Unaffordable London: The Great Housing Rip-Off Continues – OpEd
On Monday, a rather unprecedented event occurred. The BBC, in its long-running but generally dumbed-down Panorama slot, broadcast a half-hour programme — Britain on the Brink: Back to the 70s? — which took off the blinkers, or the rose-coloured spectacles, that much of the mainstream media have clamped on Britain’s face since the cruel and incompetent Tories began laying waste to the British economy two years ago.
Those of us with any intelligence — and I don’t count George Osborne and David Cameron or any of the other clowns masquerading as functional ministers in this category — knew that the government’s claims that, despite all evidence to the contrary, savage austerity cuts to the state provision of almost services, accompanied by up to a million job losses, would allow the private sector to ride in on a white charger dispensing new jobs like confetti were the worst sort of fantasy. The truth, of course, is that savage austerity cuts always — always — mean an economic death spiral, and the only way out of a recession is to spend wisely to stimulate demand.
In addition, of course, those not blinded by having studied the propaganda that mostly passes for economics would also have realised that the private sector’s ability to provide answers has come to an end. In truth, the motto that private was better than public was largely a ruse of Margaret Thatcher’s to destroy Britain’s manufacturing, and then plunder the family silver for profit — the nationalised industries and some other necessary state-provided services.
Thatcher and her advisors at least had a vision, of a liberalised financial sector that would be free to create wealth in an innovative manner, unrestrained by what was regarded as unnecessary oversight — but that, in turn, led, with the help of New Labour’s absolute dedication to facilitating the enrichment of those who desired to be filthy rich, to the global economic crash of 2008, which in turn, led to the banking bailouts, the increased unemployment and the increased government expenditure and reduced revenues that, we are told, have necessitated the savage austerity cuts to which we, the ordinary people of Britain — and not the rich and the filthy rich — are currently being subjected.
And again, the truth is that, once the labour market was outsourced to foreign climes, and bankers lost interest in actually investing in real people with saleable ideas and unemployed people to employ — becoming, instead, more interested in clever games that involved hoodwinking clients, lying to all and sundry about their probity, and taking over and asset-stripping companies and even whole economies for short-term gain — the UK, and other Western countries, were doomed to a slow death that only a true vision of renewal, and an intelligent application of Keynesian stimulus, will be able to address.
So while I wait for people who seek high office to embrace truly revolutionary ideas — I’m not holding my breath — the reality of Britain today, as reporter Adam Shaw demonstrated in Britain on the Brink: Back to the 70s?, is a country that shares many of the discontents of 1970s Britain. As he explained, “One in five UK families admit they are now financially living on the edge,” and he also noted that, the poorer people are, the higher the proportion of their income that is spent on “basic products like food and fuel — which are among the things that have gone up the most.”
Shaw also noted that, although inflation remains low, “the cost of many of the things we buy daily has gone up dramatically.” One example he provided was coffee — a cup of coffee from the coffee shops that are such a sign of modern Britain — which “is around 30% more expensive than it was just four years ago — roughly two and a half times the rate of inflation.” He also noted that, “Over the past year or so fuel and utility bills have rocketed. Gas is up 16%, childcare is up nearly 6%,” and that, “alongside rising prices, average real earnings fell by more than 3% in 2011 according to the Institute for Fiscal Studies,” which “represents the biggest one-year fall in 30 years.”
He also noted that “there is a growing feeling that the rich have never had it so good,” pointing out that “the share of income of the top 1% doubled between 1970 and 2005,” and it has to be wondered if there is any truth in his reflection that “the last time we found ourselves in such dire economic times, the result was social unrest and political upheaval.” In contrast to the continued enrichment of the rich, 20 percent of those under 24 — one million young people — are unemployed, and, as he also pointed out:
The consequences of cutting off a generation from work and opportunity could be severe. Though the causes were complex and hotly debated, Britain caught a glimpse of what that kind of social unrest might look like last summer when many city centres descended into riot. The visibly growing gap in inequality in society is adding to a sense of tension and anger with some of the disadvantaged feeling increasingly lost and isolated.
In the 1970s Britain’s answer to the economic chaos was to identify the unions as a common enemy and embrace the free market instead. This time it seems we have a new common enemy — the bankers.
While Crispin Odey, the founder of Odey Asset Management and a multi-millionaire, tried to defend the banking culture, economist Stewart Lansley — a wise economist — pointed out, “If we have an economic model which increasingly concentrates the fruits of that economy at the summit, at the very top, then what happens is you strip demand out of the economy. You effectively create consumer societies without the capacity to consume.”
However, what struck me most about the programme were two facts — one, that “the gap between rich and poor has grown faster in Britain than in any other developed country in recent decades,” as reported by the OECD, and secondly, that “one of the biggest financial strains for working people is the cost of housing. In the 1970s average house prices were three times earnings. Today, that figure is more than five times — and in London it is worse than that.”
It is indeed. In the same week that the Guardian reported that those who are renting are spending twice as much on accommodation as homeowners, with owner-occupier households’ weekly mortgage payments constituting, on average, 19% of their gross weekly income, and private renters’ weekly rent payments constituting, on average, 43% of their gross weekly income, and a report by the Joseph Rowntree Foundation found that a couple with two children need to earn £36,800 a year to have “an acceptable standard of living,” the Guardian also produced an inadvertently laughable analysis of housing trends in London.
