Blue Labour's False Narrative On Housing

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.

Tory and Labour Short-Termism

In the last week, both Labour and Tories have come out with economic policies that reflect the way populism, and short-termism dominates their thinking.  The Tories have proposed making Stamp Duty on house sales payable by the seller rather than the buyer, whilst Labour has proposed enabling local Councils to take over empty high street shops to provide subsidised premises for various businesses.

What is the likely effect of the Tories proposal.  It is to reduce supply, and thereby to cause house prices to rise, the opposite of what the Tories claim is the purpose of their proposal.  In other words, it will have the same effect but from the opposite direction as their Help To Buy Scam, which helped to push up prices, by artificially inflating demand.  But, that is not surprising, because, although the Tories want to seek electoral popularity by claiming to be doing something to make home ownership more affordable, they need to keep house prices actually inflated.  The intention of conservative governments, and of central banks for the last thirty years has been to keep asset prices inflated, because 1) financial and property assets (shares, bonds, property and derivatives) are the main form of wealth of the dominant section of the ruling class, the top 0.01%, and 2) the conservative social-democratic (neoliberal) model during all that time has been to substitute the liquidation of capital gains on assets for the the creation of revenue, via the production of new value, as the basis of sustaining consumption.

They have needed to keep house prices inflated, not because the top 0.01% has their wealth tied up in their houses, but because a large chunk of the population has their wealth tied up in that way.  Its on the basis of this property wealth that large chunks of the population are encouraged to take on further debt so as to sustain consumption, given that during much of that time, real wages have been declining or stagnant.  Its only necessary to look at all of the TV, newspaper and online advertising encouraging elderly property owners to take out lifetime mortgages, or take part in equity release scams, to provide them with money to finance their, or their children and grandchildren's consumption, to see the role that plays.

But, its not just at the personal level that that applies.  A large part of the state's activities has been predicated on being able to liquidate paper capital gains on rapidly inflating assets too.  All of the proposals about financing elderly social care, and so on, require a situation in which the price of the house of the person taken into care, continue to inflate, year after year. 

There is another reason that the central banks and conservative governments have wanted house prices to continue to inflate, or at least not to collapse, it is that the banks and financial institutions themselves depend on it.  Commercial banks long ago ceased being a major source of finance for actual investment.  Some years ago, Michael Roberts showed that around 90% of the loans provided by commercial banks simply fed into property speculation by one means or another.  A tiny amount went to finance loans to business for real capital accumulation.  The claims that money printing via QE, or the policy of low official central bank interest rates were designed to stimulate investment, or the real economy are nonsense.  The additional money, and cheap money to commercial banks was deliberately channelled into assets, so as to inflate those asset prices, and in inflating those asset prices, it also acted to create paper capital gains, from speculation, which further encouraged money to flow out of the real economy and into this financial and property speculation.

If house prices drop sharply, as they did in 2008, and in 2010, then all of that vast amount of loans undertaken by the commercial banks looks suspect, because it means the inflated assets sitting on those banks balance sheets, suddenly becomes massively depreciated, destroying their capital reserve ratios, and their ability to lend further.  It would mean that the banks themselves would need to suck in large amounts of capital, as occurred in 2008, so that they were recapitalised.  That is important, because the banks have an important role to play in keeping the other asset prices (shares, bonds, derivatives) inflated, via their investment (speculative) banking activities.

Part of the reason that property prices remain high, is not just that government actions have tried to artificially inflate demand, by targeted low mortgage rates and subsidies such as Help To Buy, but because supply has been constrained.  Supply is constrained, because inflated land prices means that landowners have an speculative incentive to hoard land, waiting for higher prices, which is encouraged further by state sponsored monopoly imposed via the Green Belt policy.  But, builders too, naturally constrain supply - not only because they are landowners themselves - because they build houses to make profits not to be altruistic.  With such inflated house prices, they know that the demand for new houses is highly restricted to a few people each year who can afford to put down a deposit, and commit to the monthly payments, even with the massively subsidised mortgage payments.  They know that if they produced more houses than that they simply could not sell them at prices that would produce a profit for them.  That is why all large builders now only sell new houses "off plan", i.e. when they already have a buyer for he house.

But, the supply has also been constricted, because a lot of the first time buyers, who must come into the market each year, for the market to expand, do not buy new houses, but houses from existing owners, because these are the cheapest ones.  But, that requires that the owners of existing houses themselves want to sell.  That source of supply has been restricted, because the rise in house prices has been such that the gap between the price that sellers can get for their existing house, and the price they will have to pay for the house they want to move up to has become unbridgeable, so that existing homeowners tend to stay put, to settle for making improvements, building extensions and so on.  Without that supply of cheaper existing homes coming on to the market, there is no supply of those homes, for first time buyers to bid for.

For the seller of a house, its not just that unbridgeable gap they have to consider; it is also all the other costs of moving.  The seller of an average £200,000 house could expect to pay around £5,000 in estate agents fees, solicitors fees and so on.  The Stamp Duty on such a house would be around £3,000, nearly doubling the transaction costs for the seller.  Moreover, because Stamp Duty does not start until £125,000, every increase in price over £200,000 would mean a much steeper increase in that cost.  For sellers of existing properties, already discouraged from selling, the imposition of the additional Stamp Duty proposed by Javid, is yet another reason not to put the house on the market, which will further constrain supply, pushing house prices higher yet again, or at least, in places like London, where house prices are again falling rapidly, acting to limit that fall, which would actually make houses more affordable. 

For those that do decide to sell, what is their likely response, in those conditions?  It is obvious that they would simply lump the Stamp Duty they now face having to pay on to the selling price of their house?  So, rather than making houses more affordable to buyers, it will make them less affordable, at the same time as further restricting supply.  In reality, that is again likely to be the real purpose of this move, whilst attempting to gain short term populist approval, for undertaking a measure that is promoted as making houses more affordable, just as they did with the Help To Buy Scam.

Last week, Labour also came out with a policy to deal with the continued decline and decay of the town centre high street.  The policy involves allowing local councils to take over premises that have been empty for more than a year.  But, this is also another populist, short-sighted and short-termist solution whose outcome will be different to what is proposed as its intention.  Labour's proposal is that council's having taken over such premises, should then make them available to start-up businesses, pop-up shops, charity shops etc.  This solution has a lot in common with the reactionary, protectionist policies of the Tories in relation to the creation of Enterprise Zones under Thatcher, and more recently, the proposals of Boris Johnson for Free Ports.

