The Basic Economic Mistake in the Montague Report

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.


Misunderstanding Household Formation – Not 232,000/annum but higher #NPPF

There is a lot of misunderstanding about the use of household projections to calculate planning for housing requirements.

Myth 1 – You can simply read off from Household Projections Housing Requirements

No but it is a good starting point.  Since 2007 the government target for new housing has been 240,000 new dwellings a year – a figure read directly off household projections.  Grant Shapps has not set a target but said we need to build around this level, although the latest 2008 based projections show a recession induced dip to 232,000 dwellings a year.  The Welsh Government advises that you should average growth over 5 years to avoid such cyclical issues.

But it is just part of the formula used in strategic planning – which is (ive included a number of corrections to the original approach set out in the 70s).

Delta HH =  Delta HS −  Delta SEC −Delta SH – VAC − DEM

Or change in household formation =change in housing stock minus change in second homes minus change in enforced sharing (concealed households) minus vacancies minus demolitions.

Vacancies is the number of frictional vacancies – that is housing unoccupied between occupants, plus the change in the number of long term vacancies – that is housing outside the housing market. So because of frictional vacancies along you need around 3% more houses than the change in households.  Demolitions should only be counted where they are part of the short term housing stock otherwise this is double counting.

Now imagine a situation where the household stock etc is fixed.  Then the requirement for new dwellings is the same as the change in households plus the frictional adjustment.  But that does nothing to clear any backlog of household of concealed households.

Also imagine a situation where housebuilding also rose with household formation but incomes rose steadily.  Wealth effects would cause some households to consume more housing including second homes, reducing affordability and supply in the stock available for single home owners.

Indeed you can gather terms and produce a formula:

Delta HS =Delta HH+Delta SEC +Delta SH + VAC + DEM

Because of second home ownership, demolitions and the backlog element the figure will be a lot higher than 240,000 per annum.  Sadly there is no national data for some of these terms especially enforced sharing which is typically measured at a local level, however rough estimates by the Smith Institute, JRF and others estimate we need around 270-300,000 dwellings per annum.  Of course at a local level SHMAs should do this, though in a number of new localist housing studies, which to my mind have taken a giant technical leap backward from many SHMAs, this seems not to be done.

Myth 2:  You can replace Household Formation with Affordability Targets

Household formation is a trend forecast not a projection.  It assumes that society will keep doing in the future much as it did in the past.  So if as a society we have built roughly in line with need and plan to do so in the future it is a fair guide.  But if we dont build to that level then affordability will decline.  So if you want to increase affordability then you can’t simply assume the continuation of past trends as the purpose of planning policy will be to change the current situation.  This of course was the basis of the Barker Review recommendation to take into account affordability issues as well as household formation, and the setting up of the shortlived NHPAU.  But has led some writers notably Meen and Andrew 2008 to recommend replacing planning by household formation with planning by affordability target.  But affordability is affected by the economic cycle, so in a downturn do we need to build less homes?  Planning for housing is a long term issue planned over more than one business cycle.  Short term price signals alone can be a very bad indicator.  Planning cannot control the demand for housing, money, only supply, but by steadily increasing supply it can maintain and increase affordability.  The key is the actions at the margins of concealed households who are forced to share because they cannot afford not to.  This is the same as the enforced sharing element above – so ultimately over the very long term accommodating household formation and clearing the backlog will maintain affordability – and it is much easier to calculate.

Myth 3: Because Household Formation is also caused by housing availability you can stop it growing simply by not building housing

This is an argument recently put  Collins Stewart Hawkpoint described by Chris Brown (the full report is subscription only) as follows:

[Household Formation] assumed to be a driver but CSH suggest that it is an outcome from building more houses and making mortgage finance readily available. They also point out that household size in the UK is at the EU average and the suggestion is that it could just as easily start to increase due to the mortgage shortage (indeed there is some evidence that this is already happening).

CSH suggest that house builders deliberately peddle the housing shortage line to help ramp up the political pressure to get land with planning permission (they have certainly achieved that under successive governments) and, perhaps more importantly, to convince investors of the underlying investment story in the housebuilding industry.

Certainly causality is a two way street.  Increased household formation causes politicians to release more land, which creates more homes which concealed households then go on to form new households into etc. etc.  And indeed if housing is steadily built there will be no housing crisis.  But of course it can so easily go wrong, especially given the variability in construction in affordable housing.  If it does then private rental prices will shoot up and real incomes decline.  Some residents opposing new housing will say there is ‘no need’ because their are unsold houses in their villages etc.  By the law of averages most villages will have several such properties.  But all this probably shows is that there are elderly people who have died and new potential purchasers cant get a mortgage.  Look at the youngsters in town forced to pay for extortionate rents for a proper measure of need.  All this shows is the crisis in the banking sector nothing about housing need.

