End this monopoly now Mr Hammond if you want to solve the housing crisis
In 1884 the Republican Party was accused by Major General Ben Butler, a former Republican, as being the “Party of Monopolists”. Butler was outraged that a banquet for the Republican presidential candidate attended by the country’s millionaires and monopolists sealed their allegiance to the party.
At their convention in 1888, the Republicans finally responded and condemned all combinations of capital to arbitrarily control the conditions of trade. Two years later the Sherman Act was passed with section two stating that it was unlawful for any person to monopolize or attempt to monopolise trade.
American society had decided it was no longer acceptable for the wealthy, with the support of the state, to receive billions in unearned income. Such a policy was anathema to the founding principles of the American constitution, serving only to prevent those with ability from rising to the top and those with less ability at the top from falling.
While it is rare for governments to be bold enough to enforce the functioning of the market, it is even rarer in a market economy for there to be public support for monopoly. Those who receive unearned income are all too aware that there is no legitimacy for such a reward in a capitalist system, nice though the income might be.
Hence it is highly unusual that the British government has recently declared its support for monopoly pricing in the land market. This should be of particular concern given that the failure of the land market is the main cause of Britain’s housing crisis.
In response to a paper by the think tank Civitas which proposed to amend the 1961 land compensation rules, the Department for Communities and Local Government stated that “compensating owners at less than market value would be inherently unfair and could drive up opposition to new developments.”
The problem is that this “market value” is a monopoly value as the compensation arrangements ensure that the difference between use and residential market value, the unearned increment, should flow to the landowner and not to the community who give rise to demand in the first place.
During the 1950s under Harold Macmillan, local authorities were able to acquire greenfield land close to agricultural values enabling them to build around 200,000 units a year including several new towns.
When Harlow and Stevenage were built, the land was acquired at close to agricultural values, roughly £24,000 per hectare in today’s money. The uplift in land values was then used to invest in infrastructure and housing. But under the current monopolistic pricing regime, it would cost close to £2.5m per hectare. This is why local authorities have struggled to finance the necessary infrastructure and affordable housing, and why local authority house building has plummeted.
The result of this monopolistic pricing mechanism generates a handsome profit of £9.3bn a year for landowners instead of providing the funds to build houses. For the handful of aristocratic families and the increasing number of international investors who own land, this is a huge annual windfall. Between 2004 and 2015 the number of property transactions by international investors in the UK rose by 418%.
Adam Smith in the Wealth of Nations identified the monopoly pricing of land as a major barrier to capital investment. So to increase housebuilding this monopoly price has to end, thereby reducing the value at which land can be acquired for house building.
For the Conservative Party to have become the “party of monopolists” shows just how far away from market economy principles they have shifted. During the 1880s, the Republican Party realised its error in supporting monopolies and decided to act. By turning against the monopolists, it reinvigorated the spirit of America.
It may well be that the government does not feel it is able to govern the country without promoting monopolistic practices that enrich a handful of aristocrats and foreign investors. However, the government should not forget that they exist to serve the electorate, and promoting monopolistic practices is not in the interest of the British people.
The Chancellor has a chance next week to demonstrate who he is really working for. Let’s hope he makes the right decision and supports the British electorate instead of the monopolists, thereby allowing the country to build houses the way it used to.
Photo credit: Images Money / CC BY 2.0