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Fighting on the home front

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If you want to see a shocking example of the failure caused by years of “free market” neo-liberal economic policy, just look at the property market in Britain.  One of the most basic needs in any civilised society is that its government creates the conditions so that the majority of people have somewhere to live at a reasonable cost.  If a government is foolish enough not to consider this as a priority it will get a lower tax revenue and the population will end up paying much more for its housing needs than necessary.  More importantly, this means that nearly everyone has less money available to spend on essential goods and services, and subsequently many people end up far poorer than if they lived in countries which exert a more measured and intelligent control over their housing markets.  It’s a vicious circle: In times of an economic slump, in which we are now, the inflated housing costs, and lower consumer spending, naturally lead to shrinking employment levels and stagnant wages.  High housing costs also dampen social mobility, because people simply can’t afford to move to areas where work is available. This is all very depressing, particularly for the young, but last month, after decades of letting the free market rip, the British right-wing Conservative Government finally woke up and admitted in a White paper on housing that: “the housing market is broken” and that home ownership is: “a distant dream for many young families.”  The U.K.’s Prime Minister, Teresa May, confirmed what many people believe when she wrote in the Forward to the Housing White Paper: “Our broken housing market is one of the greatest barriers to progress in Britain today. Whether buying or renting, the fact is that housing is increasingly unaffordable – particularly for ordinary working class people who are struggling to get by.”  So at long last the PM has recognised that the country is facing a major problem, and I’d argue that problem is one of the contributors to the economic paralysis in which we find ourselves.  But we live in extraordinary times - it’s not just Britain that’s affected: there seems to be a global housing crisis.  And the wretched neo-liberal economic policy is to blame because housing is now treated as a major asset class rather than homes which provide essential security and stability for families.  The situation has been exacerbated by mass migration from the countryside towards cities and other areas which offer a better chance of employment.  This great movement of people, which shows no sign of slacking, is also a result of the neo-liberal economic policies of unregulated globalisation.  In 1960, only approximately a third of the global population lived in urban areas, but today that number is more than half. I’ve written before about the Central Bankers’ lack of understanding and how, in this unfamiliar world, their education and training is ill suited.  (A few year’s tenure at the top of Goldman Sachs does nothing to encourage social wisdom or a spirit of co-operation, only a beggar my neighbour “as long as I’m alright” attitude.)  I fear it will be a painfully long time before Draghi (European Central Bank) and Carney (Bank of England), both ex- Goldman Sachs of course, have even the slightest understanding of the damage caused to society by the huge amount of quantitative easing they have created.  But then, as Margaret Thatcher, a great admirer of Goldman Sachs, famously said: there is no such thing as society.  The result of this self-interested financial manipulation by the banking elite has led directly to what I’ve previously called topsy-turvy economics, where risible low interest rates depress saving while even high-risk borrowing is positively encouraged.  It’s a madly chaotic world when the Housing White Paper has to admit that: “In 21st century Britain it’s no longer unusual for houses to “earn” more than the people living in them.  In 2015, the average home in the South East of England increased in value by £29,000, while the average annual pay in the region was just £24,542.6p. The average London home made its owner more than £22 an hour during the working week in 2015 – considerably more than the average Londoner’s hourly rate.”   This social catastrophe is a direct result of the economic policy of the Thatcher/Reagan years which was to push wages down as low as possible at a time when they were already on the slide due to globalisation.  When you add into that cruel mix a policy to deliberately maintain a long period of low interest rates, and then make things even worse by using quantitative easing (printing money to give to banks) when the bulk of bank lending is for property loans, (which I wrote about in March last year), the outcome is today’s crazy situation.  So now inanimate objects like bricks and mortar generate more money per hour than a skilled worker.  This is tragically absurd and it can’t last because the bubble has to burst sometime. As the Housing White Paper says and the  chart above shows: “Since 1998, the ratio of average house prices to average earnings has more than doubled.  And that means the most basic of human needs – a safe, secure home to call your own isn’t just a distant dream for millions of people.  It’s a dream that’s moving further and further away.”  If Thatcher was alive today she would probably be appalled at the long term outcome of her economic policy - because a home- owning population is a central pillar of conservatism.  That’s why Teresa May has had to declare the obvious: that an unregulated free housing market has been a disaster.  Conservative politicians are surrounded by economic advisors steeped in the ideology of Hayek, the Austrian economist, and for them to have to concede that the shibboleth of a free market has failed is anathema.  But I suppose I have to admit that Members of Parliament could be forgiven for being totally out of touch with the real world.  Most MPs have probably at least doubled their money on their second homes (near to Parliament), the mortgages of which are paid so generously by the public purse.  