Indeed if you did as CSH suggested then will people stop getting divorced, will they euthenaise themselves to stop getting older, will immigration cease (net migration is steady despite the government efforts), will they stop deferring cohabitation and marriage and will they conveniently share with there parents for the rest of their lives?  Of course not.  What CSH is suggesting is a return to the medieval extended household.

The fact that housebuilding and household formation is a two way causal street does not mean that we can ignore or seek to cap household formation as if the policy aim was restriction of the housing stock.  rather it requires the planned expansion of both and in step over the longer term.

London and the 0.01%

John Lanchester

It’s these two groups, non-doms and the internationally mobile, who mainly make up the London super-rich. They aren’t the 1%, or even the 0.1%, but the 0.01% – the few thousand richest people in the country. We go out of our way to entice them here: that’s what the non-dom rule is for. But there are almost no studies of their effect on the UK; of their impact on the debate about inequality and fairness; of their impact on the capital of having a group of people who simply don’t have to pay any attention to what things cost. One of the salient qualities of life in London, remarked on by long-term residents, by newcomers and by tourists, in short by everybody, is how expensive everything is. City pay is a big part of that, but the international super-rich contribute to it, too. The money they spend is obviously welcome, but it seems to me possible that it comes at too high a price to the rest of our polity. Inequality feeding down from the top of the income distribution is provably linked to a whole range of negative consequences for society, from higher rates of mental illness and incarceration and family breakdown to alcoholism, drug abuse and suicide. By choosing to have the tax system we have, we are choosing to make these problems worse; and we are concentrating the top of the inequality range in our capital city. The consequences of this need some real study. And yet it’s infinitely better to live in a country where people want to be, rather than a country that people want to flee – and these people’s presence here reflects that fact, too.

Turner’s Simple Theory of Smart Growth vs Sprawl #NPPF

A striking aspect of the NPPF impact assessment is its striking ignorance of 30 years of research and evidence of the advantages of smart growth over sprawl.  To my mind this made the whole impact statement baseless, out of date and showed an ideological bias rather than evidence of keeping currently with the latest thinking in urban and transport economics.

One key thinker is this field is Matthew Turner of the University of Toronto.  Recently he has been gaining attention with research on traffic congestion in the US showing the ‘universal law’ first posed over 40 years ago that building roads for commuting leads to them simply being filled up with congestion, to be true.  More controversially he suggests  that increasing public transport capacity doesn’t help either as this just leads to more capacity on roads being freed which then fills up.  To my mind this is nothing new in the English Literature as the late Martin Mogridge had the same theory 20 years ago in Jam Today Jam Tomorrow, but Modgridge made the conceptual leap that Turner hasnt that public transport increases the maximum employment density of cities and so rises urban land values.  Both Mogridge and Turner have the same solution – congestion charging, and Mogeridge was the key theorist who influenced the case for congestion charging in London by suggesting that if the funding were spent on public transport it would have positive welfare benefits in raising urban capacity and land prices.

I wanted here though to highlight an earlier paper by Turner that should be essential reading for the rather ill informed treasury economists influencing the NPPF.

In A Simple Theory of Smart Growth and Sprawl 2006  he argues that high density housing within walking distance of a store is welfare preferable to a low density car orientated scheme at a city edge, even though individual consumers and developers may have a low density preference.  The simple idea, although the paper will be unreadable to those without an economics background, is that these individual decisions dont take into account the benefits to land value of the shop developers, whilst the presence of the high density housing aids the viability of the store.

What this and similar research indicates is that there is considerable welfare advantages in developing housing in large doses where housing, public transport and retail can be planned together. Smart growth is not just high density housing it is strategic planning making decisions which make compact communities workable.

‘Stuffing their Mouths with Gold’ – The Dr Tim Leunig & Government Plan to Sell Planning Permissions #NPPF

[Land Auctions[ would give authorities a huge incentive to proceed with planning permissions. “Nye Bevan said that he overcame the opposition of doctors by ‘stuffing their mouths with gold’,” …“We would be doing the same thing with local authorities.”
Dr Tim Leunig LSE  quoted in Financial Times March 13th 2011

Abandoned to Their Fate
Dr Tim Leunig, LSE academic and former treasury economist,  has become a very influential figure to the coalition, despite David Cameron calling one of his earlier reports ‘insane’. However this would now appear to be official government policy.

