Montague – Its as bad as Beecroft
Where is the evidence that planning obligations on affordable housing should be abandoned, even if the coming review of viability for pre 2010 consents shows they are viable?
It contains the following section – which is a basic fallacy
• All housing other than social housing can be sold to owner occupiers by the developer – there are no restrictions on that
• The result is that all housing land prices tend to be fixed according to the price of owner occupied housing
• Developers wishing to build housing for rental will therefore compete for land with house builders that sell to the owner occupied market
• Because property can switch freely between the owner occupied and private renting markets, the opportunity cost of an investment in housing is the price it could achieve on sale to an owner occupier, not another investor
However the correct approach is as follows:
• All housing other than social housing can be sold to either owner occupiers or buy to let landlords by the developer – there are no restrictions on that
• The result is that all housing land prices tend to be fixed according to the price of whichever is most profitable at any one point in time – owner occupied housing or buy to let
• Developers wishing to build housing for one tenure will therefore compete for land with house builders that sell to the other
• Because property can switch freely between the owner occupied and private renting markets, the opportunity cost of an investment in housing is the price it could achieve on sale to another tenure, not another investor
Can there be any disputing this? Why should Grant Shapps back so enthusiastically this report when it contains such a wopping error.
The result is that one tenure – buy to let or owner occupier will tend to crowd out the other at any one time, social housing (if the scheme is viable) has absolutely nothing to do with it- duh!
If people and investor were indifferent between renting and borrowing then economic theory tells us that a no arbitrage condition would set the same price for both. We see different prices because people are not in different and because the type of stock built for rent and owner occupation are quite different. indeed the overbuilding of stock for buy to let is one of the biggest reasons why it is less profitable. Does this feature in the report – no – only one place for Montague – waste paper basket – I am indiferrent to the marginal utility of re-reading the report or recycling it.