example the American company Por Fin Nuestra Casa are building homes for low-income Mexicans out of used shipping containers and selling them for $10,000 each. Note that’s an all-in price which includes transporting the container/home to the site and fitting it to utilities such as electricity and water.

$10,000 is about £6,500 which is easily affordable by just about anyone in Britain. Would it be of adequate quality, by British standards? A shipping container is 40 foot by 8 foot, which is arguably not a very big home. Two of them linked together would be compaible to the floor area of a UK home however. It might also be that the standards of insulation etc wouldn’t be adequate — adding £7,000 to the cost would surely fix that, and it’d still only cost £20,000.

So why can’t people buy a home for 20 grand? To put it another way, why haven’t MP’s looked into the situation, and fixed what needed to be fixed so that this is possible? (It can’t be that the idea hasn’t occurred to any of them: the UK government did consider building low-cost housing from containers in 2004, but nothing came of it.)

I suspect there are a number of reasons MPs/the government haven’t done this.

Partly it’s because lower house prices would be unpopular with some voters. Maybe politicians have decided that floating voters in marginal constituencies (the only sort of voter they care about) dislike lower pricres because it means homes they already own will be less valuable.

Or maybe politicians care more about maximisuing the expenses on their 2nd homes than ensuring that their constituents can afford a first home. Given that MPs have been claiming for things like 88p bathplug, 39p cans of dog food and £1.10 tampons, it’s clear that some MPs are keen to wring every last penny out of the expenses system, and they clearly have given more time, effort and concern to that than they have over housing affordability.

But I suspect the biggest reason is the 2nd home allowance system itself. This allows an MP outside London to buy a second home in London, have the taxpayer pay for the mortgage, and then the MP owns the house. It’s clear that in this instance MPs stand to gain personally from high house prices, and some of them (probably the vast majority) are going to put their own personal interest above that of their constituents, for example Michael “I did not come into politics not to take what is owed to me” Martin.

What can be done to fix this? MPs expenses need to be out in the open — all claims, all payments need to be itemised and put on the Internet as they occur. MPs whose constituency is inside the M25 shouldn’t get the 2nd home allowance: they can commute into central London like their constituents do (then maybe the trains would be better). While most MPs outside London need a London pied à terre to do their job properly — they can hardly be expected to commute from Yorkshire or Scotland every day — MPs shouldn’t benefit personally from the 2nd home. Instead, the government should build or buy a high-rise apartment block near the Palace of Westminster and allow MPs to live there rent-free.

MPs shouldn’t be allowed to vote on any matter in which they have a personal financial interest in the outcome (in the same way that councillors are not); perhaps more of these issues could be dealt with by a referendum. I’m thinking here particularly of electoral reform: the biggest single obstacle to getting proportional representation passed is that all the current MPs have been elected under the present system, and many will (rightly) fear that they might not be re-elected if the system changes.

A simple way to save money on MPs expenses is to have fewer MPs. We don’t really need 646 of them, 300-400 would be fine. As with electoral reform, this issue must be decided by the people, not the politicians.

This entry was posted in Britain, economics, housing, politics, society, Uncategorized and tagged , , , . Bookmark the permalink.

15 Responses to Housing policy and the expenses scandal

  1. Pingback: Reforming the benefit system « Amused Cynicism

  2. Pat says:

    Just one point- the cost of a home conventionally built as part of a development is about £50,000- the rest is the cost of the land it stands on (plus the highway land providing access), which at agricultural prices would be less than £10,000 per home. The remainder is effectively the cost of planning permission. Simply releasing more land for housing would much reduce the cost, more than any prefab construction could in high employment areas. Of course that would seriously devalue existing housing, and be very unpopular with existing house owners.

    • cabalamat says:

      Simply releasing more land for housing would much reduce the cost

      Yes, you’re right. It’s planning regulations which artificially restrict the number of homes being built that are the main reason prices are too high. But even with zero restrictions, a house would still cost c. £60,000, and the technology exists to bring down the cost a lot more.

      Of course that would seriously devalue existing housing, and be very unpopular with existing house owners.

      You’re right, but I wonder if that’s really an insurmountable problem? The present government is bound to lose the election unless they do something really drastic, so they don’t have a lot to lose if they built large numbers of comtainer homes. There are large numbers of people on council house waiting lists or who would like to buy a cheap home and if the government built 500,000 container homes it would cost £10bn which is what they currently spend every 5 days. (Actually it wouldn’t cost that because they’d get all the money back in rents and sales). Doing so would also do a lot to remove the threat from the BNP and the vast majoirtiy of the people pissed off wouldn’t be voting for the government anyway.

      And does anyone seriously think that a house price crash every 10-20 years, as at present, does the economy any good?

      • George Carty says:

        And does anyone seriously think that a house price crash every 10-20 years, as at present, does the economy any good?

        House price bubbles are harmful in all sorts of ways:

        1. They starve the real economy of much-needed investment.
        2. They create an enormous incentive to destroy open spaces in urban areas
        3. They undermine families, as both husband and wife must work to pay inflated mortgage or rent payments
        4. They increase our oil consumption and congestion on our roads (because houses near to work are unaffordable, or because husband and wife are working in widely-separated jobs).