Dr Leunig is an important thinker who raises critical issues about economic geography and to his merit has raised a key economic question, how to capture the unearned income from granting planning permission, to the top of the political agenda. A radical idea that a few years ago we might never have imagined would be accepted by tories.

My intention here is not to go for the man but the ball. I questioned the practicality of one of his key ideas about to be introduced by the government on his blog, and said I would be writing further on the issue. He said he would be very interested in the conclusions. Given the priority I had to give to a redraft of the NPPF, given ongoing discussions between government and various groups I havnt been able to do so until this weekend. Apologies.

Underlying Dr Lunig’s view are ideas about the shifting economic geography of England. He co-authored in 2008 a report ‘Cities Unlimited’ for David Cameron’s favourite dumb-tank and home of non-peer reviewed dubious pamphlets the Policy Exchange.

The report argued

We need to accept above all that we cannot guarantee to regenerate every town and every city in Britain that has fallen behind. Just as we can’t buck the market, so we can’t buck economic geography either.

‘There is, however, a very real prospect of encouraging significant numbers of people to move from those towns to London and the South East. We know that the capital and its region are economic powerhouses that can grow and create new high-skilled, high-wage service sector hubs.’

The report had three recommendations:

  • Increase the size of London by allowing the conversion of industrial to residential land in areas of high employment, creating space for half a million more people
  • Expand Oxford and Cambridge dramatically to recognise the fact their highly-skilled workforces make them the most attractive centres for growth.
  • Government should stop funding regeneration and give the money to local authorities to spend as they see fit in response to local people’s priorities.

The recognised the strength of several northern cities, including Manchester, Newcastle and Leeds, but argued that they do not have the power to revitalise the economies of surrounding town and communities. As a result, children growing up in these communities suffer from a lack of opportunity compared to their counterparts in London and the South East.
The report made John Prescott incandescent (at least in public media), David Cameron dismissed the idea as ‘insane’ and other Policy Exchange condemned the report as by ‘lim dem boy’ (and the Policy Exchange is not supposed to be the research arm of the Tory Party).

The reaction was gutteral and it is doubtful if Cameron had read a word of it.  There are real questions about the economic future of poorer towns surround the ‘core cities’ and the ‘urban renaissance’ ideas of loft living were never much applicable to towns such as Oldham where for the price of converting an old mill loft you could buy a whole street.  There are also real issues about whether very strict urban containment around university knowledge hubs such as Oxford and Cambridge  is the best urban planning and economic development solution (which is not the same thing as saying these places should grow without form or constraint).

The real issue though was whether or not the total free market approach was the best solution even in terms of economic geography.  There is nothing in terms of the inherent competitiveness of place to do business that makes Burnley less suitable than St Albans.  What matters is that more educated well off people live in and start business in St Albans than Burnley and with that flows money for schools and public services.  The economic geography of England is determined by the geography of wealth distribution, unlike in the 19th Century when the opposite causation flowed.

Ideas into Policy
Despite condemning ‘lib-dem boy’ the Policy Exchange swiftly backed his idea of turning industrial estates to residential estates, it was accepted by the government and they have just completed consultation on the idea.  It has been widely criticised and we have extensively looked at the idea on here.  Firstly it would have no net reduction in loss of greenfield land, in fact a net gain.  This is because employment densities are high in urban areas and low in rural ones.  Firms would be forced out of cities and so would their employees as they would otherwise have to pay more on commuting out of towns.  The amount of industrial and employment space needed in suburban and rural areas would balloon.  Start ups in urban areas like Tottenham for example would be unable to find space.  The agglomeration economies of firms being located close together would go, the very reason for cities existing in the first place.  Cities would empty out of the poor and firms, even the City of London would become an expensive ‘Mayfair 2’ rather than a financial centre as both Savills and the City of London itself has warned.  Outside the ghettos of the rich who don’t have to work you would get a donut city effect like Detroit or St Louis with firms and the working poor having fled to urban sprawl.  This idea is repeated in the NPPF which proposes ending zoning for employment.

Government has not stopped funding regeneration but the Regional Growth fund only has a fraction of the budget of its predecessor programmes.

Whilst the NPPF itself embodies the concept of leaving cities to their fate and leaving locational decisions solely to market forces – i.e. growing the fastest growing towns in the South of England.