Let's take the most obvious example of that.  In the midst of a period when retailers are dropping like flies, because, as I wrote more than a decade ago, far too many of them had been created, and because they are now facing rising costs, and increased competition from online retailers, Labour's proposal amounts to putting those existing retailers under even more pressure, by siting alongside them, small businesses that are given subsidies that the existing retailers do not enjoy!  If you are an existing retailer, currently paying your full rent for your premises, full Business Rates, and so on, what do you think is going to happen to your competitiveness if next door to you is some new business that does not have to pay those things?   The obvious effect is to undermine the competitiveness and profitability of the existing retailers, at a time when their profitability is being squeezed anyway.  Labour's policy means that a few empty shops might be filled at the cost of expensive subsidies, but at the cost of driving even more existing retailers out of business with the loss of jobs that entails, and creating an even larger number of empty spaces on the high street.

Labour might respond that the intention is to fill the voids with more charity shops, not for profit shops etc.  But, charity shops also sell commodities that existing retailers sell, which means that these subsidised shops represent cheap competition to the existing stores.  The charity shops undercut the retailers not just because they get their stock provided for free, and get cheap rents and so on, but because in many cases they rely on unpaid labour.  That unpaid labour directly undercuts the paid wage labour employed in the actual retail stores.

And, don't we already have more than enough charity stores on those high streets?  And, the use of the space for those shops is itself incredibly wasteful of resources.  In past decades, the things now given to charity shops would either have been passed down to younger children, within families, in the case of clothes, games and so on, or else given to neighbours to meet their needs, or else sold at jumble sales held periodically in schools and church halls, at a fraction of the price the charity shops now charge, to cover their costs.  The sprouting of charity shops has arisen for three poor reasons.  Firstly, the existence of empty spaces in high streets, led to a search for some means of filling those spaces; secondly, the underfunding of many areas of social life by the state, for example in healthcare, meas that the funding for research for heart disease, or cancer has fallen to charity; thirdly, the need to encourage consumption to keep aggregate demand raised, meant that the majority of the population was encouraged to dump its previous habits, and to be perpetual shoppers for new commodities, enthralled by so called "retail therapy", so that an endless supply of used commodities could be fed into the charity shops.

Rather than encouraging a continuation of that culture, Labour should be implementing policies to reverse it.  It is a disgrace that vital areas of social life such as healthcare and so on should rely on charity, a situation we thought had ended with the creation of the NHS in 1947.

Labour's policy is based upon an approach that is essentially reactionary and protectionist.  The high street, and town centres are in terminal decline.  That is not just because for thirty years, aggregate demand was sustained on the basis of a promotion of consumer demand financed by debt, and by an unsustainable growth, therefore, of commercial activity and jobs, whilst actual productive-activity was increasingly concentrated elsewhere in the globe; in other words that there were just too many shops created.  It is so because, today, the town centre high street, situated in 18th and 19th century towns and infrastructure, cannot compete with the dedicated retail environments of the out of town retail parks, let alone with online retailing.

Trying to cling to the models and methods of the past is the characteristic of conservatism, not of socialism, or social-democracy.  It is time to recognise that the town centre as a retail environment is a thing of the past, and to move on and encourage the development of its replacement.  Town centres that have a few pubs, cafes, and other such establishments is one thing, but as retail centres, their day has past.  Even the large out of town retail parks' days are numbered, because the future lies with online retailing, which is much more efficient.  The main role of the out of town sites will increasingly become as distribution centres, and bricks and clicks stores, where having browsed the Internet for your purchase, you simply collect from an actual store, or go to view it, before confirming your online purchase.

Instead of trying to protect the high street, by subsidising inefficient small businesses that can only exist with such subsidies and protections, which in turn undermines both existing larger businesses, and workers' pay and rights that goes with it, Labour should be looking to turn empty town centre premises into residential properties, to help alleviate the housing crisis, as well as turning them into doctor's and dentists surgeries, etc. so that workers either living in, or working in the town can get appointments at their convenience, which also requires a large investment in primary healthcare by Labour, an extension of the use of the Internet, for patients to be able to use any available healthcare professional as required, and so on.  That in itself requires continued membership of the EU, so that we do not lose the healthcare professionals we already have, as well as having the required pool of trained professionals to meet the expanding need immediately.

Its time for politicians to stop looking for populist short-term solutions, and begin to develop thought out, long term solutions that will actually address the problems we face.

Rough Sleeping Could Stop Tomorrow

The government has committed to ending rough-sleeping by 2027.  Why?  Rough sleeping could be ended tomorrow, why does the government think it can't end it for another decade?  Its as though the government is admitting that it is totally incompetent, and/or simply does not care about people placed in such a desperate situation, many of whom have died over this last Winter, as they have over previous Winters, and as they will continue to do over the next decade, if the Tories have their way.

The Tories are only committing themselves to just halving rough sleeping by 2022.  Both targets are so far away as to be meaningless.  In 2010, by spreading ridiculous stories about catastrophe, to justify their imposition of austerity, the Tories tanked the strong economic recovery that Labour had brought about, following the global financial crash of 2008.  When the Liberal-Tory government actually introduced their first austerity budget, they sent the economy into recession.  The incompetence of the Liberal-Tories was demonstrated by the fact having spread all of these scare stories, which tanked the economy, having talked about what draconian levels of austerity were required, so as to eliminate the budget deficit, their words did not meet their actions.

The austerity measures they introduced, contrary to all of their scare stories, were back loaded.  By 2015, the point at which they were supposed to have eliminated the deficit, not only was the budget deficit still half what it was in 2010, but the Liberal-Tories had only implemented 40%, of the austerity measures they had threatened.  In reality, as I wrote back then, the Liberals had only signed up to the austerity narrative in order to stitch up a deal to get into government with the Tories.  The Liberals had been arguing even as they entered the coalition that the imposition of austerity was crazy, given the early stages of the economic recovery that was taking place and that economic recovery was only taking place, because of the fiscal stimulus that the Labour government, like the governments in the US and elsewhere had implemented.  The Tories too, knew that their stories about catastrophe, about Britain being like Greece, were nonsense too.  Just months before the 2010 election, they had been matching and exceeding Labour's spending commitments.  They changed tack for purely political posturing reasons, having seen the success of right-wing Republicans, in the US, who had adopted such a stance.

The truth is the Tories expected that the economy would continue the strong recovery that had begun under Labour, so that the majority of their austerity measures would never have to be implemented.  That is why, they lumped a huge component of their austerity package on to local government, leaving the majority of the overall austerity measures, and cuts in benefits and tax credits for later.  They were happy to let Tory, and more likely Labour councillors bear the brunt of displeasure for the effects of austerity on crushing local services, caused by cuts in central government funding, a classic example of that tactic being the way they repeatedly attack the NHS in Wales, whose performance is, of course, not in the control of the Labour administration in Cardiff, because of its reliance on Tory controlled funding from Westminster.

