House prices in Croydon in 2013 were 7.57 times average local earnings, more than twice the same affordability ratio in 1997. Yet the Bank of England has instructed banks to lend no more than 4.5 times annual salary. This means first time buyers in Croydon with average local earnings will have to save three times their annual salary to find the deposit. They will then face interest repayments that would consume more than half their pre-tax salary when interest rates exceed 11% – as they are likely to do when the government’s policy of quantitative easing ends.
Looking for a home in an adjacent borough won’t help. The affordability ratios in Sutton, Bromley and Merton are 8.56, 9.99 and 11.29 respectively – and their house prices tend to be higher.
The government’s solution is the Help-to-Buy scheme. This enables first time buyers to put down a deposit of ‘only’ 5% on homes costing up to £600,000. That’s great for wealthy first time buyers (and the banks) but not much use to the rest of us. In order to buy a two bedroom flat in Croydon costing, say, £220,000, an income of £49,000 and, even with the government scheme, a deposit of £11,000 is required. Meanwhile the Help-to-Buy scheme is helping to fuel mushrooming house prices.
What are the alternatives facing young people desperate for housing? There is little prospect of a council house: the stock is still being eroded by Right-to-Buy and waiting lists are long and have tough criteria that are tending to get tougher. In Croydon 5,015 were on the list at March 2014, a significant proportion of who were officially classified as homeless. The despicable bedroom tax is symptomatic of the shortage of council houses. Then there is shared ownership and the private rented sector. The former is a useful compromise between renting and buying but monthly outgoings can be high. The latter is largely unregulated, expensive and offers almost no security of tenure. Finally, for those with secure family backgrounds, there is living with Mum and Dad. Currently a quarter of all 20 to 34 year old working adults in England – 1.97 million people – are living with their parents. Hardly ideal!
Labour and the Tories continue to make claims about the number of affordable houses that will be built if they are elected, but the private sector makes more money from building larger and luxury homes. Their claims are spurious and, even if fulfilled, would not be sufficient to house our growing population. So how would Communists do things differently? As Marxists we see housing as something that should be cherished for its use value, not its exchange value. For us a house is a home, not a slice of capital on which to speculate in the hope of passing on some capital to our heirs. Our strategy as communists would therefore be to resume the building of council houses for those who want them, and for others who value a sense of ownership and security, we would seek to uncouple ownership from speculation, thereby make homes more affordable. This could be achieved by land nationalisation, but much the same effect could be achieved, at least initially, with a Land Value Tax (LVT). LVT ensures that the community at large benefits from increasing land values – the primary cause of increasing house prices. This is as it should be. The gains home owners accumulate don’t come out of thin air: they represent transfers of wealth from those who don’t own houses to those who do. If not eaten up in care home fees, these unearned gains end up as inherited wealth – inherited in many cases by the same people who couldn’t afford to buy their own home when they were younger.
If you wish to find out more about LVT, have a look at the pamphlet From Each According to their Means I mentioned last week .
 Freedom of Information Request https://docs.google.com/document/d/1T1dlZ0QH2zhW5jyW1A4ZG1RS_RqhW5aIGVPhkoA-0n8/edit?pli=1