As one blogger said this week

What is surprising is that few people have made the connection between Leunig’s fix and the coalition government’s National Planning Policy Framework (NPPF) that promotes a presumptive ‘yes first’ principle on development on restricted land. Developers over-developed on brownfield sites in Northern Cities during the New Labour era, cities like Liverpool are awash with empty homes, office and commercial space. Cities like Cambridge are crammed in so tightly you can almost hear the city squeak, so its understandable that’s where developers would like to target their investments.
It is certainly starting to feel like NPPF is a ‘backdoor’ Leunig fix.

Land Auctions
Even more influential though id Dr Leunig’s idea of land auctions.  An idea now adopted as coalition policy.  The last budget contained a statement that pilots would go ahead.  Osbourne and Cable are said to be keen and in the last week Greg Clark is reputed to have said that land auctions will be going ahead.

His paper ‘In My Back Yard’ for Lib-Dem dumb think tank Centre Forum sets out the idea. His basic premise is simple

Britain’s housing system does not work…The only way in which this dismal reality will be reversed is if the planning system is reformed to ensure more houses are built. This could be done from the centre…But it could also be achieved locally, by giving local authorities an incentive to accept development, and the right to say no to proposals they do not want. The best way to do this is to allow local authorities to capture most of the – massive – uplift in values that comes when land is first zoned for development.

This is the hoary old planning issue know as ‘betterment’.  If the community creates value through zoning a an area for housing why is it fair that the owner should then become rich without doing any productive work whatsoever.  Pr nas Winston Churchill said in his 1909 speech ‘Land Price as a Cause of Poverty’ the process of getting rich merely by sitting still’  or in Walter Rybeck said

The people as a whole create land values, not only by their presence, but also through participation in government, as taxpayers. Schools, firehouses, streets, police, water lines — the whole gamut of public works and services that enhance a neighbourhood are converted into higher land values.

So the problem has been that the public pays for this infrastructure but private landowners benefit.  No wonder people oppose development.  Finally after decades of playing around with solutions the last government proposed the planning gain supplement which then became the current community infrastructure levy, a means of capturing a part of the uplift to pay for new infrastructure.  But only a small part is captured.  The current government has also introduced the New Homes Bonus, a boost to council tax revenues for homes built.  In the first year of its operation though, despite all hopes being based on it, housing permissions and completions have dramatically fallen rather than risen.  Anecdotal evidence suggest that in the north and the midlands, poorer areas, it is encouraging local authorities to ask developers to submit planning applications to boost their revenues, but in the South East, East and South West the hostility to development and political desire to protect existing house prices is so strong that with the abolition of regional targets it is not at a high enough level to make any difference.

He describes a land auction alternative.

In the first stage local authorities would invite offers from landowners, whereby landowners state the price at which they are happy to sell their land. It seems likely that most farmers would be willing to sell their farm for five times its value, just as most homeowners would be delighted to sell their homes for five times fair value. The council would then choose which, if any, of the land offered they would like to see developed, would grant that land planning permission, and auction it to developers.
The successful bidder would pay the landowner the price the landowner had set ex ante, and the additional money would go to the local authority. In essence, the local authority is able to capture almost all of the difference between the agricultural value, and the value with planning permission, which amounts to around £3 million a hectare, or £85,000 per house.

His proposal contains very little detail as to how it would work in practice in terms of the development plan system, but he does say:

Rather than having a periodic development plan, councils would have a periodic two-part auction. In the first stage, they would invite every landowner in their area to offer their land for development at any price of the landowners’ choosing. This is a liberal system, devoid of compulsion. No landowner is compelled to offer or sell their land, and, if land is sold, the price paid will always be the price set by the owner.

This stage would roughly equate to the ‘call for sites’ in current plan making.

The council would then examine all the offers of land, and carry out a ‘local plan’ style exercise to decide where and how to develop. Nationally protected areas, such as sites of special scientific interest, would remain in place. But national governments would no longer issue binding development targets for local governments.

Notice how similar this is to the NPPF approach.  Indeed one can see that the land auction system would be the missing piece in the jigsaw of the NPPF – that protesters mouths would be ‘stuffed with gold’.

Once the council decides which land is to be developed, it can begin the second part of the auction process. The council would auction the call options for land it is willing to see developed. Winning such an auction would give a developer the right to buy the land from the original landowner, at the landowner’s chosen price, and then to develop it in line with the council’s plan….Councils would set a reserve price: if the winning bid was lower than the reserve, the land would remain undeveloped.