When the economy rather than continuing its recovery, in 2010, was sent spiralling down, as a result of the Tory austerity measures, the government was forced to reverse course.  A large part of the central government spending cuts, came in the form of cuts in capital spending programmes.  Again the reason for this was obvious, for a highly political government.  Whilst the cuts in revenue spending to local government, and the devolved assemblies could be blamed on those local and regional governments, and so the government could distance itself from the resulting opprobrium, cuts in capital spending, can largely be merely paper transactions, and in any case, are not immediately apparent to the general public.  The largest part of capital programmes, consists of future commitments, prior to the actual work beginning.  Its possible to cut these proposed spending plans without cutting any actual on going spending on any projects.

But, the Liberal-Tories were so incompetent that the cuts in this capital spending did affect actual existing projects, and projects about to commence.  The classic example was in relation to the Schools budgets, where they came to Parliament several times, with each time a different version of the programme.  A number of sizable companies involved in carrying out the construction and other work associated with these capital spending programmes went bust, and the threat of such large scale austerity measures in relation to capital spending, together with the way the Tory government was talking down the economy, by its apocalyptic stories about impending doom, unless everyone accepted the need for austerity, had already sent the economy into a tailspin.  Again, not surprisingly, the Tories had to change course on their austerity programme for capital spending.  They did so in 2014, and it was only after that that the economy began to slowly recover from the economic stagnation they had self-imposed upon it.

But, the damage had been done.  By cratering the economy during that four years, they had reduced the growth capacity of the economy, structurally, and they had also reduced the tax receipts that would have flowed from a growing economy.  That is why, despite all of the austerity imposed on Local Government, despite the dire warnings of the need for austerity, they failed to achieve their goal of eliminating the budget deficit by 2015, and it is also why they were then forced into a position of having to implement the cuts in central government revenue spending on benefits, tax credits and so on, which they had back loaded into their programme, always with the intention that they would never have to implement them.

The rise in rough sleeping, as with the rise in homelessness, and many of the other problems currently being faced by local government are a direct result of the unnecessary austerity measures that the Liberal-Tories imposed after 2010, and which were only imposed, because the Tories had committed to a ridiculous narrative of impending doom, and debt servitude, for purely political posturing purposes ahead of the 2010 election.  Sound familiar?  It should, because the Liberal-Tories did exactly the same thing in relation to the EU referendum.  Cameron proposed it only for political posturing purposes, believing that he could use it to silence the Euroseptics on his back benches.  They thought that there was no danger that they would even have to call a referendum, because another hung parliament would mean the Liberals would give him cover for not actually calling the referendum, and thy thought that even if they did there was no chance of losing it.  That has been the history of the Liberal-Tories over the last decade of party political posturing for their own ends, which then results in significant economic damage.

The fact is that, if the commitment was there, not just rough-sleeping, but homelessness could be ended in short order.  In WWI and II, the government sequestered land and property to meet its needs; when the government wants to build a motorway, road, or rail line, or other infrastructure, it compulsorily purchases land and property, to make way for it.  There are more than a million empty homes in Britain, many of them are homes owned by Russian oligarchs, and speculators who do not even have any intention of renting them out, simply prepared to obtain large capital gains on them as a result of government policies to inflate asset prices.  If the government had the will, it could requisition these empty homes and put them to use tomorrow, renting them out to homeless families.

But, even without that rough-sleeping could be ended tomorrow.  When I was a County Councillor, I asked why it was that there were hugely expensive pieces of fixed capital owned by the Council that were being very inefficiently used.  Schools are open for just a few hours a day, for only five days a week, and usually for only half of the year.  Why?  At a time of cuts in libraries, why are not the existing school buildings used to also provide library facilities?  After all it is the staff, the books and so on in the library that is the important thing to provide, not the building, as specifically a library building.

And the same thing applies to rough-sleeping.  The real problem with rough-sleeping is contained in the name - sleeping.  It is the problem of people having somewhere safe and comfortable to sleep over night.  Churches and various voluntary organisations do notable work in providing night shelters, and so on, but again, why only provide such dedicated buildings?  The churches themselves are large buildings, spread generously across the country, and not used overnight.  Why not keep the church doors open overnight, and enable rough sleepers to come in?  Similarly, we have schools in every community, with sizeable assembly halls, why not open them, to provide overnight sleeping facilities?  And, the same applies to local councils that have sports centres, with large sports halls that could be opened up after the sports centre has closed, to provide accommodation.

There is more than enough facilities already in the possession of local councils, and various voluntary organisations that could be simply opened up, and made into comfortable, and safe facilities for rough sleepers overnight, and which could also then be a means of social workers, and others providing the required longer term support measures.

Instead of Tory Councils and others threatening to fine or otherwise penalise those very unfortunate enough to find themselves sleeping on the streets, they should act today to end rough-sleeping by simply making efficient use of the very expensive pieces of fixed capital already in their possession, and which we have all paid for in our taxes.  There is no reason whatsoever for rough sleeping not to end tomorrow, and the government's proposals for ending it only in a decades time are a disgrace that should mark it with infamy, for people who claim to be a civilised government, in the 21st century, in what they continually tell us is the world's sixth largest economy.

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.”

And,

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

(FT)

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.

The Tories and Housing

The Tories have said that resolving the housing crisis is their priority. Theresa May has said that she is making it her personal responsibility to end the housing crisis. But, its clear that as with every other area of policy, when it comes to housing the Tories simply do not have a clue.

A couple of weeks ago, Sajid Javed, in one of the Sunday morning politics programmes said that to resolve the housing crisis it was necessary to start with the initial cause of the crisis, which he said is the shortage of supply of houses. But, even assuming that the actual problem is a shortage of supply – which it isn't – this would not be the starting point in resolving the crisis. The starting point is asking the question why this shortage of supply exists. Unless you address that question, it is not possible to develop any kind of rational policy to address that shortage of supply. But, the real problem is not a shortage of supply, and if you address the question preceding that, of why the supply of houses is not larger, that becomes abundantly clear.  I pointed out some years ago, that, in fact, there is 50% more homes per head of population today than there was in the 1970's, and Oxford Economics have also recently demonstrated that the amount of new residential floorspace has continually exceeded the actual amount of new household formation over the last few decades.

The real problem is a shortage of housing at prices that people can afford, whether that is houses to buy or to rent. Unless you understand that starting point, it is impossible to develop any kind of rational programme, and you end up with policies such as “Right to Buy”, “Help to Buy”, “Buy to Let”, and now the abolition of Stamp Duty and so on, which simply inflate demand further whilst doing nothing to increase supply, and thereby make the crisis worse rather than better, along with the policies of continually extending Housing Benefit, which simply subsidises low paying employers, and high rent landlords, who see this subsidy go straight into their pockets.

