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Renting in free market economy.

This particular house in Norwich was one of 7 others the landlord owned just in this particular street. The landlord owned another 40 or so properties elsewhere in the city. All but one were privately rented out at suitable ‘market rates’. Although I thought 47 properties sounded a bit excessive, it isn’t uncommon for a private individual to own this many.

The free market | Max Gustafson
Copyright Max Gustafson

Landlords want to get as much as they can for their ‘investments’, so understandably they charge whatever people are prepared to pay, or can tolerate. After all, everyone needs somewhere to live. Agencies as part of the food chain manage the rentals and promise to get the highest rents for their clients. It’s in their interest to get as much as they can as there is a management fee often as a percentage of rental. So far so good, all basic value-free legal ‘free market’ economics.

Many renters pay ‘free market rates’, are unlikely to be able afford to save enough for a deposit on a house, even if an affordable house was available. Market rates are governed by what people are prepared to pay, or can tolerate paying, nothing else.  

One part of the solution to the housing crisis is to build more homes. Yet many of these get snapped up by property investors to add to their rental portfolio. On an on it goes. The product of which is cash rich property owners get richer and it gets increasingly difficult for the less affluent in society to get started at all.

There are many unwelcome and dehumanising side affects from ghost-towns to communities being destroyed as people can no longer afford to be a part of them.

Regarding the housing crisis, it seems in the interest of landlords and developers for the crisis to be perpetuated. When more homes get built, developers who build them, private landlords who purchase them and estate agents who manage them all do very nicely. Also, a shortage of available homes either to purchase or to rent ensures the prices remain high.

It’s rather like a manufacturer of anti-depressants profiting from people remaining depressed and unhappy. It’s not in the interest of the company or its shareholders for society to be OK.

So what’s the answer to this conundrum? What will break the cycle?

A juicy inheritance (a taboo subject it seems) or a lottery win would kick start someone’s home ownership. However, few people are so lucky.

What about limiting the numbers of properties any private individual or company can own for the purpose of renting out? If for example, the limit was 3 – the person mentioned at the start with nearly 50 properties would have to sell them into the open market. The landlord would get the cash from the sale, 47 or so properties would be available to purchase, the price would come down to potentially affordable levels, and perhaps it would make houses more affordable?

What about preventing people outside a particular area purchasing a house within it? This is the case in many European countries aiming to prevent the speculative investment we see so much in the UK.

I’ve yet to hear a convincing response to any suggestions but I dare say it would be labelled as some ‘socialist’ idea contrary to ‘modern’ free market economics.

Would I be different to any property investor if I had lots of spare cash? When would I say “That’s enough now, I’ve enough in my portfolio giving me a good return and a handsome pension pot for later.” Property investment is addictive and makes a lot of financial sense. However, like any addiction it has to have limits.

When the free market is left to be free to do whatever it does, rich get richer and the poorer find it harder. So the state has to step in with council or housing association houses to plug the gap. I believe this is at the heart of many of the problems we are facing in the UK. On one hand we have the free market economy devoid of any particular moral framework. On the other we have the state to pick up the pieces when it doesn’t work.

There are many people expect to be provided with a house yet do not value it because they do not own it. There are many tenants who don’t care about the place they live in and won’t look after it. It seems value and ownership have become tightly linked: people don’t care that much for what they don’t own.

The place I mentioned at the start was just a place. The house was trashed and the tenant had to be evicted. The tenant didn’t care about the house as they knew the landlord’s insurance will pay up for all the damage, and besides the tenant knew the wealthy landlord has plenty of cash to fix it up if the insurance didn’t cover it.

However, there are responsible private tenants who had to leave and move their families out of their communities because the rents they were paying went up to unaffordable ‘market levels’. The landlord didn’t care they couldn’t afford it, they were just looking for the highest return on their investment. What’s wrong with this? Would I do the same? I probably would if all I was interested in was the cash. This leads onto the point of these meanderings.

Without any binding moral framework to underpin all this, all you have is the free market economy on one side and on the other, the state to pick up the pieces.

Here’s another relevant example showing the unhealthy relationship between the free market economy and the state. The state offers grants for people to insulate homes and private companies do the insulation work. The free market allows companies to double their rates to insulate such homes, knowing the state is paying for half.

During the pandemic the government offered that scheme ‘eat out to help out’, to pay half of the bill. What happened? Menu prices went up knowing the government would pay half the bill. The consumer was paying less for the food overall, but the overall cost of the meal was higher than before. This is the same as the government funding ‘green’ schemes like the insulation – the free market took advantage of it without any moral qualms.

There were so many people who abused the furlough scheme who didn’t need the benefit that I feel ashamed to live in a country surrounded by people who took the money even though they didn’t need it.

If I was to write to Rishi Sunak or whoever the prime minister of the day was, I would emphasise that without a moral framework underpinning everything, throwing cash at something, or withdrawing cash from it is unlikely to work. We will still end up with crap roads, dysfunctional public organisations, a fat and depressed population, disillusioned public sector staff, richer rich people, poorer poor people and so on.

I do find it worrying that even as one of life’s eternal optimists that something will snap quite soon. Villages once full of life and community will become ghost towns of second home ownership. More suburbs of more cities will become no go areas even for the police. Foodbanks will be increasingly abused by people who can afford food but chose to get a free lunch. Those who really do need it may be prevented from doing so because the foodbank has run out of food. Then everyone blames the government for not doing more and citing increased foodbank use as evidence of governmental failure.  On and on it goes.

Perhaps it is the culture in the UK, with free (from morals) market economics on one side and an ever increasing ‘we will keep you safe’ state on the other that needs to change. Perhaps you and I have a responsibility in solving the problems of our society, solutions which are not about how much you earn or the failures of the state at all, but about your moral responsibility?