    • George Carty says:

      How likely is it that one motivation for preserving land for development (in the form of Green Belts) was designed to ensure that Britain could feed itself in the event of another world war?

  3. Great article,

    Our company, Por Fin Nuestra Casa was mentioned in the article. I can’t offer too much with regards to the misuse of taxpayers funds, but can say that there a couple of special ingredients to offering affordable housing. Land is THE primary cost driver, and affordable land is paramount. Density is the most efficient way to combat higher land costs. Lastly, we do our best to address ‘the needs’ of the homeowners, and not ‘the wants’. Most builders today add more features (ie, granite tops, jacuzzi tubs) to their product to differentiate themselves from the competition. After time, too many of these ‘luxuries’ become standard equipment, resulting in higher costs for the entire segment. Is there a new car on the road that doesn’t come with a CD player nowadays [Actually yes, the $2,200 Tata ‘Nano’ which shares PFNC’s same design philosophy], but I hope you get my point. A car’s intended purpose is to transport you from A to B, not to play music.

    Cheers and regards from across the pond

    -Brian McCarthy

    • cabalamat says:

      Land is THE primary cost driver, and affordable land is paramount.

      Is that true in Mexico as well?

      Density is the most efficient way to combat higher land costs.

      It has other advantages too. The higher the population density, the shorter the distance is likely to be to shops, places of employment, etc. This means it’s feasible to walk or cycle for more journeys. Furthermore, for longer journeys, the higher the population density, the more cost- and time- effective public transport is; which means commuters aresn’t stuck in a car in a traffic jam for 4 hours every day.

      Most builders today add more features (ie, granite tops, jacuzzi tubs) to their product to differentiate themselves from the competition.

      Yes, because if they are competing on price in a competitive market, profits are likely to be wafer-thin.

      Features aren’t actually in consumers’ interests, as different people will want to customise their homes in different ways.

      If I was building container housing, I’d fit the basics as standard, and have standard fittings that make it easy for people to customise (e.g. adding shelves, cupboards, flat-screen TV, fold-up tables etc). I’d also consider having two separate units: one (likeb you have) with kitchen, bathroom, etc, and a seconsd that’s only fitted for electricity. The second unit would have movable partition walls so the number of rooms in it could be customised.

      Anyway, I was wondering, are you considering selling container homes in the USA and Europe as well as Mexico?

  4. Fat Dave says:

    Density is a response to the effect of government land use (zoning) controls. In the UK, local and central government set out how many houses are required in a particular locality over the next five or ten years. (Like tractor or steel production in the planned economies of the twentieth century). The large developers hold land-banks of land, ready for development with outline planning permission, giving them a firm degree of control over – throttling – supply. The more small houses, with small or no yards they can fit per hectare, the more they profit. It might be Ok in the city, but in the suburbs, it’s far from it, I say.

    “Most builders today add more features (ie, granite tops, jacuzzi tubs) to their product to differentiate themselves from the competition. After time, too many of these ‘luxuries’ become standard equipment, resulting in higher costs for the entire segment”

    Another example of monopolistic supply. The developers offer a new-build home with all the extras you might want fitted. The surveyors or valuers don’t have the courage to point out that the new property value, for the purposes of a 25-year mortgage, includes items which will not last for anything like 25 years. The lenders must work with the developers and are happy to allow developers to offer inducements such as “cash-back” deals or paying for your microwave to go on a 25 year plan, but if a private seller and private buyer did a “cash-back” deal, they might get arrested. The buyer of a new-build realises the effect of this when she tries to sell the house before the developer has sold the last new-build on the site and finds the value has plummetted.

    “Is there a new car on the road that doesn’t come with a CD player nowadays [Actually yes, the $2,200 Tata ‘Nano’ which shares PFNC’s same design philosophy], but I hope you get my point. A car’s intended purpose is to transport you from A to B, not to play music.”

    Up to a point: I’d not want a car without a radio/music player. I’d not want one without a cupholder or A/C, either, for that matter. Still, easier to retrospectively fit a radio than A/C.

  5. Pingback: One down, 645 to go… - Scottish Roundup

  6. Pingback: Redwood wants high house prices « Amused Cynicism

  7. Kate says:

    Philip – I absolutely agree with your idea of a high-rise apartment block in central London for MPs outside the M25 to use when on Parliamentary business. This could also be rented out to the public during the 19 weeks that Parliament is not in session.

    Most MPs are in Westminster for less than 100 days each year, and their ownership of property in central London that sits unused for two-thirds of the year causes London house prices to inflate even further, making life difficult for first time buyers in London whose salaries often equate to perhaps a tenth of the average house price in their area.

    http://qeverything.wordpress.com/

    • cabalamat says:

      This could also be rented out to the public during the 19 weeks that Parliament is not in session.

      I’m against this idea, because:

      1. such short term rents won’t bring in much income.

      2. security risk. What if someone plants a timed bomb, or a foreign government bugs some apartments. The costs of checking out renters etc would negate tjhe revenue collected.

      3. MPs would probably find it useful to use the same place at all times over the year. Even when parliament isn’t in session, they go to meeting and conferences, which are often held in or near London.

      4. It would cause unnecessary hassle and cost for MPs who would have to clear out their belongings at the start of the break.

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