For the Tories and other proponents of orthodox bourgeois economic theory, the fact that house prices have risen so much, and yet the supply of houses has not, is a conundrum. For the same reason they believe that an increased supply of houses must result in a fall in the market price of houses, so they believe that the huge rise in prices must bring forward an increase in house building, as builders seek to be able to sell houses at this much higher price. But, despite the fact that house prices have risen astronomically, it has not resulted in an increase in house building. On the contrary, the number of new houses being built has been at historically low levels during nearly all of the period when house prices have been soaring!

Unless you understand the reason for that its impossible to resolve the crisis itself. There are several reasons why the soaring price of houses has not brought forth higher levels of house building. Firstly, a large part of house building in the past came from the building of council houses. Britain has only ever approached levels of annual house building of more than 200,000 on a consistent basis, when it has been large numbers of council houses. Outside such periods, Britain has always struggled to build even 200,000 new houses a year. But, for the last thirty years, we had Council Houses sold off under Right to Buy, whilst councils were prevented from using money raised from sales to use for new building, and Councils have been prevented from borrowing in order to build the Council houses required.

More recently, even Housing Associations were forced to sell the homes they owned to tenants, and they have faced a similar problem of being able to use receipts, or to increase borrowing to finance further building. Indeed, if you are a Housing Association, why on Earth would you borrow money to build additional homes to rent, if the Government then forced you to have to sell off those homes, at a discount, and thereby to also lose the future rental income that you would have obtained from those homes?

But, even if councils and housing associations did not have these restrictions, they would still face the same problem that private builders face, in building homes to sell. The reason that the astronomical rise in house prices has not brought forth an explosion of private house building is quite simple. Builders only build houses to produce profits, and although the price oh houses has risen exponentially, builders have also faced a sharp rise in the cost of building new houses, because the price of land has been driven up exponentially too, as a result of the bubble in existing house prices. Because existing house prices are so astronomically high, the owners of building land know that the price of any houses built on their land, will also be astronomically high.

Its like if the existing price of wheat is astronomically high, the owner of a field suitable for growing wheat, but which is not currently being cultivated, will know that a farmer who wants to cultivate it, will sell the wheat at these current high prices. That means the landowner will be able to charge a high rent for the land, equal to the surplus profit the farmer would otherwise make, and if they sell the land to the farmer, the price they will charge for the land will be the capitalised rent. The capitalised rent is the amount of capital that would be required, at the current rate of interest, to produce the equivalent in interest, of the annual rent. That is another reason that building land prices have risen, because not only have existing house prices rocketed, pushing up the rental equivalent, but interest rates have sunk to historically low levels, pushing up capitalised values.

When a builder has taken into consideration these increased costs of buying land at these inflated prices, the profit they are left with does not provide them with any surplus profit, which then reduces any incentive they have to increase their production substantially. And the councils and housing associations are faced with a similar problem. For a council to build additional council houses, it must first acquire building land to do so. Without the ability to buy up agricultural land, at agricultural prices, within the Green Belt, or to compulsory purchase building land, at agricultural prices – which would be subject to a legal challenge by landowners in the courts – Councils would face having to pay exorbitant amounts to buy land, which would then feed through into their cost of building Council Houses, thereby limiting the quantity they can build, and also meaning they would have to charge correspondingly high rents for any such Council houses, so as to recover this cost.

The requirement to build on Brownfield sites is doubly a stupid policy, because such brownfield sites are invariably in urban areas, where the land prices are higher than for agricultural land. Secondly, those already living in these urban areas are the ones who most urgently require their living environment to be made healthier and more desirable, by having such brownfield land greened. Rather than building on these brownfield sites, local councils should be developing policies to reclaim them, as green open space for the benefit of the existing residents. They should be turned into “village greens”, and protected against any future development on them, as a more sensible means of creating not a constricting “Green Belt”, but of creating liberating green lungs. Further building on this brownfield land, only has the effect of further diminishing the environment of such urban areas, and of simultaneously pushing up further the price of building land within that area, by increasing the demand for it.

Simply building more houses, whether to buy or to rent, will not reduce house prices, or rents. Only if the issue of the massive bubble of existing house prices is tackled, and its effect on causing a huge inflation of land prices, will it be possible to build more houses at a cost that enables them to be sold at lower prices, and rented at lower rents.

That brings us to the question then of the huge bubble in house prices. Builders will not build large numbers of additional houses just because prices are high, if their profits are not correspondingly high, and their profits will not be correspondingly high, if land prices are high. But, land prices are high, because existing house prices are in a huge bubble, which along with the monopoly of land ownership, and further monopoly restrictions such as the Green Belt, means that landowners can charge high rents and land prices. But, the further issue here is the market as the housebuilders see it.

Modern capitalism does not generally produce chaotically in the way it did at the start of the 19^th century. As Engels put it, even towards the end of that century, the advent of the large companies and corporations, meant that that kind of planlessness of capitalism had ended. The large companies plan their production for long periods ahead, and they do so on the basis of an understanding of the potential for future demand for their goods and services. Go to any new housing development of one of the large builders, and you will find that it is almost impossible to buy a house that they have already built. To buy a new house on such a development, it is necessary to buy the house “off-plan” that is to buy the house off the builders plans for the development, only knowing what kind of house you are buying, and where on the site it is to be located. The builder then builds the houses, as and when they have already effectively received orders for them, from buyers, and has received the deposit, the mortgage has been granted and so on. Only towards the end of the development, where it is a sizeable development, will the builder have completed houses speculatively to sell, in order to be able to get off-site, and move to some other new large development. You can often then buy these houses at a discounted price, but you have to settle for what is available.

It is generally only the smaller builders who build speculatively on the whole of the site, and usually only on smaller developments, given the limitations of their smaller capitals on the size of development they can undertake. That is why it is usually these smaller builders who suffer whenever the market changes suddenly, and they find they cannot sell the houses they have built at prices that recoup their costs, and so go bust. The larger builders having only built what they have received payment for are able to cover themselves, and simply keep the remaining land on the site in their land bank, until such time as the market recovers, or the government comes along with some new gimmick to help them start selling houses again.

But, it can also be seen here why the builders also restrict the quantity of houses they sell, irrespective of the extent to which house prices might have risen. Any capital, is only interested in the profit it can make. That depends on the costs of its production, and the price it can obtain for that production. This latter depends on the extent of monetary demand for that production. But monetary demand consists of two elements. Monetary demand of say £1 million might be comprised of 1 person willing to pay £1 million, or it might alternatively comprise 1 million people each prepared to pay £1, or a multitude of combinations of these two elements. For a builder or any other capitalist producer this is significant.

