Private property the key to civil society

I have the following piece ( a version of which was published in the ABC Drum) published on the New Geography site.  Drawing on last month’s UK riots, it stresses the link between personal ownership of property and respect for the property owned by others.  It argues that the policy of rationing land for housing has made home ownership unaffordable to younger people and contributed to their contempt for other people’s property.  That policy, which is also followed in Australia,  is being reversed in the UK .  The piece is as follows:

Many commentators correctly attribute the UK rioting to decades of misgoverning and miseducating youth. Contributing to this has been the breakdown of family discipline, the replacement of working fathers as role models and the creation of a culture of entitlement. Tony Blair has talked about a breakdown in public morality. Less convincingly, many on the left have attributed the cause to the social expenditure cuts of the Cameron Government, cut that have actually made barely a dent in the proceeding Blair/Brown years of tumescent expenditure growth.

Adding poison to the brew is government appointments and procedures that deflect police forces away from law enforcement into institutions, that “reach out” rather than prevent wrong-doing, seek to understand miscreants rather than enforce the law, and try to contain disturbances rather than prevent them. The soft sociological and managerial ethos that has undermined policing in Britain is all too familiar here in Australia.

But there are other factors at work. This is especially evident given the nature of those arrested. Many turn out not to be part of some jobless underclass but relatively affluent working people, some in their late twenties and early thirties.

And the rioters are black and white – though hardly any Indians or other Asians. One reason for this is Asian family background, bringing values based on self-improvement by work rather than theft, reinforced by religious teachings, especially in the case of Muslims, the only group where a large majority are religious practitioners.

While the complexion of the rioters will be subject to considerable analysis over future months, we can be confident about one hypothesis – few if any of the rioters own their own homes. This is because nothing engenders respect for property and others’ possessions more than people having a personal stakes in property themselves. Property ownership, and for most of us this means home ownership, is the key to creating a law abiding society. Where riots in England take place outside of areas other than those hosting electrical and sporting goods, they take place on council estates, in areas where people rent. If in owner-occupied housing areas, the rioters are outsiders.

British families owning their own homes rose steadily up to the early 1980s, reaching 75 per cent. The figure has since fallen back to 70 per cent. More critically, the ability to get on the house ownership ladder has become increasingly difficult for large numbers of young people. Demographia reports that the average house in England now costs over five times the average family’s income. That’s up from three times the average family’s income 25 years ago. In London and other major cities the cost is much higher than this.

Countless reports in England, Australia and the US demonstrate planning restraints over land use are the cause of houses becoming expensive. Governments do their level best to impose additional costs on house builders, especially through energy saving requirements, but the building industry is highly competitive and finds ways of largely offsetting these. However, when government regulations constrain the amount of land that can be built upon this engenders unavoidable costs.

Ironically, after decades of acquiescing in creating shortages for new home building the UK Government last month finally expressed a determination to do something about freeing up more land for building. That was met by the usual howls of protest from incumbent home owners wanting to avoid having “riff raff” moving close to them, barking on about preservation of villages and anxious to see a continued shortage of available properties to boost their own house values. But these self-centred blockages of new housing stock are contributing to creating an alienation of many people from mainstream values.

British Labour Party leader, David Miliband, is arguing that a gulf between rich and poor is a cause of the rioting. He may well have home ownership in mind in offering as his solution, “we need to give people a stake in this society”. But “giving” is not a policy that will work – it morphs into an entitlement regime, which reinforces divisions within society and weakens the self-improvement ethos. Applied to housing, it is reminiscent of the US policy which required banks to make housing loans to those who were not credit-worthy, a policy still unraveling in mortgage defaults and collapsed price bubbles. Removing regulatory restraints that have drive housing prices into unaffordable ranges is the better approach.

Not being a participant in a home owning democracy provides no excuse for trashing and thieving. But it is clear that there is a vast number of young people who have decided they are excluded and have become eager participants in hooliganism. Policies of tolerating misdemeanours and acquiescing in slack educational supervision will clearly be re-thought in the UK. But so also must be the policies creating barriers that shut people out of home ownership.

There are lessons in the UK developments for Australia. Not the least concerns home ownership. A fundamental cause of the present economic malaise has been over-investment in US housing as a result misguided attempts to foster home ownership through forcing financial institutions to lend to people who were uncreditworthy. This was motivated by the hope that the subsequent property stake would lead to an improvement in civil society on the part of those who found themselves excluded. The regulatory induced measures failed because they created a housing price bubble but removal of cost enhancing planning restraints would not be likely to bring the same housing inflation outcomes (indeed in states like Texas where the artificial price boosting caused by planning restraints is absent, home price inflation and busts has been modest).

Planning restraints in Australia have created home costs that are six times family incomes (nine times family incomes in Sydney). House prices in Australia are therefore even higher than in England and urgent steps need to be taken to reform the planning policies that have caused this. If this means a society closer to the ideal of a property owning democracy, so much the better.
Alan Moran is the Director, Deregulation at the Institute of Public Affairs

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29 Responses to Private property the key to civil society

  1. daddy dave

    It took me a long time to figure out the central role of property rights in civil society.
    You are absolutely right about the rationing of land in Australia. The governments give bits and pieces out in dribs and drabs and with strings attached, and the process for changing land use is arduous.