He concludes

By giving them an incentive to allow development, in the form of the uplift
in value of the land on which planning permission is granted, the system will change NIMBYs into IMBYs

Why the Land Auctions Model wont work – But the debate is worth having

Lets take a moderately real world example here of a town expansion.  It needs to expand by 100 units a year (for sake of simplicity 20% buffer issues are disregarded).  So 500 after 5 years, 1,000 after 10 and so on.

The sites considered as part of the Strategic Land Availability Assessment are as on the map above.  The LPA has considered and ranked them by combined site suitability and acceptability to a strategy.  Green are best sites and red worst.  It has also ranked these as shown below.

Rank Site Units Cumulative
1 A 200 200
2 D 220 420
3 B 300 720
4 C 150 870
5 L 400 1,270
6 F 350 1,620
7 E 500 2,120
8 J 150 2,270
9 I 150 2,420
10 P 150 2,570
11 Q 210 2,780
12 N 250 5,030
13 M 400 5,430
14 K 300 5,730
15 O 150 5,880
16 G 220 6,100
18 H 300 6,400

So rationally the normal phasing might be first 5 years A+D, then B, then finally C and part or all of L.

F would not be chosen but might realistically expect to be chosen in the next plan period.

Now imagine you were the owner of site A or D at the land auction.  You might rationally bid very low knowing that the site or sites would likely to be chosen anyway, and even if it were not you could wait 5 years and bid again.  Even at a discounted rate of, say, 5% per annum you discounted cash flow land valuation, in terms of premium over and above agricultural land value would not be hugely dented.  You might rationally assume that the other owner A or D would think the same. There would not even have to be collusion, simply the rational expectation that the other party would act in their own best interests and assume you do the same.

Lets assume you were owners of B or C.  Here you would assume you would normally get permission in 5 years.  If you bid very low you wouldn’t harm that.  You just bid again on plan review in 5 years time.  It is rational to make a low but not very low bid.

Now imagine you are the owner of one of the other sites that might not  ever get chosen without land auctions.

Lets say you were the owner of site M.  Under normal circumstances you might have to wait 136 years!  If you took the current value now if it were zoned and discounted it you would reach a point where this curve would intersect the current agricultural land value plus a minimum rate of profit.  That would be the marginal value of the scheme.  Each extra pound you bid brings the site forward by a certain units of time.  What a land auction is doing is using monetary payments to substitute for the poor sustainability of the site.  You are buying off sustainability.

Now of course there is a dimensional problem.  The rank ordering and money are non-commensurable.  A bidder would have to assume what weight the decision maker would give to money as opposed to sustainability, and indeed what their implied discount rate is.  As they might be facing short term financial pressures.  Given the uncertainties it is rational the less sustainable the site bid very high.

This issue of differing time preferences get even more difficult when we take away the town.  Lets assume the town would be created by the act of planning.  Leunig has claimed for example that the new town of Borden in Hampshire is a bad location under the land auction  model because house prices near it are high whilst house prices are higher around other existing towns which would be chosen instead.  But of course it is a town which creates value and it is impossible to gain value until it becomes a town.  Borden and other new towns are of course chosen because of low existing land values, which have the potential following investment, transport links etc. to become very high.  If in the classic Ebenezor Howard model you can buy low, retain the land values for the community it can push down rents dramatically, providing of course you can buy low and borrow to develop at a reasonable interest rate.

In Borden’s case if the LPA was under severe short term financial pressure it might accept a very high bid off  a landowner of an existing high value site around an existing town.  Even though in the medium term the new settlement solution might offer better value.  Also you would not be be able to retain the freehold and borrow off it in Leunigs model, you would have to sell it on.  With a site that might not come to full fruition for many years and requiring large up front infrastructure bids will be low for the new settlement solution, again even though it might offer the best longer term solution.

So we can see that the two stage auction model sends perverse signals and doesn’t allow the LPA to fully capture the uplift in land values from sites where the planning and infrastructure actions create the value.

Leunig’s model existing in an aspatialand atemporal world where all auctions are made at once and their is only one auction.  Planning is not like 3G auctions, it is not all or nothing, different sites can be ranked by more than price, more than one own interest rate, there are multiple stages and there is implied collusion.  To get technical for a moment it is not a Cournot game and as such the neoclassical presuppositions that Leunig uses are inapplicable.