If I am a builder, and I can buy land, and build a house that costs say £800,000, I may be prepared to go ahead and advance my capital to build a house, if I know that there is a person out there with £1 million prepared to buy the house at that price. On that basis, I can make £200,000 profit. If no such person exists, it does me no good whatsoever to know that there are 1 million people each prepared to pay £1 for such a house, because they are not going to buy it form collectively! Moreover, if I build two houses, although the first buyer might have been prepared to pay £1 million for one house, they will have no reason to pay anything for a second house, which has no utility for them. But, by building this second superfluous house, I also thereby reduce the amount that the original buyer is prepared to pay for it. Knowing that it is on the market, as well, the buyer with £1 million might, if they are a speculator, agree to buy both houses now at £500,000 each. The builder will have been screwed either way. They will have expended £1.6 million of capital, and only able to get back £1 million. The more houses they build, under such conditions, the more capital they will advance, but with no potential for being able to sell the resultant houses at prices that recover the capital consumed in their production. It will be a crisis of overproduction, leading to the builder going bust, which is why the big builders do not, wherever possible, build more houses than they know they can sell at prices which enable them to make the average profit.

If we look at the real problem today, it is that although three may be lots of people who NEED houses, the number of people who can provide a DEMAND for houses, i.e. who can back up their desire for a house with the money also to purchase it, at current prices is much lower. Yet, the speculative price of houses is driven up, because there is a relatively small number of people who whilst not actually needing houses, have lots of money to buy them, and the more the price of existing houses is driven up, the more that drive to demand these houses, simply as a means of making a speculative gain, thereby drives up the price of existing houses, which then drives up the price of building land, which then pushes up the cost of building new houses built on that land, which means that builders have to charge higher prices for the houses they build, in order to make the average profit, which means the number of people who can afford to buy those houses is reduced, which means that builders cut back the quantity of new houses they build to only that number that they can sell at these inflated prices.

The starting point for resolving the housing crisis is then not the naïve idea that it is simply a matter of increasing supply. Actually, having listened to Sarah Beeny discussing this in recent weeks, I have been impressed with the extent to which she has actually understood that problem. She has quite rightly commented that any new housing supply in, say, London, will not act to bring down house prices, there, because this factor of land cost, will simply mean that the builders will seek to recoup that cost, plus their profit, so that any new supply will simply appear on the market at existing inflated prices. In fact, a look at the amount of new building in London demonstrates precisely that. London has had more building than elsewhere in the country, but it has done nothing to address the housing crisis, because the properties that have been built have usually been too expensive for the people who need housing to either buy or rent. Large amounts of the building in London, has simply been done for purposes of speculation. A small number of very rich people with lots of money, have been able to buy up, and even finance the building of properties, which then lie empty, because no one can afford to buy or rent them, and the speculators who have built them, are not bothered about that, because they have only built them with the anticipation that next year, the price of the property will be 20% higher than it is today, just like speculators buying a rare bottle of wine they never intend to drink, or who buy a painting they then lock away unseen in a bank vault.

The key to resolving the housing crisis is first to burst the speculative housing bubble. That requires several things. Firstly, it means scrapping all of the gimmicks that successive governments have introduced to try to prop up flagging demand for this overpriced housing. It means reversing the scrapping of stamp duty, for example; ending “Help to Buy”; removing all of the advantages for “Buy To Let” landlords; and so on. Secondly, it means ending the manipulation of government bond prices, and the inordinately lower official rates of interest used by the Bank of England, to encourage speculation in assets, whilst the cost of borrowing for the majority of businesses and consumers are driven much higher, where such loans can be obtained. It means reintroducing the kinds of controls on lending for property that existed in the past, where potential buyers had to save up a 10% deposit, as a minimum, and where lending for mortgages was restricted to 2.5 times household income.

A rise in interest rates would reduce the capitalised values of all assets including land. Restricting the excessive credit pumped into circulation to finance house purchase would also reduce demand for housing, and thereby lead to a fall in house prices. A fall in house prices, would further reduce the price of building land, which would reduce the cost of building new houses, whether of builders building houses to sell, or councils building houses to rent as council houses. That would reduce the price of new houses to buy or rent, which would then act to reduce existing house prices further with a further downward effect on land prices. As speculators in property saw house prices crashing, they would no longer see houses as simply a speculative asset to hold on to, whether it was used or not. They would rush to sell, driving property prices down sharply again. Landowners, sitting on land speculatively, would similarly see it as a fast depreciating asset, and would rush to throw it on to the market, for new building land, pushing down building land prices, and thereby reducing the costs of builders in producing new houses, which would reduce new house prices to levels where additional buyers would again be able to buy them, and so whereby builders would be able to produce houses profitably in much larger quantities.

But, the other means of resolving the problem more immediately is for councils to be able to utilise agricultural land, at agricultural land prices, to build new council house developments. The Green Belt is a thoroughly ridiculous idea. It is supposed to prevent urban sprawl, and to protect the rural environment. It only prevents urban sprawl by making life within already over built urban areas even more over built, and unpleasant places to live, whereas what those areas require is some of thee existing development along with brownfield sites turning into protected urban green areas. The Green Belt simply acts to protect a pleasant environment for the largely Tory voting elite able to live in desirable rural areas, and the landed aristocracy whose vast estates continue to form the majority of the British mainland.

Residential property makes up just 1% of the land on the British mainland. That is just half of the land that is taken up by golf courses! To argue that the Green Belt cannot be encroached up to build more houses, when even doubling the amount of residential property would amount to taking up no more than is currently occupied by golf courses is nonsensical. Of course, we should oppose urban sprawl, but the means to do that is to utilise the Green Belt, and vast areas of rural land, to build well planned, new towns and cities. In the US, Canada, Australia and other more recently settled countries, towns and cities could be built from the start on a more rational basis, whereas in Britain, towns and cities developed in a haphazard manner.

Some years ago, as Vice-Chair of the Staffordshire Health Scrutiny Committee, I looked at transport in the context of existing hospital facilities. A large problem exists where such large institutions are developed within existing urban developments. Where possible, it is much better to be able to develop new hospitals etc. on new sites, away from the problems that exist with built up urban town centres, so that adequate parking, public transport, and roads can be provided. A similar thing can be seen with the development of out of town shopping centres, which can be developed on the basis of adequate land, and appropriate transport routes. On a larger scale, it is much harder, and much more costly to try to deal with the problems of development in existing conurbations, than to be able to start on a clean page, and to plan out and develop a new town on a rational basis, as was done with the development of new towns such as Milton Keynes, for example.

