Monday, 5 March 2018

Don't Trust The Tories On Housing

The Tories are the party of the landed and financial oligarchy. The landowners, and the owners of loanable money-capital both benefit from a rise in land prices that inflates their money wealth. The Tories are also the party of that 5 million or so, small private capitalists, many of whom own their homes, and business premises, and similarly see an inflation of property prices as increasing their wealth. Many of this latter group are themselves also landlords, renting out properties to those unable to buy, and unable to obtain social housing. Again, this group has every reason to see property prices inflated, so as to further obtain such capital gains, and increased property rents. There is no reason that the Tories will ever do more than offer up soothing words on housing, whilst their voter and membership base, ensures that, in practice, they will always act to inflate property prices further. 

Indeed, one of the greatest measures over the last half century that inflated property prices, and denied families a decent home to live in was the disgraceful “Right To Buy” programme initiated by the Thatcher government in the 1980's. No one could really blame the individual families, of that time, who took advantage of the scheme. On the one hand, they faced the prospect of continuing to live in council houses that were bureaucratically, and often inefficiently managed by the local state, with a range of petty rules, and lack of control over their immediate environment. On the other, they were being offered up to 50% discounts on the price of their house, by Thatcher to induce them into buying. In effect, Thatcher was bribing those who could afford, or thought they could afford, to buy their council house, with money that she was robbing from local Councils, and thereby from local people who collectively owned those properties. It was a modern day version of the Scottish Highland clearances, or of the process by which collectively owned clan property in Scotland and Ireland was forcibly broken up, and handed over to local supporters of the Tories

During the 1980's, more than 1 million council houses were sold, as part of the scheme, and of course, these were the better houses, and were generally bought by the better off tenants, usually those that were older, and who had built up some savings of their own, and who also benefited from larger discounts. But, the truth is also that whilst a lot is spoken about the popularity of the scheme at the time, for those that were thus enabled to buy, for many, even of those, it turned out to be a disaster. During the 1980's, particularly after Thatcher deregulated financial markets and encouraged an explosion of private household debt, house prices quadrupled. The house I bought in 1977, for £5,000, I sold in 1988, for £22,500. Had I held on to it, for another year, I could have sold it for £39,000!

That explosion in money prices for housing, encouraged by Thatcher's policies along with the speculative frenzy for shares in privatized industries she had induced, along with more or less identical policies undertaken by Reagan in the US, created the financial bubbles that ultimately resulted in the financial crash of 2008. But, as the ephemeral money prices inflated, they also encouraged people to see houses not as somewhere to live, but as an investment vehicle, and a dangerous belief that the prices of property could only ever rise, and only rise by large amounts every year. It encouraged people – including politicians - to think that houses were a magic money tree that somehow just kept increasing in value, creating wealth for society out of nowhere. It meant that homeowners were thereby encouraged to periodically borrow more against the price of their house to fund additional consumption, especially as their wages were more or less stagnant during this period. It led politicians to think that things like elderly social care could be financed out of these magically rising house prices, by the homeowner selling their house to cover the costs. But, of course it was all a mad delusion, whose underlying basis was an explosion of private debt, which sooner or later has to be repaid, or else defaulted upon!

In 1990, that huge inflation of house prices hit the buffers, and house prices crashed by 40%. Many of those council tenants who had been encouraged by Thatcher to buy their house, now found that, as mortgage rates soared, they could no longer afford to pay them. In March 1990, mortgage rates rose to over 15%, reaching a peak of 15.25%. It was not just those who had bought under Right to Buy, who found they could not cover their mortgage payments. High mortgage rates continued beyond 1990, and through the ERM crisis of 1992, before they started to fall. Thousands of those former tenants who had bought under Right to Buy, now found they could not cover their monthly mortgage payments and their houses were repossessed. Since the start of the programme, 2.7 million council houses have been sold under Right to Buy, and now half of those houses are in the hands of private landlords.

