Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Wednesday 2 March 2016
The Independent spouts nonsense on house building.
Their article argues that because house builders keep a stock of land with planning permission over and above what they need immediately, that therefor they are artificially raising house prices. Two flaws in that argument.
First, it is perfectly normal in most industries to keep a bigger stock of raw materials and other inputs than is needed in the immediate future. Reason is that it makes sense to have that stock available to meet sudden increases in demand or failures by raw material suppliers to supply on time.
Second, in a genuinely competitive market, it just ain’t possible to artificially raise prices with a view to earning above normal profits. One producer can cut output with a view to raising prices if they like, but other producers are likely to immediately cash in on any rise in prices and profits. And given the number of different house builders, I’d guess the house building industry is reasonably competitive.
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This is a complex problem,but this kind of statement is ridiculous.
ReplyDelete"Clive Betts, the Labour chairman of the Local Government Select Committee, said: “I think it is clear that the big developers are building at a rate to maximise their profits rather than addressing the country’s housing need.”
Well er yes ,that's what private corporations do,they are really not in business to address the nations needs.The state is the only actor that can intervene here.Shelter have done studies on this and shown it is landowners who get the lion share of profits from this process not builders.Builders will build and sell more expensive homes as that maximises their profit.As Shelter also pointed out this is entirely rational behaviour.If you want more affordable homes building then only the state can intervene in the market to make this happen.The current housing free market,from land owners, to builders to buyers does not get us the homes we need building built...simple.
That's such a good point that I put it on twitter and claimed all the credit for it - i.e. didn't mention you...:-)
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