The purchase of a second home is allowed, even if the MP’s original home is within a short commute of Parliament.  It’s regarded by all members of the exclusive Westminster club as a necessary perk so it’s hardly surprising that they don’t want to upset the hyper-inflated London housing bazaar. Meanwhile, for those in the real world, the human cost of the broken housing market brought about by the Government’s laissez faire (do nothing) economic policy is high.  As the Housing White Paper says:  “The Council of Mortgage Lenders predicts that by 2020 only a quarter of 30-year-olds will own their own home. In contrast, more than half the generation currently approaching retirement were homeowners by their 30th birthday.”  Today’s pensioners were fortunate because when they were young Socialist (interventionist) Governments in power following the Second World War prevailed to promote decent homes for all at affordable prices.  Those enlightened governments also encouraged and funded the building of local authority housing (council housing) for the poor to rent at subsidised rates, and even succeeded in controlling rents in the private sector whilst ensuring that properties to let were maintained to a reasonable standard.  The beginning of the current housing crisis can be traced straight back to Margaret Thatcher’s free market policies which radically changed the previous strategies.  In fact, in 1980 Thatcher cynically bought votes by introducing a “Right to Buy” policy – where council houses were sold off to tenants at huge discounts.  This decimated the number of council homes available for society’s poor.  Thatcher resigned in 1990 but the rot continues.  Since 2001 the number of council houses has dwindled by more than a third although Housing Association (not for profit) housing has increased.  The deficit has been made up by the private rental market, which has more than doubled.  Hardly surprising as tenants are usually only granted a six month lease and, of course, there are no controls on the amount of rent they can be charged. The Housing White paper’s suggested remedy to cure the housing crisis is to build more homes.  This is blindingly obvious as, since 1970, there have been, on average, only 160,000 new homes built each year.  That totals about 7.5 million homes, although during that same period the population has officially grown by more than 11 million.  To that figure one must add the innumerable but ubiquitous transient EU nationals, and the substantial number of illegal immigrants unaccounted for due to a lax border policy.  So there is plainly a shortfall in housing needed to home the expanded population.  Demand may be sky high but the market hasn’t responded, partly perhaps because 60 percent of all homes are built by just ten house-building companies.  According to planning law these companies are obligated to include a number of “affordable homes” in every luxury development they build but somehow, during the complicated planning processes and the eventual completion of each project, the number of affordable homes, (tucked into the least desirable area of the development) invariably goes down.  This handful of unregulated building companies are squeezing every drop of possible profit from each of their developments because they can.  Their latest scam is to sell leases instead of freeholds on the properties they build.  To make themselves even more money, they bundle those freeholds to sell to finance companies.  The finance companies quickly ramp up the amount they charge for ground rent so the hapless new property owners can’t afford to continue living there, and their homes become unsaleable.  If you are unaware of this underhand practice you can read how it’s affecting customers of the larger building companies. What isn’t even mentioned in the Housing White Paper is how homes get financed.  For most people buying a property is the largest purchase they ever make, and with the value of houses apparently rocketing, nearly everyone wants to get on the housing ladder.  The reality is that homes are only worth what a buyer can manage to borrow to complete the purchase.  But financing property-buying is a highly profitable business as long as prices keep rising.  That’s why the Basel III global framework for banking allows a bank to lend twice as much to buy property as it does to provide business loans for expansion or new equipment.  With property as security a bank feels safe - so much so that now around four fifths of British banking loans go towards property, something I wrote about in September last year.  That Basel III ruling fuelled a huge global property price hike as more loans became available than there was housing stock.  Property prices naturally leapt up and nearly everyone became poorer with less disposable income.  To squeeze yet more money out of people (because they can) banks and mortgage lenders have increased their fees dramatically.  Thirty years ago it was common to take out a 20 or 25 year mortgage and only pay a small fee at the start of the process.  Today most mortgages run for between two to five years and then new loans have to be renegotiated with a large fee to be paid at the end of each period.  Thirty years ago it was a common requirement that the mortgage payable amounted to only one third of a salary or income.  Now that amount has been stretched to an average of four and a half times income, at a time when regular employment is less certain and salaries are going down.  When interest rates finally rise we can expect to see more homes on the market as the incumbents won’t be able to manage the monthly mortgage payments.  The sad irony is that people ejected from their homes will have to pay more money than their mortgage payments to rent somewhere.  And rents are now so high that the Housing White Paper states that “around half of all households in the private rented sector have no savings.” Unfortunately, sensible regulation about rents and leasing, as well as the financing of homes, is highly unlikely.  Conservative MPs, smug about their own housing situation, still cling to the belief that free markets work, so increasing the housing supply seems to them to be the only solution for the mess they’ve got us all into… March 2017 