If the housing crisis is to be addressed, it will require huge amounts of public investment in creating brand new towns on such greenfield and green belt land. We should avoid the problems of the anarchic development of urban areas in the past, by planning in advance to provide adequate amounts of green space within these urban areas, to limit the amount of development that can occur within a given land area, and providing adequate greenspace between towns. It will require public investment in the provision of adequate public services in those areas, and of 21^st century communications.

The Tories have no concept of any such solutions. On the contrary, their solutions continue to make the crisis worse rather than better.

For A Workers and Tenants Inquiry Into the Grenfell Tower Disaster

Phil is quite right when he says that the Grenfell Tower disaster is Class War.  This disaster is a direct result of years of Tory austerity, and playing up to the Rachmanite landlords, whose numbers have been massively swelled by all of the hype and incentives given by the state for the Buy To Let brigades.  As with the continued numbers of workers lives that are lost or destroyed in industrial accidents, or from industrial diseases, it gives the lie to the Tories and the gutter press onslaught against "Health and Safety Gone Mad!"

This kind of disaster occurs somewhere in the world every week, and as in this case, that somewhere is nearly always within workers communities, and often the poorest workers communities, not in those of the rich.  It is a direct result of treating workers like cattle, attempting to squash them into the cheapest, least extensive spaces possible.  Britain has vast amounts of open space.  There is twice as much of the country taken up by golf courses as there is by private residences!  Yet, Britain has the smallest property sizes anywhere in Europe, and we are still being told the country is overcrowded, that the Green Belt has to be maintained, rather than providing workers with the decent living space they need.

The government, and the other representatives of the capitalist and landlord class will try to sweep this under the carpet as soon as they can.  There will be a big hue and cry over this one tragic event, but by that precise means they will try to present it as an unusual event, rather than one that we can expect with greater regularity unless something is done about it.  The residents in the building have said that they had complained to the Council many times, and been brushed off.  That indicates the basic problem where workers either as workers, or as, in this case tenants, do not own and control either the means of production, or their immediate environment.

Had the tenants in this building had real ownership and control over it, they would have acted immediately upon their concerns.  Indeed, had they owned and controlled the building collectively, they would have ensured that the work on the building would have been done properly, so as to ensure their safety, and well-being from the start.  Indeed, if workers as tenants were able to own and control their immediate environment, they probably would not choose to live in such buildings in the first place, and would instead work with other workers, organised as construction co-operatives, to create a decent and safe living environment in its place.

To stop the Tories, the Council and the landlords from sweeping this tragedy and its implications under the carpet, we need a Workers Inquiry, not just into this tragedy, and what led up to it, but into all of the other similar situations that workers find themselves in, as tenants.  The Fire Brigades Union, has all of the expertise required to undertake the investigation of what caused the fire and what enabled it to spread so quickly; the construction workers unions have the expertise to reveal what deficiencies in the building and maintenance work existed; UNISON should investigate why the Council and its officers did not pick up this problem, and why it was that tenants complaints and warnings had been brushed off; and the tenants in this tower, and all the others like it, via their tenants associations can provide background information on who knew what and when, and what the actions of the Council and landlords were that led up to it.

In fact, it indicates why we need to co-ordinate Tenants Associations across the country, to share information, and take collective actions, such as general co-ordinated national rent strikes demanding that all issues be addressed.  The Labour Party, with the TUC and residents Associations across the country should, indeed set a date, for a month long national rent strike, on the basis of a set of demands that councils deal with rogue private landlords, that they demand that all outstanding repairs are undertaken within that month and so on.

In the 1980's, Thatcher gave away vast swathes of state owned assets with her right to buy legislation, and Cameron introduced a similar right for Housing Association Tenants, even though Housing Associations are supposed to be non-state organisations.  As I suggested some time ago, Labour should reverse that process.  Labour should commit itself to giving all private tenants the same right to buy that council tenants were given.  They should enable all private tenants to buy the property they live in with the same 60% discounts that council tenants were given.  Labour should commit itself to working with the Co-operative Housing Federation, and using its National Investment Bank, to ensure that tenants are able to borrow the remaining 40% of the value of the property.  That is particularly important in cases such as this, where it makes sense for the tenants to form their own Housing Co-operative, so as to buy the building from the landlords.

It would also be a powerful means to start to address the question of Britain's Housing Crisis, by developing additional co-operatively owned and controlled properties, and estates, and to improve the environment and condition of the existing housing stock.

But, for now, as well as extending our sympathy to all those involved in this tragedy, and once again witnessing the tremendous spontaneous co-operative and compassionate response of ordinary people whenever such crises arise, we need to begin to organise our own workers and tenants inquiry into this slaughter, and to hold this responsible to account, whilst peparing to take action to prevent its recurrence.

We Need A New Definition of Affordable Housing

The definition of affordable housing, in terms of the requirement for builders to provide it, as part of any new development, is that its price should be 20% below the average price of houses in the area. That is clearly a ridiculous definition. On TV, last week, even Tory candidate for London Mayor, Zach Goldsmith, admitted that, in London, it means that someone on even double the average London wage, would not be able to buy such “affordable housing”, in the capital. The average house price in London, is now over half a million pounds, so that 20%, below that still means defining affordable as houses costing around £450,000. A new definition of affordable needs to be established, as a legal requirement for all new developments.

In the past, house prices remained fairly stable at around 3 times average wages. For most of the last century, house prices went nowhere. Between 1900 and 1960, the inflation adjusted price of houses rose by zero! During some years they rose, but in other years they fell, sometimes by as much as 20%. After 1950, UK house prices rose by less than 1% a year in real terms, and that was entirely consistent with the rise in average household incomes that occurred between 1950 and 1970. Yet, house prices in the last 30 or 40 years have rocketed, despite wages being relatively stagnant.

That mirrors the situation with stock markets, where during the period of post war boom, GDP grew far more rapidly than the rise in stock markets, whilst in the following period, when GDP grew more slowly, stock markets soared. Both have the same root cause, a huge expansion of credit, and the encouragement of workers to make up for their sluggish wage increases, by going into increasing levels of unsustainable household debt. That is most notable after 1987. After that period, UK household debt to income rose from around 80-100%, to 160%. We are back now at levels of household debt equal to those in 2007-8, just prior to the financial meltdown. The difference today is that global interest rates are rising, and there is nothing central banks can do about that.

The average rate of interest is determined by the interaction of the demand for and supply of capital, and for various reasons I have described before, that balance is shifting in the direction of the demand outstripping the supply. That view has also been expressed recently by David Solomon of Goldman Sachs, who talks about capital markets becoming tighter, with firms having to go back into capital markets to issue additional bonds, or shares to raise capital.

