Blue Labour have said that they intend to build 1.5 million new homes over the life of this parliament. Of course, by that, they do not mean that they, personally, are going to build these houses. Starmer, Reeves and Rayner are not going to become brickies, or even hod carriers. Nor, even, do they mean that they are going to take direct responsibility for the state, either at national or local level, building those houses, as governments did in the past, for example, in the 1930's and 1950's, when the state directly created New Towns, Garden Cities, and local councils built large numbers of council houses. No what they mean is that they are going to set targets for Councils to achieve of houses, which, again, those councils will not build, but that somehow they must ensure private builders produce, in their areas.
As with all of Blue Labour's ideology, and policies this is fraudulent from start to finish. It immediately gives them a scapegoat for when this impossible task is not fulfilled. And, the task is impossible, as, already, the fact that Britain does not have the required number of skilled workers to build those homes illustrates. Of course, one reason it does not have those skilled workers is Brexit, which has cut Britain adrift from Europe, costing it £40 billion a year, in lost taxes, and around 4% of its GDP, but also, denying it the access to the workers required, which was one of the many benefits of free movement. But, even if it had the workers to build the houses, and to produce all of the materials, and so on required in their construction, the task is impossible, given the basis upon which it is being put forward.
The only time that Britain has built large numbers of houses, on the scale being suggested, is in those previous examples of where the state itself committed to building them, and that building was of large numbers of council houses for people to rent. The state was able to build those houses to rent, at affordable rents, because the state itself, bought the land, or simply acquired it via compulsory purchase orders, at realistic land prices, as against the astronomically inflated land prices that exist today. In the post-war period, for example, land accounted for 10% of the cost of building a house, whereas, today, it accounts for around 70%. The reason for that, is huge levels of surplus profit (rent) available to house builders, who can sell new houses at massively inflated prices, equal to those of existing houses, whose prices have been sent skyrocketing as a result of five or six decades of government induced speculation.
Blue Labour, like their Tory predecessors seem to think that prices, whether for houses or any other commodity, are simply a function of supply and demand. So, if prices are “high”, whatever that might mean, it is because supply has not risen to match the level of demand. All that is required, therefore, they believe, is to ensure that supply is increased. But, they never ask the question of why it is that supply has not increased, or if they do, it is only ever in the context that there is some monopoly preventing it, requiring the intervention of some state bureaucracy, such as the Competition Authority, or regulator, to ensure greater competition, or else, as now, with Blue Labour and housing, the problem is seen as other frictions such as a restrictive planning system.
What they never consider is that, in a capitalist economy, supply is provided by firms that seek to make profits, and whether they make those profits or not depends upon whether they can sell all of their production at sufficiently high prices. If producing more houses would simply result in unsold houses at such a price, firms would have to reduce the prices of those houses, and so not make those profits, and might even make losses. So, they are not going to do that. Its one reason that large builders sell houses to buyers “off-plan”, and only undertake the building of the houses, when they have obtained sufficient customers for them.
Now, it might be thought that, given the astronomical level of house prices, and given what was said earlier about “huge levels of surplus profit” available to house builders, that should not pose a problem. But, it does, because its necessary to understand that the price of houses is not determined by the cost of building new houses, but by the prices of existing houses. New houses account for only around 7% of house purchases and sales, in the UK. The rest is the purchase and sale of existing houses, as people move from one home to another. In fact, this is pretty identical to what happens on the stock and bond markets too. Very few of the shares bought and sold on stock markets are new shares. Again the figure is around 7%. The money flowing into the purchase of shares, as with bonds, goes, not to finance the expansion of capital via investment, but goes almost exclusively into the pockets of other speculators.
Speculators can, and do, drive up the prices of shares not because of any demand for shares driven by a potential for additional profits to boost dividends, but simply as a result of a speculative frenzy. When the state provides a safety net for such speculation, as it has done, since 1987, by providing additional liquidity from central banks, whenever, financial markets take a tumble, then, as has been seen, those prices can reach astronomical levels, unrelated to any increase in profits. The same is true with houses. If A and B own assets, be it a house, or a portfolio of shares, or bonds, then, even without any additional participants, the price of their respective assets can be driven up by both of them simply engaging in such speculation. A can offer to buy B's assets at double their initial price, so long as B offers to buy A's assets at an equally inflated price. They simply exchange between them their assets at these inflated paper prices.
