The Infinite Money Glitch

In fantastic news for Britain, Adam Almeida (writing at the Financial Times) has discovered an infinite money glitch: in certain parts of the country, the laws of supply and demand no longer apply to housing. In Newham, Ealing, Brent, Manchester, and Salford, building more homes actually makes rents go up. A true fiscal perpetual motion machine, all our problems are solved.

Even more miraculously Almeida reports the glitch is especially powerful when building “build-to-rent” flats. I expected the article to then report on the fiscal consequences of this amazing discovery, but oddly enough the article soon wanders off into a critique of the sector, rather than dwelling on its epoch-making implications. Where the FT strayed off course, Catching Mice won’t.

Trillion Pound Notes on the Ground

Let’s take one of Almeida’s supply-and-demand-free boroughs: Newham. At present it has around 117,000 dwellings. But if we cranked Newham up to the density of Hong Kong’s Kwun Tong district, building only the most expensive properties per square metre, one-bedroom flats, the total housing stock would soar to over 1,086,000 dwellings. Assume two people per flat, and suddenly Newham is home to more than two million people, all renting shiny new expensive build to rent flats.

The fiscal rewards are dazzling. At an average size of 50m, the new properties would pay about £1.9 billion in Community Infrastructure Levy to the local council. Tenants would contribute over £2 billion annually in council tax. Developers, being highly leveraged, would initially have a 10% profit margin taxed at 25%, producing a modest £700 million for the Treasury in year one. But once the debt is paid down and profit margins climb to 70%, the Exchequer can look forward to over £5 billion a year in corporation tax from Newham alone.

And these are just conservative estimates. Under supply and demand, uncertainty about rents raises financing costs and makes government’s reluctant to tax developers too much. But in this post supply and demand world, where more supply only makes rents rise, financing is cheap and taxes plentiful. Those profit numbers will be much higher. With such guaranteed returns, the government should really enter the business itself. Tens of billions in revenue each year, from this one borough alone, are surely achievable. Scale the model across the four other areas Almeida identifies and Britain could abolish the deficit and have some money left over for increased spending or tax cuts. Indeed, if build to rent can work its magic outside of these 5 areas there may be no limit to how much the state can raise. Almeida has found the golden goose. I’ll send this on to the Chancellor.