As interest rates rise that is going to create a much greater financial crisis than happened in 2008. Not only will UK households, with this huge amount of debt, suddenly find that their debt repayments have risen by massive amounts each month, but the process of capitalisation also means that many of the paper assets they have seen as constituting their wealth, will evaporate into thin air. That process of capitalisation, for example, will cause land and property prices to collapse. That will also affect the banks that rely on these paper assets as the basis of their own balance sheets, so that they will be faced with needing to call in and curtail huge amounts of their current lending, as their own balance sheets shrink.

Much of this, and the consequent effects on the real economy could have been avoided had the irrational rise in property prices being prevented, but all governments over the last thirty years have seen an advantage in facilitating the delusion of rising real wealth – which was really rising impoverishment through increased debt – and have then found that having created that delusion, they could not risk unpopularity by causing the bubble to burst. Now that has changed. More people now see rising house prices as a bad thing rather than a good thing, as the reality begins to sink in.

As part of restoring some measure of sanity, therefore, a start would be to introduce a more rational definition of “affordable housing”. I would suggest that it be that it is defined as being a house price that is no more than three times average income for the particular area. In a place like Stoke, for example, where average wages are closer to £15,000 a year, than the national average figure of £25,000, that would mean a price of around £45,000. In London, it would mean a price of more like £90,000. If builders cannot provide affordable housing, as part of any new development, at these prices, they should be required to provide, instead, rented properties.

But, its also necessary to ensure that this does not result in just a further reduction in the quality of property provided as “affordable”. Britain already has some of the worst housing in Europe, in terms of the average property size. That is compounded by current planning rules on the Green Belt etc., which squeeze additional properties into unsuitable locations, on brownfield sites, where no one wants to live. We should introduce something akin to the old Parker-Morris standards for housing.

But, in addition to this, local councils, should have a mandatory duty imposed upon them to provide, by one means or another, the amount of new dwellings required for their area, as set out in the local plan. If private developers cannot provide the required additional dwellings to buy or rent, then the local authority should have a required duty to build those houses themselves, and to acquire the land needed by compulsory purchase, in the same way that, in the 1960's, slum clearance was achieved by such compulsory purchase of existing dwellings.

Jacob Rees-Mogg's Faulty Logic

On the BBC's Daily Politics, yesterday, in a discussion on housing, Tory MP, Jacob Rees-Mogg, put forward a number of arguments that were based on faulty logic.

Firstly, in a discussion on Stamp Duty, Rees-Mogg argued that the purpose of any tax was to raise money to cover the government's expenses, and so any tax, or variation in a tax, which resulted in less revenue being taken in, should be opposed. The reason for this argument was that, Rees-Mogg was opposing the introduction of higher rates of Stamp Duty on very expensive properties, over £2 million, which he argued would deter oligarchs from buying property in London, and thereby lead to lower levels of Stamp Duty.

But, the basis of taxation has never, in reality, been solely about raising revenue to cover government expenses. In 1800, India produced around 25% of the textiles sold in the global market. Within a couple of decades that had changed, and Britain dominated that market along with that for almost every other manufactured product. In the end, the reason for that was that British textile workers, backed by masses of the latest technology, were far more productive than the traditional Indian textile worker, based in a village. Even though, the British worker's wages were many, many times that of the Indian worker, the British worker was far more efficient, and produced a metre of cloth, more cheaply than the Indian worker, because of this higher level of productivity. Much less labour-time was contained in a metre of cloth produced by a British worker than an Indian worker.

But, this was not the whole story. Before getting to this stage, there was a lot of history. That history included, as Marx sets out, the destruction of the traditional Indian village community, which was the basis of its economy, and its production. As was the case in all previous agricultural communities, industrial production was undertaken, by agricultural producers, alongside their work on the land. Rip up the village community, and the ability for peasant producers to sustain themselves, and you rip up the ability of those peasant producers to also engage in their industrial production, in their cottages alongside it.

But, in addition, Britain also imposed high import taxes on Indian textiles, which prevented them entering the UK market, so easily, and thereby favoured the British textile producers. The United States, in the 1860's, itself industrialised behind high tariff walls, that kept out foreign manufactures, and helped US producers to accumulate capital, so as to reach a level, whereby they were competitive against those foreign produced commodities.

Moreover, prior to the victory of industrial capital over the landlords, the same was true, for example, of the Corn Laws, which protected the rents of British landowners, by keeping the price of corn artificially high.

In all these cases, the purpose of the tax was was not to raise revenue for the government, but as a policy tool to achieve some other economic effect. In which case, the determinant becomes not whether a tax, or a variation of a tax causes that revenue to rise or fall, but whether it has the desired economic consequence.

As Marx describes, in Capital, the capitalist class, as soon as the excess reserves of labour-power began to run out, and a normal working-day was established, became concerned that workers should consume productively, as well as work productively, so as to maximise the production and realisation of surplus value. As Marx describes, this took the form not just of discouraging some activities, and forms of consumption, but of encouraging others. So, in addition to encouraging the creation of Temperance Societies, and the work in that direction of organisations such as the Salvation Army – which can be seen in the film about US socialist Joe Hill – duties were placed on alcohol, to discourage drunkenness. For capital, consumption of excess alcohol by workers is unproductive and even destructive for several reasons. Firstly, the portion of wages spent on alcohol do not contribute to the reproduction of labour-power, and detract from the use of wages that could thereby be actually spent on wage goods. Secondly, excessive alcohol consumption actually depreciates the labour-power, by making the worker less able to work. The extension of this was the introduction of Prohibition in the US, and something similar can be seen in attempts to make the use of recreational drugs illegal.

But, capital also encourages the consumption of those commodities, which enhance the worker's labour. So, for example, Marx describes the way the extension of “free” Public Education leads to increasing layers of the working-class acquiring the skills required for an ever more technological capitalism, as well as providing an increased supply of those technical, administrative and managerial workers it requires, as the actual capitalist is removed from the production process, and their function is taken over by these workers, and whose wages are thereby significantly reduced, whilst the value produced or realised by their labour is continually increased.

The logical conclusion of this process is the creation of welfare states by capital, so that a portion of the wage takes the form of a “social wage”. The workers are given no say over this proportion, as it it is taken by legal force by the capitalist state, in the form of income tax, and national insurance, for the purpose of the provision of these commodities required for the efficient reproduction of labour-power.

Looked at from this perspective, the important question in relation to Stamp Duty on expensive properties is not whether any variation causes the tax take to rise or fall, but whether it has the required economic effect. In the case of these expensive properties, that comes down to the other effects that very expensive property creates. One of the arguments put forward by Rees-Mogg and other conservatives is that the oligarchs bring money with them, which they spend, buying other commodities, and so on. But, as I have set out previously, this is also a false argument.