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If you want to see a shocking example of the failure caused by years of “free market” neo-liberal economic policy, just look at the property market in Britain.  One of the most basic needs in any civilised society is that its government creates the conditions so that the majority of people have somewhere to live at a reasonable cost.  If a government is foolish enough not to consider this as a priority it will get a lower tax revenue and the population will end up paying much more for its housing needs than necessary.  More importantly, this means that nearly everyone has less money available to spend on essential goods and services, and subsequently many people end up far poorer than if they lived in countries which exert a more measured and intelligent control over their housing markets.  It’s a vicious circle: In times of an economic slump, in which we are now, the inflated housing costs, and lower consumer spending, naturally lead to shrinking employment levels and stagnant wages.  High housing costs also dampen social mobility, because people simply can’t afford to move to areas where work is available. This is all very depressing, particularly for the young, but last month, after decades of letting the free market rip, the British right-wing Conservative Government finally woke up and admitted in a White paper on housing that: “the housing market is broken” and that home ownership is: “a distant dream for many young families.”  The U.K.’s Prime Minister, Teresa May, confirmed what many people believe when she wrote in the Forward to the Housing White Paper: “Our broken housing market is one of the greatest barriers to progress in Britain today. Whether buying or renting, the fact is that housing is increasingly unaffordable – particularly for ordinary working class people who are struggling to get by.”  So at long last the PM has recognised that the country is facing a major problem, and I’d argue that problem is one of the contributors to the economic paralysis in which we find ourselves.  But we live in extraordinary times - it’s not just Britain that’s affected: there seems to be a global housing crisis.  And the wretched neo-liberal economic policy is to blame because housing is now treated as a major asset class rather than homes which provide essential security and stability for families.  The situation has been exacerbated by mass migration from the countryside towards cities and other areas which offer a better chance of employment.  This great movement of people, which shows no sign of slacking, is also a result of the neo-liberal economic policies of unregulated globalisation.  In 1960, only approximately a third of the global population lived in urban areas, but today that number is more than half. I’ve written before about the Central Bankers’ lack of understanding and how, in this unfamiliar world, their education and training is ill suited.  (A few year’s tenure at the top of Goldman Sachs does nothing to encourage social wisdom or a spirit of co-operation, only a beggar my neighbour “as long as I’m alright” attitude.)  I fear it will be a painfully long time before Draghi (European Central Bank) and Carney (Bank of England), both ex- Goldman Sachs of course, have even the slightest understanding of the damage caused to society by the huge amount of quantitative easing they have created.  But then, as Margaret Thatcher, a great admirer of Goldman Sachs, famously said: there is no such thing as society.  The result of this self-interested financial manipulation by the banking elite has led directly to what I’ve previously called topsy- turvy economics, where risible low interest rates depress saving while even high-risk borrowing is positively encouraged.  It’s a madly chaotic world when the Housing White Paper has to admit that: “In 21st century Britain it’s no longer unusual for houses to “earn” more than the people living in them.  In 2015, the average home in the South East of England increased in value by £29,000, while the average annual pay in the region was just £24,542.6p. The average London home made its owner more than £22 an hour during the working week in 2015 – considerably more than the average Londoner’s hourly rate.”   This social catastrophe is a direct result of the economic policy of the Thatcher/Reagan years which was to push wages down as low as possible at a time when they were already on the slide due to globalisation.  When you add into that cruel mix a policy to deliberately maintain a long period of low interest rates, and then make things even worse by using quantitative easing (printing money to give to banks) when the bulk of bank lending is for property loans, (which I wrote about in March last year), the outcome is today’s crazy situation.  So now inanimate objects like bricks and mortar generate more money per hour than a skilled worker.  This is tragically absurd and it can’t last because the bubble has to burst sometime. As the Housing White Paper says and the  chart above shows: “Since 1998, the ratio of average house prices to average earnings has more than doubled.  And that means the most basic of human needs – a safe, secure home to call your own isn’t just a distant dream for millions of people.  It’s a dream that’s moving further and further away.”  If Thatcher was alive today she would probably be appalled at the long term outcome of her economic policy - because a home-owning population is a central pillar of conservatism.  That’s why Teresa May has had to declare the obvious: that an unregulated free housing market has been a disaster.  Conservative politicians are surrounded by economic advisors steeped in the ideology of Hayek, the Austrian economist, and for them to have to concede that the shibboleth of a free market has failed is anathema.  But I suppose I have to admit that Members of Parliament could be forgiven for being totally out of touch with the real world.  Most MPs have probably at least doubled their money on their second homes (near to Parliament), the mortgages of which are paid so generously by the public purse.  The purchase of a second home is allowed, even if the MP’s original home is within a short commute of Parliament.  