2 September 2019

John McDonnell’s housing policy is little more than theft


John McDonnell’s latest bright idea is that private sector tenants should have the right to buy the homes for below the market price. As perfect an example of McDonnell’s incapacity to think through an economic problem would be difficult to construct – for this doesn’t even solve the problem he’s claiming needs to be solved.

As the FT reports:

Mr McDonnell said he wanted to “tackle the burgeoning buy-to-let market” to make it easier for workers to buy the homes they live in. He suggested the sum paid by tenants would not necessarily be the market price. “You’d want to establish what is a reasonable price, you can establish that and then that becomes the right to buy,” he said. “You (the government) set the criteria. I don’t think it’s complicated.”

This is, of course, the straight out theft of the assets of those landlords. That’s just what setting a price lower than market is. That’s to say nothing of the many pernicious knock-on effects – there’s no guarantee that price is going to be above the outstanding mortgage on a property, for example. Leaving someone with a debt and no asset seems a tad harsh. Insisting that the banks write off such amounts would make 2008 look pretty mild. Someone, somewhere, would have to take a large loss on such a scheme and quite why anyone should have to is difficult to understand.

But of course all of this is worse than merely some politician deciding to nick stuff. The worst part is that it doesn’t even solve any of our housing problems.

We can see what passes for McDonnell’s logic, of course. If the right to buy should apply to council houses then why not to other landlords?

That rather ignores the difference between the disposal of state owned assets by the state and private ones by that same state. Property rights do rather say that the property owner – whether the property is an apple, a massage or a house – gets to determine the price at which she’s willing to let it go. Whether the seller managers to find a buyer is another matter. The government selling government-owned houses at a discount is fine. The government compelling private owners to do likewise is certainly not.

Then there are the two problems this is supposed to solve. There’s a significant campaign at present to extend tenancy terms. People have a right, apparently, to live wherever they want for as long as they wish. Or, to put it differently, to have some stability in their living arrangements rather than mere six-month contracts. That may be so – but now think about these discounts. For council housing it was long term tenants who got the discounts. If we are to copy over the scheme then presumably something similar will happen, with long-term tenants getting the discount.

If so, it’s hard to see the problem being solved here? Labour want rentals to decline as a portion of occupancy types in order to offer greater security of occupation. But will the deal only be on offer to those who have already proven that they’ve gained long term security of tenancy?

Of course, the proposal could be even more stupid than it at first appears and the discount could apply from day one of a new tenancy. In which case there will never be any new tenancies, unless a landlord really wants to give away their property for less than its worth. That would rather put the kibosh on 21% of the housing market overnight.

But, yes, there’s more. McDonnell specifically mentions overcrowding as a problem he would like to solve. The potential withdrawal of a fifth of housing stock from the market isn’t going to help him, of course. What’s more, the part of the market that is now burgeoning is build-to-rent. Pension and insurance funds are pouring money into significant developments expressly designed to be rentals over the decades. These are exactly the sort of people looking for long-term tenants with just the security of occupation the politicians are going on about. But those homes are not going to get built if the risk being forcibly sold at a discount as soon as they have been.

Landlords, rentiers, have long been a hated class on the left of British politics. McDonnell’s scheme is just playing to that atavistic demonology rather than a sensible plan to do something. But don’t be lulled into thinking that no one would be stupid enough to do this. British governments spent most of the 20th century trying to kill off the private rental sector. That we eventually came to our senses doesn’t mean someone’s not going to try it again.

There are sensible proposals out there to increase home ownership. The Centre for Policy Studies, CapX’s parent organisation has one such suggestion. Currently capital gains tax is charged on the disposal of a buy-to-let dwelling. We could divert that into a subsidy to the buyer. That would be the state disposing of the state’s property, that tax revenue, rather than just stealing it from the landlord.

But then given it’s John McDonnell, perhaps stealing is the point?

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Tim Worstall works for the Continental Telegraph and the Adam Smith Institute.