It is not that these oligarchs simply bring a load of money with them, which they simply give away. They exchange that money for commodities, of an equal value, and so for whatever value they throw into circulation, they take out an equivalent amount of value in a different form from circulation, so that the result is zero. It would only have a net positive effect if the money was converted into money-capital, and used productively, but in the vast majority of cases, this is not the case. In fact, the use of their money for unproductive consumption, has much greater negative consequences.

Their purchase of property, is unproductive consumption, from this perspective because the property is not used as capital, but as conspicuous consumption. Moreover, part of the reason for this purchase of property is pure speculation, in the hope that its market price will rise. That is why so many of these purchases of expensive property, never see the property itself occupied either by the owner, or by a tenant. The money, and the commodities used in the production of this property, is effectively wasted, as it could have been used productively, either as means of production, or to meet the productive consumption of workers.

The consequence of this speculation, particularly, somewhere like London, is that it pushes up property prices, and consequently, as I've described elsewhere, land prices, which then increases the cost of house building. The consequence of that is that the value oflabour-power rises, because the cost of reproducing the worker's labour-power has gone up significantly. This can be seen again clearly in London, where the consequence of this astronomical rise in housing costs, has not only made house purchase impossible for large numbers, but where the cost of renting has risen so much as to cause an explosion in the bill for Housing Benefit.

In the short-term, this huge rise in the value of labour-power (which as I've set out elsewhere also arises due to the sharp rise in the cost of providing pensions, as the prices of bonds and shares has soared) is masked by the introduction of various measures, such as Housing Benefit, Tax Credits, and a huge expansion in credit, and so of private household debt. But, as Marx sets out, on average, wages are the phenomenal form of the value of labour-power. In the longer-term, therefore, these measures, which only temporarily disguise the real condition, will have the consequence of causing wages to rise, or else will lead to a writing off of that debt.

If the price of houses rises, either workers wages rise to cover that cost, or else they take on more debt, and pay more interest, over a longer period. But, then, in the end, the workers' wages must cover not just the higher cost of the house, but also this increased amount of interest. If, in the end, wages do not rise, it becomes impossible to sustain the debt, or the high property prices it has facilitated. In that case the debts go bad, and the property prices collapse. From the perspective of productive-capital, therefore, these high property prices, made worse by speculation by the very rich, over very expensive properties, are destructive, because they divert potential money-capital into such speculation, and away from productive investment, and because they push up the value of labour-power, which reduces the rate of surplus value, and consequently the rate of profit.

The same is true for the other speculative activity by the oligarchs that the Tories want to attract. The competition for existing bonds, shares and property, as Adair Turner recognised recently, does nothing to increase the amount of productive-capital, or to increase real wealth. It only pushes up the market prices of those assets, and acts to divert potential money-capital away from this productive activity, and instead into a search for short-term, speculative capital gain.

On the same programme, Labour's John Healey, argued that the Tories other housing policy for the sale of council houses, to fund a right to buy for Housing Association tenants was also short sighted. He pointed out that building additional council houses, rather, would not only create employment, and help reduce housing need, but would thereby act to reduce rents, and consequently Housing Benefit bills.

To this Rees-Mogg argued that the reduction in Housing Benefit was not the end of the story, because of the sunk cost for Council of building the houses. That represents the investment of capital, on which a return would be expected. But, this is nonsense, because he seems to have forgotten that the council would be more than recovering this sunk cost, and any average interest on it, as a result of receiving rents on those houses. Rees-Mogg's argument reflects the Tory long held myth, that council house tenants are somehow subsidised by the general taxpayer. That has never been true, and was highlighted wherever councils sold off housing stock to ALMO's, and Housing Associations. In fact, it was long the case that rents paid into the Housing Revenue Account covered a whole range of council expenses in addition to the cost of providing the shelter, which acted as a subsidy to the General Rate Fund!

Building more council houses, as part of a general expansion of housing supply, in so far as it acts to reduce rent levels, acts to reduce the amount that is paid out as Housing Benefit to cover those high rents. The Council incurs a capital cost to build the additional houses, a capital cost, upon, which an imputed return, equal to the average rate of interest should be added. However, the Council, then obtains rents from tenants on these houses, which it formerly would not have obtained. Moreover, where the capital cost of building the houses, may be sunk over say twenty-five years, the Council will continue to receive rents on those houses, for one hundred years or more.

Rees-Mogg's argument followed the logic that others have put forward over the last few years, that the answer to the housing crisis is to build more houses, but, as I have demonstrated several times, this argument is facile. It is based upon the idea that housing demand exceeds housing supply, and so the answer is to simply increase supply. It also confuses housing need with housing demand.

The reality is easily seen. If as Rees-Mogg and others claim, the problem is that demand exceeds supply, pushing up prices, why does not the market simply do its job, and lead to builders taking advantage of these extraordinarily high prices, so as to build many more houses, and so make greatly increased profits? After all, although the price of houses has risen 20 fold, or 2000% since 1980, the cost to builders of wages, and materials has not increased by anything like that amount, during that time. In fact, as with every other commodity, the significant rises in productivity, in that 35 year period, means that the actual cost of building a house has fallen in real terms during that time! So, these astronomically high prices, should mean astronomical levels of profit for builders, encouraging a bonanza of building, rather than the dearth of house building activity that has actually been seen.

The only answer that Rees-Mogg and others can come up with, is that this building bonanza is being held back only by the UK's archaic and sclerotic planning laws. That is nonsense. Firstly, that didn't stop much greater housebuilding in previous periods. Secondly, the planning framework, and even other restrictions such as NIMBYISM, might act to slow down the process, but it cannot ultimately be the cause of less supply, because that confuses stock and flow. In other words, if a changed planning framework causes the time to go from application to completion to rise from say 1 year, to 1.5 years, this can explain the number of completions falling, during the initial 12-18 month period, but if the number of applications continues at the previous rate, so will the number of completions at the end of this initial period of delay.

No, the reason that builders are not increasing supply, is that it is not profitable to do so. They can barely sell the houses they are currently adding to supply, because there is not excessive demand, but inadequate demand for additional houses, at current market prices. In order for housing demand to rise, to justify additional supply, current house prices must fall. But, from the builders perspective too, they would then only bring forward this additional supply, if their own costs fell, which means that development land prices must fall considerably from current levels.

The sequence must be, first to burst the property bubble, so that current property prices fall substantially, to a level where workers can again reasonably afford to buy or rent property from their wages; secondly, that this thereby causes a collapse in building land prices, which represent a considerable obstacle to building new houses at affordable prices, because they swallow up the builders' profit, even at today's astronomical house prices; thirdly, on the basis of these much reduced land prices, and a consequent willingness of land hoarders to dispose of it, before it devalues further, to build the new houses to buy and to rent, at reasonable prices that workers would then be able to afford, creating real rather than speculative demand.