Wednesday, 2 March 2016
The Independent spouts nonsense on house building.
Their article argues that because house builders keep a stock of land with planning permission over and above what they need immediately, that therefor they are artificially raising house prices. Two flaws in that argument.
First, it is perfectly normal in most industries to keep a bigger stock of raw materials and other inputs than is needed in the immediate future. Reason is that it makes sense to have that stock available to meet sudden increases in demand or failures by raw material suppliers to supply on time.
Second, in a genuinely competitive market, it just ain’t possible to artificially raise prices with a view to earning above normal profits. One producer can cut output with a view to raising prices if they like, but other producers are likely to immediately cash in on any rise in prices and profits. And given the number of different house builders, I’d guess the house building industry is reasonably competitive.