The article, by the Guardian‘s money editor, Patrick Collinson, began by pointing out that house prices are falling around the country, but still rising in London, and then provided an opportunity for Savills, the estate agent, to claim that this trend is “likely to continue.” Savills predicts that there will be “a 19% gain in house prices in London over the next five years but just 6% in the rest of the UK,” suggesting, as Collinson put it, that “average house prices in the capital will soar from £360,000 today to £434,000 by 2017, while outside London they will creep up from £162,000 to £171,000.”
Those figures are different from those produced just a few weeks ago by the Office for National Statistics, which, as I explained in an article at the time, The Housing Crisis and the Gulf Between the Rich and the Poor: Half of UK Workers Earn Less Than £14,000 A Year, showed that the average UK house price is £229,000, but that in London it is £388,000, which would mean that, according to Savills’ forecast, the average house price in London in 2017 will be an eye-watering £461,720.
Collinson proceeded to explain that “a chronic lack of building in the capital” is partly driving these figures, and it is, indeed, interesting to note that Savills “identified 2,250 sites in London, which it says could provide for 500,000 new private homes — more than enough to meet current demand even with population growth,” but added that it “expects just 600 of the sites to see any development between now and 2017, with house building settling at around 13,300 units a year, ’35% below the mayor’s minimum target.’”
Collinson also noted, “The failure to build despite soaring prices is blamed on the banks,” for two reasons — firstly because “development finance for builders is less forthcoming,” and secondly, because “buyers, particularly those on lower incomes, can no longer obtain mortgages.”
It was this last sentence that I found laughable, because, of course, when properties cost, on average, £388,000, it would require, at 1970s levels, a joint income of nearly £130,000 a year, or £78,000 a year at five times the level of income to get on the housing ladder — way beyond the £36,800 a year identified by the Joseph Rowntree Foundation, which one in four families are below, and way beyond the £28,000 a year that a couple on the median income earn, or even the £52,400 that is the average income for a couple in the UK. Buyers, it turns out, can “no longer obtain mortgages” because an income of less than £78,000 a year is not enough to make would-be buyers be regarded by banks as a safe pair of hands.
This was even recognised by Savills, which predicts that “the biggest squeeze will be on the 60% of Londoners who have a total household income of below £70,000.” Savills’ research director Katy Warrick said that it was “in this income bracket where housebuilders are most concerned about buyers obtaining finance, and so are less likely to build.”
This is outrageous, of course, and a clear sign of a market out of control, but what makes it even more shocking is that, as even the most cursory tour of London will establish, developers continue to build “luxury” properties for what Collinson calls “the global elite buying ‘super-prime’ £5m-plus homes,” mostly located “in riverside locations ‘capitalising on view, open spaces and added services.’” This, he noted, is a market that is “almost completely satisfied,” but although “only 3% of Londoners fall into the income bracket able to afford prime or super-prime homes,” they “account for 10% of all new homes built in the capital, and 30% by value.”
In conclusion, Collinson noted, accurately, that “Londoners have progressively been squeezed out of buying in their own city, replaced by equity-rich wealthy foreign investors.” Savills explained that, in the last three years, “international purchasers have snapped up 50% of all new build in the centre of the city, and taken more than 30% of new properties in the non-prime markets further out of the centre as well,” reinforcing the findings of a study by estate agents Knight Frank for the FT last month, which “found that foreign buyers spent £5.2bn on property in central London in 2011, £1.5bn more than in 2010, with most of the cash going into a small number of exclusive postcodes.”
Knight Frank’s analysis suggested that “house prices in the outer boroughs, such as Newham or Brent, could flatline or even fall over the next few years,” but without a revolution in people’s attitudes, it is difficult to see how this will be achieved. More likely, to my mind, is that this suicidal government will succeed in driving the economy off a cliff, precipitating a meltdown that will make the 1970s look tame by comparison — because then, of course, people were not, in general, as shallow, self-obsessed and materialistic as they are nowadays, and revolutionary solidarity was still plausible.
If there is to be a change in thought, it might not only draw on the basic maths involved in working out that driving more and more people out of London may not be sensible for the capital as a whole; it might also involve a recognition that allowing private landlords to operate without restraints leads to unfettered greed and exploitation, and it might also involve an awakening to the fact that hollow mouthpieces of aspirational greed, like the people at Savills, may not comprehend the insanity of a private housebuilding programme that is geared only at people with incomes that are largely unattainable.
I was struck by that figure, provided by Savills, of “2,250 sites in London,” which “could provide for 500,000 new private homes.” What if those 500,000 pitches, for which 500,000 people rich enough to afford them don’t exist, were, instead, to be the basis of a new not-for-profit home-building programme, which would provide a stimulus to the economy, creating work for many of those desperate to work, and would also provide homes to those in need — and drastically reduce the housing benefit bill for those without work?
Oh yes, it would also expose the entire housing market as an overheated scam, leading to a crash. But without a managed crash, and the opening up of new opportunities for the economy that are not almost solely fixated on mortgages, there will either be a slow bleeding of talent from London, an exodus of the working poor (who, lest the rich forget, are often involved in serving or servicing them), the squeezing of more and more ordinary workers until they have nothing left to spend after paying their rent — or their mortgage — and an endless recession that will finally overpower the property bubble, which, like all bubbles, cannot last forever.
So which is it to be?