That is what has happened with houses. From the early 1980's, Thatcher's government encouraged speculation of all sorts, including housing speculation. The introduction of a discounted right to buy of council houses was part of that process. Council houses provided a degree of security of tenure that also put a constraint on the rents that private landlords could charge in competition with them. By offering council tenants huge discounts of up to 60% to buy their home, the Tories created a huge incentive for such speculation. In fact, many of those tenants that undertook it came a cropper shortly after, because, as interest rates began to rise, they found they could not pay the mortgages they had taken on to buy the houses. But, that simply enabled other speculators to then buy up those houses from them, and turn them into privately rented properties in conditions where speculation was driving prices higher.
For those former tenants who didn't suffer that fate, when they came to sell their former house either because they could move to another house, or because they had died, it was again speculators that were able to swoop in, and buy them up. Around 90% of the council houses sold under Right To Buy, are now owned by private landlords. Again, as with the money that flows into stock markets that simply goes into the pockets of other speculators, rather than financing actual investment in capital, the money received by councils for the sale of their housing stock did not go into building replacement houses, and, indeed, the Tories placed restrictions on them being able to do so. So, the demand for housing was ramped up, whilst the supply of housing was curtailed. Prices rose fuelling even greater speculation, which drive up speculative demand even more.
Yet, as I have set out previously, the narrative that house prices have risen, and are high, because supply has not risen adequately is itself false. There are 50% more homes per head of population, today, than there was in the 1970's, before the huge rise in property prices started. The problem has not been the increase in supply of houses, but the creation of a huge speculative demand for houses. Either speculators have sought to buy them to take advantage of more or less guaranteed capital gains, underwritten both by central bank intervention, and by government policies to goose demand further, or else, individuals simply needing somewhere to live, have been drawn into a fear of missing out, in which they would pay whatever exorbitant prices were current, on the basis that tomorrow those prices would be even higher. That was encouraged by exceedingly low, and artificially sustained mortgage rates.
Again, a reflection of that is the huge shift in the nature of households, in which single person households have doubled, since the 1970's, from around 21% to 41%. It is this speculative frenzy, made possible by central bank and government policy that has artificially inflated demand for houses, and pushed up prices. It is the prices of these existing houses that determine also, the price of new houses, and those prices are way above the costs of production, which is the basis of the huge surplus profits for builders. However, what distinguishes house building, as with agriculture, or primary product production, from other forms of production, is that the landowner is able to withhold the use of their land, unless they have this surplus profit handed over to them as rent. In the case of house building that rent may take the form of actual rent, as manifest in the sale of houses as leasehold rather than freehold, or else takes the form of a capitalised rent, manifest in the price of the land, for freehold properties.
So, as Ricardo and Marx set out, in relation to agricultural rent, the fact of these high prices, and profits does not lead to a corresponding increase in production and supply, because the landowner simply appropriates the surplus profit as rent (price of the land), reducing the builder's profit down only to the average rate of profit. That the landowner might themselves be a large builder does not change that, because they had to buy the land from an existing land owner to begin with, at these inflated prices. As they see house and land prices continuing to rise, underpinned by state and government policies, they have no reason to build more houses than they know they can sell profitably, because, in addition to protecting those profits, they know they can also make capital gains on the land they own, by sitting on it. Only if they came to believe that land prices were going to fall, causing them to make capital losses, would that change, but there is nothing in Blue Labour's narrative, nor in its policy that would cause them to believe that. Quite the contrary.
Blue Labour's narrative continues to be that of the Tories of the need to make home ownership affordable by having low mortgage rates. But, low mortgage rates do not make houses more affordable. They simply act to push up house prices, and, again, to then push up land prices. In pushing up land prices, they push up that cost of building new homes, which means that the price those homes sell at, in order to produce an average profit for the builder is also raised. So, it is no use Blue Labour proclaiming that it is going to build 1.5 million houses, and that all that is standing in the way is NIMBYISM, and a restrictive planning system, because its own policies are acting to limit the number of houses that builders can sell at prices that will produce the average profit.
If they want to achieve their supposed target, they need to reduce land prices, and to reduce land prices, higher interest rates are required, or else, as with the post-war government, they need to compulsorily purchase building land at much lower than current prices. Alternatively, they could buy up land in the Green Belt, at agricultural land prices, and, then, redesignate it as building land. Again, as with the post-war government, the simplest route from there is to build a large number of council houses to rent, which again has to be coupled with scrapping the Right to Buy. That would provide decent homes for large numbers of people who can't afford to buy, and who are currently being ripped off by private landlords. It would, act to reduce those private rents too, and encourage many of those landlords to sell up, which would, in turn act to reduce existing house prices, as that stock of privately owned, rental properties came on to the market. Those falling house prices would act to cut land prices, and so, would make the cost of building new houses much lower.
But, Blue Labour, like the Tories continues to be in thrall to the idea of inflated asset prices, and so long as that continues the idea of increasing housing supply will remain a delusion.
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