The better the site the more incentive their is to bid low.  With low bids there will be less funding for affordable housing and infrastructure – this might get squeezed out.  An LPA might then go for less sustainable sites and the low bidders would bid again in 5 years.  Hence it provides perverse outcomes of both potentially squeezing out affordable housing from the best sites and forcing phasing into reverse with the least sustainable sites being chosen first.

Indeed the only way potentially to salvage the system is with a reverse auction model whereby landowners bid to maximise affordable housing, a system now being introduced in Chinese cities.  This also helped reverse the moral hazard of local authorities being overdependent on land sales for municipal income (26% of budgets) and causing them to overallocate land, causing a property bubble which has now popped, and over borrow to service it, causing a $1.7 trillion debt overhang that threatens to take down the entire Chinese economy.

So a badly structured model, which this is, can create perverse municipal incentives with severe macroeconomic risks.

Overall the land auction model is a decided second best to land value taxation.  This provides income over a longer period, rather than a short term hit.  It does not create perverse incentives to allocate unsustainable sites and it provides an incentive to keep landbanks to a minimum.  This is why it was brave to bring up the idea because it has raised the profile of land taxation issues and ways and means of capturing rentier income.

What the public though will be concerned about is the introduction of an ability to buy off unsustainability.  If a site is ranked poorly bid high and you’ll get planning permission.  This will be perceived by the public as utterly corrupt and only confirm suspicions that the coalition reforms are all about planning permission for sale.

Note:  It is unlawful to take into account such bid offers in allocating land.  The localism bill would make some financial considerations material but only to granting permission not allocating land.  Land auctions therefore require primary legislation which in the form proposed I cant see any government being able to pass.

I should note as well that the land auction model does not work at all for windfall sites, and urban brownfield sites where there is no alternative site.

London Housebuilders Overbuild chasing ‘hot money’ – New House Prices Fall by 21%

Startling report in the FT

The average price of a new-build property fell in London by 21 per cent in the 12 months to July 2011 but average prices in England, Wales and Scotland rose by 1.4 per cent, monthly data from Smartnewhomes has shown

Although Smartnewhomes is the least reliable of all house price surveys. No seasonable adjustments. No weighting for volume. But confirms news coming from elsewhere the mini ‘billionaire boom’ has peaked.

New Housing Bricked

From Brian Green’s Brickenomics Blog

one notes that the housing minister and twitter fan Grant Shapps, having been in tweeting heaven over previous upward pointing figures, appears not to have registered this latest batch of data. One naturally suspects that’s because the figures shows a 9% drop in housing starts in England quarter on quarter.

The current pattern in all likelihood has much to do with house builders restocking their development pipelines after slamming on the breaks in the face of the recession. The precise effect of this is hard to predict.

But with starts running at extremely low levels for a year and a half from late 2008, as firms ran down stocks, there would always be a need at some point to boost the numbers of homes in the pipeline. This point appears to have been early- to mid- 2009.

A common effect in such circumstances is an overshoot in the numbers above the “new normal” level as the stocks are rebuilt. Most likely what we are seeing now is a readjustment down to match the pipeline closer to the expected demand.

A look at the completions data (see graph) shows how the industry appears to have adapted to the new market. And, unless something dramatic changes in the market, builders looks set to produce at a rate that would produce between 100,000 and 110,000 homes in England a year, with about 80,000 to 90,000 in the private sector.

This pattern seems to fit reasonably well with the pattern of home sales in England. The red dotted line is the non-seasonally adjusted quarterly HMRC figures for housing transactions. Hence they are slightly more volatile than the four-quarter moving total of starts and completions.

But general picture emerging is of a rebased market with house sales and house building running at about half their pre-recession levels.

Banks Bulldozing American Towns

The Bank of America and Other hard pressed American Banks are demolishing hundreds of foreclosed home in an effort to revive local housing markets

Bank of America announced In July that they plan on bulldozing 100 homes in the Cleveland, Ohio area alone. What’s left of the land will then be donated to the local government. The Bank has already given around 100 homes in Detroit and 150 in Chicago back to local authorities.

Currently America is home to nearly 1.7 million homes in foreclosure; that’s around one out of every 77 in the month of June and 3.5 million saw foreclosure between 2008 and 2010. Bank of America itself saw 40,000 in just the first quarter of 2011. Wells Fargo, JPMorgan, Citigroup and Fannie Mae are all following in their footsteps with plans to knock down houses.

Last year, Detroit Mayor Dave Bing proposed a massive downscale for the Motor City. Mr. Bing suggested the bulldozing of around one-quarter of the entire city’s houses and empty buildings over three years times to make way for new structures.