It’s regarded by all members of the exclusive Westminster club as a necessary perk so it’s hardly surprising that they don’t want to upset the hyper-inflated London housing bazaar. Meanwhile, for those in the real world, the human cost of the broken housing market brought about by the Government’s laissez faire (do nothing) economic policy is high.  As the Housing White Paper says:  “The Council of Mortgage Lenders predicts that by 2020 only a quarter of 30-year-olds will own their own home. In contrast, more than half the generation currently approaching retirement were homeowners by their 30th birthday.”  Today’s pensioners were fortunate because when they were young Socialist (interventionist) Governments in power following the Second World War prevailed to promote decent homes for all at affordable prices.  Those enlightened governments also encouraged and funded the building of local authority housing (council housing) for the poor to rent at subsidised rates, and even succeeded in controlling rents in the private sector whilst ensuring that properties to let were maintained to a reasonable standard.  The beginning of the current housing crisis can be traced straight back to Margaret Thatcher’s free market policies which radically changed the previous strategies.  In fact, in 1980 Thatcher cynically bought votes by introducing a “Right to Buy” policy – where council houses were sold off to tenants at huge discounts.  This decimated the number of council homes available for society’s poor.  Thatcher resigned in 1990 but the rot continues.  Since 2001 the number of council houses has dwindled by more than a third although Housing Association (not for profit) housing has increased.  The deficit has been made up by the private rental market, which has more than doubled.  Hardly surprising as tenants are usually only granted a six month lease and, of course, there are no controls on the amount of rent they can be charged. The Housing White paper’s suggested remedy to cure the housing crisis is to build more homes.  This is blindingly obvious as, since 1970, there have been, on average, only 160,000 new homes built each year.  That totals about 7.5 million homes, although during that same period the population has officially grown by more than 11 million.  To that figure one must add the innumerable but ubiquitous transient EU nationals, and the substantial number of illegal immigrants unaccounted for due to a lax border policy.  So there is plainly a shortfall in housing needed to home the expanded population.  Demand may be sky high but the market hasn’t responded, partly perhaps because 60 percent of all homes are built by just ten house-building companies.  According to planning law these companies are obligated to include a number of “affordable homes” in every luxury development they build but somehow, during the complicated planning processes and the eventual completion of each project, the number of affordable homes, (tucked into the least desirable area of the development) invariably goes down.  This handful of unregulated building companies are squeezing every drop of possible profit from each of their developments because they can.  Their latest scam is to sell leases instead of freeholds on the properties they build.  To make themselves even more money, they bundle those freeholds to sell to finance companies.  The finance companies quickly ramp up the amount they charge for ground rent so the hapless new property owners can’t afford to continue living there, and their homes become unsaleable.  If you are unaware of this underhand practice you can read how it’s affecting customers of the larger building companies. What isn’t even mentioned in the Housing White Paper is how homes get financed.  For most people buying a property is the largest purchase they ever make, and with the value of houses apparently rocketing, nearly everyone wants to get on the housing ladder.  The reality is that homes are only worth what a buyer can manage to borrow to complete the purchase.  But financing property-buying is a highly profitable business as long as prices keep rising.  That’s why the Basel III global framework for banking  allows a bank to lend twice as much to buy property as it does to provide business loans for expansion or new equipment.  With property as security a bank feels safe - so much so that now around four fifths of British banking loans go towards property, something I wrote about in September last year.  That Basel III ruling fuelled a huge global property price hike as more loans became available than there was housing stock.  Property prices naturally leapt up and nearly everyone became poorer with less disposable income.  To squeeze yet more money out of people (because they can) banks and mortgage lenders have increased their fees dramatically.  Thirty years ago it was common to take out a 20 or 25 year mortgage and only pay a small fee at the start of the process.  Today most mortgages run for between two to five years and then new loans have to be renegotiated with a large fee to be paid at the end of each period.  Thirty years ago it was a common requirement that the mortgage payable amounted to only one third of a salary or income.  Now that amount has been stretched to an average of four and a half times income, at a time when regular employment is less certain and salaries are going down.  When interest rates finally rise we can expect to see more homes on the market as the incumbents won’t be able to manage the monthly mortgage payments.  The sad irony is that people ejected from their homes will have to pay more money than their mortgage payments to rent somewhere.  And rents are now so high that the Housing White Paper states that “around half of all households in the private rented sector have no savings.” Unfortunately, sensible regulation about rents and leasing, as well as the financing of homes, is highly unlikely.  Conservative MPs, smug about their own housing situation, still cling to the belief that free markets work, so increasing the housing supply seems to them to be the only solution for the mess they’ve got us all into… March 2017 
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Fighting on the home

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