    I wonder what would happen if the states had a laissez-faire, massive land release program?

  2. Driftforge

    I wonder what would happen if the states had a laissez-faire, massive land release program?

    Couple that with a proper land value tax system and things would start getting somewhere.

    Alternatively, set a maximum securitisation period on property of seven years…

  3. Infidel Tiger

    I wonder what would happen if the states had a laissez-faire, massive land release program?

    They’d go broke because there budgets have been structured to rely on stamp duty. It’s not in the state governments interest to allow a free property market.

  4. daddy dave

    Planning restraints in Australia have created home costs that are six times family incomes (nine times family incomes in Sydney). House prices in Australia are therefore even higher than in England and urgent steps need to be taken to reform the planning policies that have caused this. If this means a society closer to the ideal of a property owning democracy, so much the better

    The much-maligned suburbs are a necessary pre-condition for a free society.

  5. ken n

    I wonder what would happen if the states had a laissez-faire, massive land release program?

    There’d be rioting in the streets as real estate values dropped causing negative equity. As John Howard said “I don’t hear people complaining that there homes are too valuable” – or something like that.
    In the long run, almost no-one gains from overvalued real estate but you can’t convince people already in the game of that.
    I don’t know how to get out of it – it’s like the taxi licence problem writ very large.

  6. alan moran

    All of these comments are to the point. The other issue is that the overpricing of land means a misallocation of resources away from housing and, at the same time, an overvaluation of national wealth of which housing comprises soem 60 per cent.

  7. Peter Patton

    Alan

    This is a very astute point. Given the unprecedented masses of documentation built up over the very concentrated period of a couple of weeks, some historians should dive in, and develop a thesis relating the drama to property ownership, particularly homes! I would hypothosize that not only would we find very little home ownership, but very few with even their names on a rental lease!

  8. Barry

    I would argue that there is a difference in renting a council flat, and renting in the private market.

    Renting in the private market engenders (to a slightly lesser extent) an appreciation of property. Whereas renting from the government reinforces the entitlement mentality.

    So we must not focus on the percentage of home ownership, we must focus on the percentage of private arrangements in the housing market, whether they be ownership or renting.

    Residential tenancies acts in the Australian states push the pendulumtowards making private arrangements more like council rentals, but thankfully the overall percentage of public sector rentals are declining.

  9. Peter Patton

    Barry

    I would argue that there is a difference in renting a council flat, and renting in the private market.

    Presumably, a huge difference is that the former are unemployed, disabled, or very old.

  10. JC

    ……at the same time, an overvaluation of national wealth of which housing comprises soem 60 per cent.

    Yep, which means less money for productive investment.

    I’ve always maintained that high real estate prices absolutely screw up an economy in the long run.

  11. Peter Patton

    While it is right to distinguish between renting in the private market and public housing, it is wrong to equate renting of any sort with owning property. Their are findamentally different sociological dynamics at play.

  12. Abu Chowdah

    What are the stats for renting versus home ownership in European countries not plagued with moronic chavs, such as Germany? I had thought renting was more the go there.

  13. Peter Patton

    Germany doesn’t need ‘moronic chavs’ it has former East Germans. Just go to Berlin, and see for yourself. And let’s not even start on France.

  14. wreckage

    You increase the rate of release incrementally. The problem can be ameliorated rather than solved.

    As for Chavs, all of the EU is affected. The UK just gets reported in English-speaking news.

  15. alan moran

    Actually there is much lower home ownership in Germany because there is no imperative to own your own home. There is a constitutional provision which virtually guarantees anyone the right to build a home on their own land. Hence planning restraints do not drive up house prices and people can choose to buy or rent depending on their circumstances. Those who rent, for the most part, do so because they have avenues for their savings which are more appropriate for their particular circumstances and can always enter the property owning home market at a later stage.

  16. Piett

    I wonder what would happen if the states had a laissez-faire, massive land release program?

    Something like this was tried in SA – not on a ‘massive’ scale, but quite a large one by SA standards – in Mt Barker.

    There was a big land release, developers built houses in the new subdivisions, and people bought them and moved in. So far so good.

    But then the new residents started complaining that there wasn’t a hospital and police station and public school on every street corner. The level of taxpayer-funded ‘amenities’ wasn’t good enough for them.

    It developed into a bit of a scandal, and in the end, the SA Planning Minister had to apologise and promise that never again would land be released like that, without enough amenities in place.

    That I think would be the downfall of your massive land release program. Or to put it another way: sometimes the problem isn’t the government, it’s the people. 🙂

  17. ken n

    Seems we are in violent agreement about the problem and its case – I just don’t know what we should do about it.
    A fellow from Holland once explained to me that they never had negative equity or such problems because when the real estate market went soft no-one was allowed to sell below a government-fixed price. He thought that was wonderful. None of this messt supply and demand stuff.

