The destruction of the UK economy continues.
This morning the FT has reported that:
Residential rents in August jumped by 12 per cent on average across the UK, according to data from estate agent Hamptons, the largest annual increase on record.
The figure is 17 per cent in London.
The increases are put down to rising interest rates, on which the FT reports:
Financial markets and economists are expecting the Bank of England to raise interest rates by another quarter point at its meeting on Thursday, taking the cost of borrowing to 5.5 per cent, its highest level since early 2008.
This is, of course, completely unnecessary, unless the goal is to fuel the rise of an economy built on the basis of the extraction of economic rents. Investopedia neatly defines these as:
An amount of money earned that exceeds that which is economically or socially necessary. Market inefficiencies or information asymmetries are usually responsible for creating economic rent. Generally, economic rent is considered unearned.
In other words, economic rents are a measure of the power to exploit by some at cost to others so that added value as a result of effort expended within the economy is diverted to those who have not generated it.
That is where we are, by deliberate choice, supported by our two main political parties.
You can build an economy based on rents in the short term. In the long term doing so simply destroys the whole economic edifice: those adding value cease to do so in the end when they appreciate that is the world that they live in. They can either no longer afford the rent, or they refuse to pay it. Either way, serious economic failure results.
And that is what we have to look forward to right now.
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Agreed.
As long as our political system finds this acceptable, it will not change and it will not change because the politicians are essentially pursuing those excess rents for their own funding.
It’s all sewn up, a dirty, corrupt self-replicating merry-go-round of morbid self-interest.
… and not a peep from the BoE about landlords moderating rent rises to keep inflation under control.
Profits or rents? Whatever you can get away with. Workers wages and benefits? Get back in line!
I am unclear what you are arguing here. Are you saying that many residential landlords are engaging in rentier capitalism? That this is your example of economic rent seeking?
For you say that the FT are reporting that the residential rent increases are down to increases in interest rates. You do not appear to disagree with this analysis and yet that means that it is mortgage lenders who are extracting the economic rent, albeit having been forced to by base rate increases.
I would suggest that a combination of increases in buy-to-let mortgage rates, tax increases and the way they’re structured (e.g. paying tax on losses), and some regulatory changes, have resulted in many if not most mortgaged residential landlords running at a post-tax loss. As a consequence they are leaving the market in their droves, reducing supply, and therefore driving up rents further. This is exacerbated by rising demand from renters, due in part to it being harder for people to buy their home, due to increases in mortgage rates.
I do not see how this means that most landlords are engaged in the extraction of economic rents, although it is possible that some un-mortgaged landlords, or large corporate landlords are. The solutions lie in yes, the Bank of England reducing base rates, but also in tax reform, such as introducing a land value tax, whilst modifying other taxes. Furthermore something needs to be done about supply, such as permitting some development on green belt land – a land value tax ensuring that the profits from this are mutualised.
Did you read the definition of economic rents?
It is a concept much wider than what is colloquially called rent, and includes excessive interest rates, which I identified as the problem.
You clearly missed the point.
Yes, I did read the definition of economic rents and with respect you clearly missed my point.
You appeared to be citing current residential rent increases as an example of economic rent extraction. Yet it is not, at least for many or if not most mortgaged landlords who are now likely operating at a post-tax loss.
If your point is solely that higher interest rates lead to economic rent extraction then why mention residential rents at all? Whether higher interest rates in general lead to economic rent extraction depends on whether lenders are charging more than their own cost increases due to base rate changes. That seems possible or likely, but then that should be your focus and not residential rents.
Remember of course also that some of these increases in residential rents are actually going to HM Treasury in increased taxes. E.g. if a buy-to-let landlord is a higher rate tax payer, and their mortgage interest payments go up by £300 per month, then they would need to increase the rent by £375 per month to be in the same position, with the extra £75 per month going in income tax.
Redidential rents are cutrently a form of excessive economic rent extraction, even if motivated by another form of that rent extraction in the form of interest rates.
Rent is just a delivery mechanism – unless the landord is not geared, when there is is exploitation going on. You ignored that. I did not.
I think you are trying to be constructive Michael, but private landlords providing a material amount of supply in a country poor in it housing stock, available land and planning restrictions is a really bad place to start. The landlords with no mortgage are exploitative, and those using mortgage property for a second income, pension fund enhancement etc., are dabblers who really should no be material in the market. To the extent they are material at all, it is an indication of how broken everything is in Britain. The housing system/market is quite mad; doing nothing well. People in Britain used to work to make their living, or even wealth; now, work is secondary – it pays the mortgage. The prime object is to climb the property ladder. It is termed losing the plot.
Michael Hudson says that the 19th century economists thought that economic rent should be taxed away to provide infrastructure at cost or low profits. This would bring down the cost of doing business and workers would not need such high wages.
Part of the argument on the Anti-Corn Law League was that that cheaper bread meant the industrialists would not need to increase wages as much.
Keynes wrote of the ‘euthanasia of the rentier’. There is a credible intellectual case to oppose what we see. The Opposition need to go back to Keynesian style economics and not try to make the neo-liberal system work. In other words they need strategic direction , not reaction to specific crises. The US fought wars in Vietnam, Afghanistan and Iraq and lost two of them , at least, largely through poor strategic direction.
This is what leadership would look like, Mr. Starmer.
Keynes got it
The Electoral Commission is now publishing data of how skewed and distorted the voting register has become. Private renter numbers plummeting, the young missing. What we have instead is a full listing of property owners and pensioners. There’s a surprise. This is about as relevant to fair play in British politics as Rotten Boroughs, bribes and public voting was before 1832. No wonder Liz Truss, Boris Johnson and Rishi Sunak can play at being PM; to provide neoliberal rentiers and caretakers with something to do
So the Bank of England have almost, but not quite, admitted that rate rises now have an inflationary effect in the UK economy.
Oops.
Wasn’t the Bank trying to rein-in the inflationary spiral by applying a higher base rate?
Perhaps Andrew Bailey is a secret sado-monetarist: that, or he knows what he’s doing is not only pointless, but counterproductive.