And, of course, the Tories have more recently extended that process of robbery, bribery and corruption. They have forced Housing Associations to also sell off their properties, at generous discounts, though of course, they do not extend this principle to a requirement for private landlords to have to sell to their tenants, let alone to sell with huge discounts. On the contrary, the Tories have forced even more people into private rented accommodation by the very process of massively inflating house prices to levels where many people can no longer afford to buy. And just to exacerbate that process, the Tories have also introduced their Help To Buy scam, which further encourages those who really can't afford to buy a house, to do so, anyway, with the government giving them a 5 year loan towards the deposit, which in turn means that an even bigger debt crisis is being fuelled, at a time of rising interest rates, and when millions of homeowners who in the 1980's, and 90's took out interest only mortgages, whose capital sum is coming due for repayment, but with those homeowners having no funds to be able to repay that capital sum

The Tories policy of Right to Buy, and of Help to Buy has contributed to this problem, and the policies of Thatcher and her heirs from the 1980's, of building a low-wage/low productivity, high debt economy, have been the basis of inflating house prices for the last thirty years, which is the basis of the current problems. But, that situation did not arise by accident. It arose because the Tory policies were deliberately designed to have those effects so as to inflate the fictitious wealth of the landed and financial oligarchy, and of the plethora of small private capitalists that form the backbone of Tory party membership and voters.

As I wrote a while ago, Marx noted that it is always in the interests of the landed oligarchy to hold a substantial amount of land from the market, even leaving it derelict, so as to push up land prices, and rents. And, as I pointed out that applies today, not just in relation to the large landowners, but also to the big construction companies who hold significant land banks, whose price rises along with inflating land prices. Yet, the Tories in their current housing announcements have criticised local councils whilst doing nothing about forcing the large landowners or the construction companies to release land for building, and there is no sign that the Tories are going to do the obvious thing, and scrap the ridiculous Green Belt restrictions that facilitate those large landowners in their monopoly of land ownership. There are already half a million planning applications for houses that have been granted, that construction companies are failing to act upon, for example, not to mention the million plus empty homes in Britain that speculators are holding on to purely for the purpose of expected capital gains, as Tory housing policy tries to ensure that house prices only move upwards.

As I quoted in that post above,

“If the 65,000 "farms" of under two acres are subtracted as economically meaningless, what you have is 50 per cent of the population, the taxpayers, paying 0.28 per cent of the population to hold the bulk of the country's landed assets and to make those plentiful assets scarce. The result is that the cost of a building site is two or three times what it should be for 70 per cent of the population. This is Britain's great property swindle.” (Kevin Cahill, New Statesman

The reason that the big builders do not build more homes, and only sell houses off-plan, is that they know that for all the hyperbole of the Tories and Tory media, high house prices have nothing to do with a lack of supply, or high levels of demand. Demand is always relative, i.e. it is demand at a price, and at current high prices the demand for houses to buy is limited. Many of those who do buy, at these high prices do so for speculative purposes, and indeed many of them are foreign speculators. The truth of that fact is that home ownership is falling, and has been falling since 2003, because people simply cannot afford to buy at these ridiculous prices. Even those who already own their home, cannot move to a better house, because the astronomical rise in prices has pushed out the gap between the price they can get for their existing house, and what they would have to pay for a better one. That is why the number of transactions itself is falling.

High house prices have been caused by speculation, which itself has been induced by artificially low mortgage interest rates, and by government policies designed to prevent house price busts whenever they occur, just as they have sought to stop stock and bond market crashes when they occur. But, the crisis of 2008, showed that that sleight of hand can only continue for so long, and today the situation is much, much worse than in 2008. The real solution to the housing crisis will be a substantial crash in house prices that will drive out the speculation, and return houses to being what they should be, a home for people to live in.

The house builders do not build more homes, because were they to do so, the prices they would have to charge, given those inflated land prices referred to above, would be the same high prices they charge today, and for which there is only a limited amount of demand. The builders are not in business to produce houses but to produce profits, and they will not build more houses that they can only sell at a loss. And the truth is that there is no shortage of supply either. There are 50% more homes per head of population today than there was in the 1970's, before the astronomical rise in prices! 

As the FT report, Oxford Economics have concluded,

“that net additions to the housing stock have exceeded the growth of households.”


“house prices have jumped especially in the capital as interest rates fell and not because there is insufficient housing.” 


The answer that Labour and others have promoted of building more council houses, is also fraught as a result of these underlying conditions. With land prices being hugely inflated, because speculation has driven house prices to astronomical levels, facilitating high levels of rent for landowners, and correspondingly high land capitalised values of that rent, any Council that seeks to engage in a large scale council house building programme will find itself paying through the nose for the land on which to start building. It will have to pass on that high cost in the rents it then charges to tenants, and when interest rates rise, and land and property prices crash, the Council will find itself with a housing stock whose value is only a faction of what it cost to build, and with tenants thereby once again paying much higher rents than it would cost them to buy a house.

