Why you will never be able to buy a house (unless you already own one)
The definitive explanation of why houses cost so much.
The average house price in Great Britain now exceeds £350,000 for first time ever, we learn today. Asking prices are up 10.4%, Rightmove tells us. Whoopeedoo!
What that basically means is that the intergenerational wealth divide just rose by another 10.4% and anyone born after 1985 is going to find it 10.4% harder to ever buy a home.
It’s so unnecessary. Houses do not cost a lot of money to build - a quick search online shows you can buy a 3-bed timber framed house for less than £50,000 (google “cheap timber-framed house”). In China a 3D printer can build a basic home for less than $5,000 - and it can build several of them in a day.
In any case, the build cost of the houses we already have has long since been paid.
So how can it be that, in the liberal, peaceful, educated society that is 21st century Britain, a generation is priced out? These are not times of war - at least they weren’t until a month ago - nor have the last 30 years, for the most part, been periods of national emergency. Why should one couple be able to settle down and start a family and another not, by virtue of the fact that one was born 15 years earlier than the other?
There has been a failure in both the media and government to properly diagnose the cause of high house prices. Until the causes – our systems of money and planning - are properly understood, we cannot hope to fix the problem.
The standard solution is: “we need to build more”, but this is not a simple supply-and-demand issue. Between 1997 and 2007, as research by think tank Positive Money shows, the housing stock grew by 10%, but the population only grew by 5%. If house prices were a function of supply and demand, they should have fallen slightly over this period. They didn’t. They rose by over 300%.
The cause of house price rises is the unrestrained supply of something else: money. Mortgage lending over the same period went up by 350%. It was newly-created debt that pushed up prices in a decade of extraordinarily loose lending, and it gave birth to a national obsession. Houses were no longer places to live, but financial assets. Property owners became immensely wealthy without actually doing anything. And this great, unearned wealth saw rise of a new rentier class: the buy-to-let landlord.
The more debt there is in a market, the higher prices will go. Remember: money is, mostly, debt. When debt is issued, money is created.
The great fraud perpetrated by the Bank of England
When you have runaway inflation such as this, the Bank of England has a responsibility to quash it, usually by putting up interest rates. But – and here is the great sleight of hand - the Bank does not include house prices in its measures of inflation. So, throughout the 90s and 00s, they could then “prove” inflation was low or moderate and interest rates meandered lower. Meanwhile, more and more mortgages were issued, and so more and more money was created, and it pushed up prices. The government didn’t mind. Homeowners vote and homeowners were happy – they were getting rich.
The fraud persists today. The gap between what the Bank says is inflation (CPI), and actual prices felt by citizens is at Grand Canyon levels. The Bank says inflation is 5.5%. Really? With house prices rising at 10%. And if inflation is 5.5%, why is the Bank of England base rate 0.75%?
When you make money this cheap, you create bubbles. A money system that requires ever expanding debt to function with a national policy to ignore where that money goes, is asking for trouble. And trouble is what we have.
2008 gave us the crisis we needed to address the problems inherent in our money system - how is money created? Who gains and who suffers by this system? How does it impact the wealth gap? - but our leaders chose not to. Instead interest rates were slashed, so mortgages and other debts became incredibly cheap to service (great if you already had a mortgage).
We got the great obfuscation that is Quantitative Easing; £875bn of newly printed money, created a mere a keystroke, has flowed into the financial sector and on into the London property in which it mostly lives. Asset-owners were bailed out and more, while the next generation was made to pay the price. When one body has the power to create money at no little or no cost to itself, no wonder society has become so unbalanced.
Then we got Help-To-Buy, which is just another way to get new money into the market. And if lending has tightened a little in the UK, it didn’t abroad, and so vast sums of money created overseas entered our housing market and drove up prices via the foreign buyer. Today in London everywhere you look there is a crane. There is no shortage of new build, yet we still have a crisis, because prices are so high.
People associate debt with the poor. But large, cheap debt is, in fact, a luxury of large corporations, of the rich and of governments. It has created this unholy alliance between the three and with it an international culture of keeping debt costs low and asset prices high, whatever the consequences.
The second part of the problem
Planning laws are the second part of the problem. All this money is pouring into a market that is restricted in how it can expand.
Just 1.2% of land in England and Wales has domestic property on it, according to the 2011 National Ecosystem Assessment. 1.2%! You could almost double the housing stock of England and Wales, using little more than 1% of available land.
Another 1% has commercial property and 2% roads. The rest is not built on. Look at the UK via google satellite if you doubt me.
But planning laws prevent progress.
Most people do not have the resources to navigate the onerous regulation, so house building, the extraordinarily dedicated self-builders aside, has become the preserve of a the few large corporations, whose near monopoly has led to the bland and characterless building which so blights modern Britain.
Our most beautiful domestic architecture was predominantly built in the 18th and 19th century, before planning laws.
The more planning there is, the uglier our buildings seem to get. It’s inevitable when the final say on creative decisions is in the hands of regulators. Imagine Van Gough needing regulatory approval on a painting.
Let us simplify planning, let self-build flourish and let the creative - not the corporations - do the building. I’ve always dreamt of building my own home. I’m sure you have too. It needn’t cost a lot of money - except that it does. An acre of farm land worth £10,000 becomes an acre of land worth £1m once it has planning permission. That is an expensive and needless cost of government.
The 1947 planning act was founded on the laudable aim “that all the land of the country is used in the best interests of the whole people”. The opposite has happened. The act reinforced the monopoly of the landowner and we now have a situation where over 70% of UK land is owned by just 6,000 or so landowners (the Crown, large institutions and a few rich families).
The act has led to huge concentrations of capital and people in areas that are already built-up – especially London – bringing vast unearned wealth to those who own at the expense of those who don’t. It has actually caused the wealth gap to grow.
The solution to the housing crisis is lower prices - whether via higher rates or more building. What politician will stand for that? They daren’t let this market fail because too many people’s wealth is dependent on the value of their home – and homeowners vote more than renters. It’s not just the vested interest issue with so many MPs being buy-to-let landlords (something like 40% of Tories).
The collapse of property prices between 1989 and 1994 made the Tories unelectable for half a generation. No party wants such a fate. Indeed if interest rates reflected 10% house price inflation, house prices would become affordable pretty quickly, but then the whole financial house of cards would comes crashing down too. Those responsible for that would become even more unelectable than the Tories were.
However this ends – falling house prices or a generation even more excluded – it is going to be painful. But the sooner we recognize the causes of high house prices – our systems of money and planning - the sooner the problem can be properly dealt with.
This is a recap of an article I wrote for the Guardian back in 2016. Nothing has changed. Our systems of money and planning remain broken.