Tuesday, 17 February 2015

Time for radical solutions to housing crisis


Andrew Fisher calls for housing to be redefined as a social good not a market good

Yesterday I found myself briefly joining in an occupation of Lambeth Town Hall by housing campaigners protesting at the failure of the council to meet housing need and give people secure housing.

Today, the ONS released new figures on UK house prices. They are truly astonishing and explain why housing is rapidly becoming one of the biggest political issues. Yet no political party is offering any policy that stands a chance of resolving the crisis.

In the past year UK house prices have risen by an average of 9.8% - at a time when wages are increasing by just 1.6%. House prices are rising six times faster than wages - so that now the average London home costs £502,000, while the UK average is £272,000. For comparison the median inner London wage is £34,500 (in outer London it's £24,200) while the median UK wage is just £22,000. So house price to wage ratios in London are now around 14.5:1 (inner) or an eye-watering 20.5:1 (outer), and in the UK house around 12.5:1 - meaning even a couple both earning the median wage could not feasibly get a mortgage - they are priced out.

This phenomenon suggests that the historic link between average house prices and average wages has decoupled.

Such a decoupling has historically meant that we stand on the brink of a housing crash and 'market correction' back to the historical trend (see the 1989 blip - the 'negative equity' crisis as it was popularly known), but this may not necessarily be the case this time. Instead, an alternative interpretation is that what we are seeing is a paradigmatic shift from the age of home ownership (post-WW2 to c.2007) to the age of rent.

In this new era, house prices are more likely to be correlated with rates of executive pay or to the rate of return on investment - since the buyers of homes are increasingly investors and/or landlords.

Housing has shifted from being a social right - the post-war provision of mass council housing (in which nearly one-third of people lived in the mid-1970s) - to a market good in which those with capital are accumulating more and more of what are (by necessity) in limited supply. Only around 10% of people live in council housing today.

So if we allow housing to become a market good, we can expect to see more evictions and more homelessness - which is of course precisely what we have seen in recent years. Likewise if people are spending more of their incomes on paying a mortgage or paying rent that means less is being spent elsewhere - damaging the real economy.

All that matters to the property speculators is what return they can expect from their investment - whether that's immediate from rental return or long-term on an asset which is appreciating in value at a rate of nearly 10% a year (9.8% this year, 9.9% last year). But the rental return is not entirely constrained by workers' wages, as there has been a huge rise in the number of working households claiming housing benefit - to compensate for rising rental prices and falling real wages.

So landlords are currently insulated from this, while the very poorest (those on benefits) are capped, effectively deporting them from their communities in a forcible act of social cleansing.

Several punitive taxes are being proposed - from Labour's mansion tax on properties worth over £2 million to Osborne's higher stamp duty for the most expensive properties (though with overall lower stamp duty). However, neither tackles the problem of very rich people owning mulitple properties of lower value or of lack of supply.

So I propose two things: rent controls to stop the social cleansing of parts of the UK - a conventional policy that existed in the UK til 1989, and that must again include caps; and secondly an ownership cap to limit the number of properties that an individual can own. This could be implemented gradually, say at 10 at first, gradually reducing to 2 over the course of a parliament.

London (and only slightly less acutely the whole of the UK) needs more homes to be built, but they will only be of limited use if they end up in the hands of the speculator and landlord class. As Yanis Varoufakis might say, "we are going to destroy the oligarchy". It must be our aim to move housing from being an oligarchical good to a social good.

If we don't implement these policies we are saying to people, "you don't have the right to live here, because it's more important to enshrine the right of a few rich people to make ever more money". That is not a democratic or moral economy.

Another step would be for Labour's commitment to 200,000 homes a year to have a minimum council housing proportion (say 80%) to ensure that social rights are prioritised over accumulative rights.

3 comments:

Jock Coats said...
This comment has been removed by the author.
Jock Coats said...

Radical, from the roots up, does not, in my opinion, mean this sort of anti-market tinkering:

"So I propose two things: rent controls to stop the social cleansing of parts of the UK - a conventional policy that existed in the UK til 1989, and that must again include caps; and secondly an ownership cap to limit the number of properties that an individual can own. This could be implemented gradually, say at 10 at first, gradually reducing to 2 over the course of a parliament."

Why not do it really well and propose Land Value Tax?

Andrew said...

@Jock

Not sure the two are mutually exclusive - as you will see this blog supports LVT, but it is not a solution to all problems. You could have LVT and still cap the number of homes an individual can own.

Anti-market is explicitly what this post sets out to be: framing housing as a social good (like health or education) rather than a market good.