If the Tories really wanted to deal with the housing crisis they would take effective measures to end the speculation in land and property. They would remove all of those measures like Help to Buy that artificially inflate housing demand, as well as removing the remaining tax concessions to landlords. They would scrap the ridiculous Green Belt policy, and introduce a more sophisticated policy to ensure that new developments are undertaken on a sustainable basis, setting maximum numbers of houses to be built in any development, with minimum amounts of green space between developments. They would remove the independence of the Bank of England, and withdraw the current QE, and start to raise official interest rates so as to burst the current astronomical asset price bubbles that are impoverishing millions, whilst inflating the paper wealth of the top 0.001%, whilst simultaneously creating the kinds of unsustainable conditions that led to the crash of 2008, and are leading to an even bigger crash in the very near future. 

But, of course, the Tories will do none of those things. As with their words on Brexit, the Tories cannot be trusted; their words do not correspond to their deeds. The Tories latest pronouncements are mere hot air. They cannot deal with the housing crisis, because to do so would mean attacking the very core of their support, be it the landed and financial oligarchy, the myriad of small private capitalists who aspire to join them, or the Tory voters in those country shires whose main motivation is NIMBYISM.


George Carty said...

How much do you think the pro-house-price-inflation insanity of the Daily Mail and the Express is driven by direct commercial interest, in the form of adverts within those newspapers for housing equity release schemes, or for products (most notably cruises and other expensive holidays) which are often financed by equity release?

Boffy said...

I think its driven, as with the bigotry of those papers, by a commercial desire to sell papers to a given demographic niche within the market. Of course, it acts as a feedback loop. They accommodate to the bigotry of their readers, and they accommodate to the other main hobby horses of those readers, so the Daily Express is renowned for its coverage of every new health fad to extend the life of the elderly, to cure dementia and so on, as well as its dramatisation of every bit of bad or good weather. Having done so, it thereby encourages a legitimation of those concerns amongst its readers. My in Laws used to read the Express, and would repeat the most ridiculous stories about immigrants contained in it, and would not consider any suggestion that those stories might not be true.

But, on the house price insanity, its not just the Express et al that have fuelled it. I remember twenty five years ago writing a letter to the FT, pulling them up over the concept that house price rises made people better off, but they did not print it at a time when any such suggestion was considered heretical. The whole idea that the economy can grow and prosper purely on the basis of capital gains rather than and actual production of wealth,and accumulation of real capital is what has dominated economic and political thinking for the last thirty years. But its history goes much further back than that.

Back in the 19th century, the idea was accepted by the government that the country could become wealthy by the government borrowing at simple interest, and lending at compound interest. The financial pundits attached to the Austrian School even today are mesmerised by the powers of compound interest, by the idea that wealth can accumulate at a rapid pace from financial assets producing compound returns, without every considering where the revenue comes from that makes the interest, compound or otherwise, possible.

It will be interesting to see if the Express changes its line and tone now that it is in the Mirror stable. My guess is it won't, for the reasons set out above. Only if the concerns of its readers change, is it likely to change its positioning within the market.

George Carty said...

I'm not convinced that the right-wing press merely echoes the prejudices of its readership rather than moulding them. A study of Fox News showed that its political stance was crafted not with the aim of maximizing viewership (and thus profits) but rather with maximizing the rightward political shift of the audience.

I don't see any reason why this would not also be true of the UK right-wing press.

Boffy said...

Except the Murdoch Press backed Blair when it was clear he was going to win, and it also backed Scottish Independnce when it looked like that might win.

George Carty said...

Wasn't the key to the postwar New Towns programme the fact that local authorities in that era had the ability to compulsorily purchase farmland at agricultural prices for building (thus allowing them to capture the "planning gain"), which was abolished with the Land Compensation Act 1961?

Boffy said...

Partly, but its also that even development land prices were much lower. Actually, the 1961 Act was not really an obstacle. Councils had the power of determining the designation of land as development land, white land etc. Setting aside the question of compulsory purchase, Councils could and did buy agricultural land, commercially, and having done so, were able to then designate the land as development land, which means that they could overnight raise the value of the land they had bought.

I know that local Councils put money in their coffers in the 1960's, 70's, and 80's, by such means, as they were then able to sell this land on to private housebuilders for the construction of estates. The real problem is the astronomical inflation of land prices, particularly development land prices due to the bubble in existing house prices, and the artificial constriction of land supply which is imposed by the strangulating effect of the Green Belt.