This post on ads without products got me thinking about the moral undertone that has always been present in media coverage of the housing market: the notion that there are some people who deserve to make a mint out of ever-escalating house prices and others who should just know their place and leave well alone. When the market was spiraling upwards, the news was full of stories showing the fresh faces of young middle-class people in full employment staring wistfully into estate agents’ windows and bemoaning the fact they were still unable to get ‘on the property ladder’. And so these hardworking, deserving people were being denied access to the untold riches on offer if only they were able to grab that bottom rung.
But now, as the sloppy stuff hits the Fan(nie Mae), the focus turns to the shortcomings of those who bought not only a house, but the whole schtick that they could have it all and the rising price of their investment would cover the cost. So the supposed moral failings of the individual become the symbol for the woes that we are all going through: it is because of people who got into debt they can’t repay that the value of everyone else’s house is melting away, that the whole economic climate becomes one of total gloom, that the banks are running out of money. So a news story about one such person features a picture of her talking on the phone with a cigarette in hand, not just as an easy signifier of the stress she is under, but also as a note of instruction as to how we are supposed to react to the story: she SMOKES, so therefore it follows that she must be utterly irresponsible and incapable of fulfilling her responsibilities as a good economic citizen. Here you go America – here’s the reason you are worse off, feel free to point and make snidey remarks…
All of which goes to hide the real culprits of the piece. Firstly, the banks who kept coming up with innovative measures to meet the circumstances of the rising market: 120% mortgages, lending to a multiplier of 4 or 5 times a buyer’s salary, self-certification mortgages. Which were of course helpful measures for first time buyers from the wonderfully altruistic banks, and not just strategies to try to prevent stagnation by allowing some new buyers into the market, hence ensuring prices would keep rising, allowing larger amounts to be lent, with bigger potential profits from interest on the repayments.
Another point worth noting whilst discussing the ways in which banks benefit from rising house prices is that such growth is largely dead money if you are an owner-occupier. The only way for you to keep profit after selling up is to move to a smaller place (as larger or similarly sized properties are likely to have gained value at an equal rate), or to return to renting (which, so long as prices keep rising, will actually make it harder to return to ownership at a later date). Therefore, whilst a homeowner may feel much richer as their home’s value continues to multiply, the only way they can get access to this cash is to borrow more money against the increased price of their home. Unless, of course, favourable conditions exist for people to own more homes than they require for living in…
Step forward culprit number two: government policies. Once houses become viewed in terms of an investment rather than as somewhere to live, you are inevitably going to cause the market to step out of line with the actual need for the population to have a roof over its head. You are also going to increase the tendency within the market for boom and bust cycles: when capital is invested in property not due to a necessity as a home, but rather due to the potential high rate of return, once that high rate of return is no longer assured such money will seek to move elsewhere, thus exacerbating the effects of a decline in values. Those that are stung by price collapses are far more likely to be the small investors, lulled into thinking they can make fortunes by the endless stream of ‘property porn’ programmes, whilst those with more significant interests will be able to ride it out. A further distortion, in terms of the UK housing market, is the non-domecile tax rules, which allow people from overseas to live here without paying tax on their interests abroad – the effect of which is to turn the most attractive residential areas within London into a billionaires’ playground, the ripple effect in terms of property values being far more significant than the supposed trickle down of the benefits of overseas investment.
The depressing thing is that, even though prices may be tumbling at the moment, the structural flaws remain. Social housing stocks are still massively depleted from the effects of Right to Buy, yet social housing providers (either Councils or housing associations) are, for the most part, no longer able to invest in developing new stock for themselves, but must instead rely upon a percentage of private developments being made available as part of the planning process. But if private housebuilding hits a slump, such percentage targets will continue to fail to yield the required quantities of new dwellings. Coupled with a labyrinthine planning system and the potential gains that are possible through speculative land holding, the obstacles to development remain significant. So overall, the prospects that housing supply will be able to catch up with the rising numbers of households look highly unlikely, meaning the current dip is almost certainly a mere hiatus, and home ownership will continue to be pushed further out of reach of large portions of the population.
It all puts you in a rather unfamiliar position as someone inclined towards leftist political viewpoints, of wishing that Winston Churchill had had his way. In 1909, as Liberal President of the Board of Trade, Churchill had been a vociferous supporter of Chancellor David Lloyd George’s People’s Budget, which had included within it the introduction of a land tax, which would have levied a tax upon the increase in value of unimproved land. Since house price gains are essentially due to the increasing value of the land upon which the property stands, such a tax could have cooled the rampant property speculation that we have seen in recent years. But, what with the House of Lords being stuffed with landowning Conservatives, the proposals were dropped after the initial budget was vetoed. The rancour between the Lords and the Commons during this period led on to the passing of the Parliament Act of 1911 – which asserted the primacy of the Commons – most recently employed in banning fox-hunting. So you may have to pay ridiculous sums for a place to live, but at least the foxes are OK (or, at least they would be if the Act that banned hunting didn’t have more holes than the plot of a Dan Brown novel…)
Posted in Housing
Cracks in the fabric 