  18. But then the new residents started complaining that there wasn’t a hospital and police station and public school on every street corner. The level of taxpayer-funded ‘amenities’ wasn’t good enough for them

    This is a (possibly necessary) level of hyperbole, but it does seem (from personal observation, and I know anecdote =/= data) that modern subdivisions have precious little in the way of those old-fashioned suburban accessories called corner stores and footpaths. One is more inclined to get in the car and drive; a rather inconsistent bit of planning from a state government which supposedly slurped ideologically upon the putrescent wang of the Global Warming beast.

  19. Abu Chowdah

    I don’t recall any riots in Germany recently, ladies.

  20. Abu Chowdah

    Those who rent, for the most part, do so because they have avenues for their savings which are more appropriate for their particular circumstances and can always enter the property owning home market at a later stage.

    Thanks for that.

  21. daddy dave

    It’s worth mentioning that ‘protecting the environment’ is a major impediment to land release, and therefore is a major reason for high land prices. And therefore is impoverishing ordinary Australians.

    I wish we could get some greenies to come here and defend their ideology.

  22. Ivan Denisovich

    It’s worth mentioning that ‘protecting the environment’ is a major impediment to land release

    Definitely not to be underestimated as a factor:

    Ipswich city councillor Paul Tully said more than 93 per cent of the city was earmarked for koala protection when they inhabited only 30 per cent.

    “The mapping doesn’t coincide with the real situation on the ground,” he said. “For example, Queens Park and Limestone Park in the heart of Ipswich have been identified as koala protection areas. There haven’t been koalas in there for over 100 years and they are literally a stone’s throw from the CBD.”

    http://www.couriermail.com.au/news/queensland/inaccurate-maps-protect-wrong-areas-as-koalas-habitat/story-e6freoof-1225834917769

    And this:

    It’s curious, how a moth officially declared “critically endangered”, gets around so many building sites. As the federal Environment Department innocently puts it: “Increased survey effort since 2003 has yielded a further 39 (moth) sites in Victoria … Much of this survey effort has been in association with development proposals.”

    http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/column_why_save_an_animal_just_begging_for_extinction/

  23. Ivan Denisovich

    House prices in Australia are therefore even higher than in England and urgent steps need to be taken to reform the planning policies that have caused this.

    Over the past couple of decades there has been a huge blowout in both time and cost of approvals. There are a lot more hurdles and, I’d venture to say, higher failure rates as a consequence. In NSW, for example, new housing takes from 6 to 15 years to go from planning to delivery. I personally know of major overseas developers who have completed large successful projects here but have told me no more. Investments yes, developments no because they argue there are too many obstacles now. There are other planning issues I could go into but would take too long.

    Last year there were just 333 dwellings completed for every 1000 increase in population, less than half the rate that applied 10 years earlier, Mr Eslake said.

    http://www.theaustralian.com.au/business-old/property/housing-shortfall-likely-to-worsen/story-e6frg9gx-1225846623918

    Michael Costa:

    http://www.theaustralian.com.au/news/deep-green-elitists-in-charge/story-e6frg746-1111117837463

  24. ben

    one solution would be to free up the property market and also increase immigration at the same time. you could maintain property prices while also increasing the public good.

  25. Sadly, there are people out there who wish to use authority to shape society based on their beliefs. In order for them to shape it, they have been convinced that its ethical to elect someone in power to do it for them.

  26. Chris M

    Great piece Alan, but I must point out the part about Moslems is factually incorrect. That sentence should have been scrapped from an otherwise fine article.

    The very founder of Islam was an armed robber, he went about raiding merchant caravans. The only work he did was to help carry the loot. And a fundamental tenet of Islam is the ‘jizya tax’ which is a heavy economic penalty (a theft) from all non-Moslems.

    Doctrine aside one only has to visit a few Moslem countries to see that hard work and honesty are not exactly hallmarks.

  27. Chris M

    Also regarding Germany, they have very extreme ‘green’ regulations on all buildings including housing. To build a house or to add a room to an existing house requires passing very restrictive process then once it is built you cannot use it until the Council have assessed the green aspects including an IR leakage scan and signed off. They have the authority to make you pull it down and start over if it isn’t insulated quite enough for example.

    The German people almost seem to enjoy socialist government control over their lives.

  28. Peter Patton

    Indeed. The genius of Muhammad was turn a life of plundering the commerce of other peoples into a religion. And to economise, rather than extend the numbers of the faithful, among whom stolen booty would have to be shared, Muhammad created an ‘Other’ who supplemented their highway robbery ways by being forced to hand over 10% of the income each year. It was either the jizya or the sword. This is largely why the Muhammadan has been in such dire straits for some time.

    Other societies outgrew the lazy, unimaginative bitches of The Koran. Eventually, the dopey things had no one to tax or rob from.

  29. Peter Patton

    In that way, the early Muhamaddans actually learnt a lot from the Romans, who suffered the same fate.

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