The Housing Crisis and How to Solve It

Gavin Barwell, Croydon Central MP and grandly titled Minister for Planning and Housing is not expected to solve the housing crisis with the government’s White Paper due later this week. In all probability, he will follow the pattern of neglect and naked electioneering set by successive New Labour, Coalition and Tory governments and just make things worse. The crisis is, nevertheless, extreme. Social housing is disappearing into government coffers and buying is unaffordable except for a privileged few – house prices in 122 local authorities are now ten times local median earnings (Source: ONS figures quoted in the Guardian) while the briefest of tests on the money advice service affordability calculator will confirm that lenders won’t lend much above three times earnings. This leaves most young people facing the prospect of never leaving home, a lifetime renting on short-term contacts in the unregulated private sector, a job in the armed forces or a life on the streets. This is a somewhat restricted set of choices from a government that says it believes in choice.

The housing crisis can, of course, be solved, but not in ways that would be agreeable to Mr Barwell and his paymasters. Instead of nibbling away at the green belt and further inducements to speculative builders, we need

  • an immediate extension of council tax banding upwards as a prelude to introducing a comprehensive Land Value Tax.
  • appropriate taxation of second homes, holiday homes and empty commercial property
  • Councils to be empowered to borrow to finance such social (council) housing and compulsory purchase of existing properties as are needed to meet all their local needs.
  • an end to the bedroom tax.
  • mortgagors to be entitled to convert mortgages into affordable rents rather than face eviction
  • recognition that housing has a central role to play in the environment and the fight against global warming
  • proper regulation of the private rented sector, with an end to short-term tenancies, rent control where appropriate and certification of “good” tenants by landlords and “good” landlords by tenants, this certification being required for continued participation in the sector. I have been told that this approach is successfully applied in Germany, but if anyone knows more about it, please let us all know.

These are not revolutionary demands. They are the minimum reforms needed to alleviate the current crisis. If they are beyond the capacity or imagination of our ruling class to implement, the sooner we overturn them the better.

Note of our meeting on 20 October

Discussion on Housing

The meeting reviewed Jeremy Corbyn’s Housing Policy, published as part of his Labour leadership campaign, and concluded that it had much to commend it. In particular, the aims of building one million new homes during the next five year parliament and providing new safeguards for tenants in the private rented sector in the form of three year tenancies and blocks on “unreasonable rent increases” were welcome and politically attractive. The CP should certainly maintain its support for Corbyn and endorse these proposals. The meeting did, however, conclude that they would ameliorate but not eliminate the housing crisis. For this the fundamental problems with UK housing had to be addressed. It needed to be recognise that treating homes as investments benefitted home owners – those already on the so-called housing ladder, but Marxists understood that, outside the productive process, asset ownership and exchange was a zero sum game. The gains accruing to home owners from owning property – essentially land value – didn’t materialise out of the ether: they were transfers of value  from those who who didn’t own their homes to those who did. One solution would be a Land Value Tax. It also had to be recognised that land and houses were currently over-valued when they couldn’t be afforded by working people. A fall in prices should be encouraged and welcomed, not feared – but it had to be matched with restrictions on banks’ rights to foreclose and requirements on them to write down the amounts they could recover from mortgage loans. For too long banks had made essentially speculative loans secured on land and buildings. passing on the risk associated with these speculative loans to the borrower. The aim of housing policy, the meeting concluded, should be to separate the provision of homes – a basic human need – from the creation of speculative investment.

The anomaly of allowing home owners to build up a capital gain which was then appropriated by the private sector providers of care homes was also discussed.

The meeting went on to discuss how to support the Axe the Act Campaign and their wish to expose Gavin Barwell, the Tory MP for Croydon Central and newly appointed Housing Minister, for having no intention of addressing the housing crisis. Barwell had a majority of only 165 at the last general election having spent almost up to the statutory limit according to his election expenses returns. There were allegations that he had falsified these returns, but the police had now concluded their investigations without bringing a prosecution. The meeting was not impressed with this outcome. Barwell also had a poor record as a Labour Councillor on housing matters, appearing to be keener on sweetening his constituents than pressing ahead with housing development in the south of the borough. It was also noted that the Nestle Building in Central Croydon had stood empty for four years, mostly under his watch, and was not now scheduled for redevelopment until 2018 – probably for luxury flats. The similarity with Centre Point in Central London, left empty for decades while its value increased, was pointed out. The problems of empty property and second homes both needed to be addressed in any comprehensive policy on housing.

Other Business

Ben Stevenson was appointed our delegate to Party Congress on the weekend of 19-20 November at Ruskin House. Members were encouraged to attend as visitors, volunteer as stewards and offer beds for delegates on the nights of Friday 18th and Saturday 19th November. Please make offers to office@communist-party.org.uk

The Party’s Big Red Appeal is up and running. Members are encouraged to donate what you can – cheques made out to CPB and mailed to the Party at Ruskin House or by credit transfer to the Party account – details from the acting branch secretary.

Members were encouraged to attend the Croydon Assembly at Ruskin House on Saturday, 26 November

Next meeting

7 pm at Party Centre on Thursday ,17 November –our usual third Thursday of the month.

 

The Property Ladder

Walking around Croydon it’s obvious that there are a lot of home extensions being built by owner occupiers. This is hardly surprising. Homes are seen by owner occupiers as a form of saving – often their primary form – and a recent report by LSE Professor Paul Cheshire forecasts that house prices will double by 2030. This would represent a tax free return on investment of 4.6 per cent a year. It could be even higher: according to the Office of National Statistics house prices have grown on average by 8.75% per annum over the past 47 years. That is much higher than the return on bank deposits and comparable with long run returns on equity investment – especially so as tax is paid on interest, dividends and capital gains on shares but not on your primary home.

Many extensions have the effect of shifting what in many cases would be affordable homes for first time buyers into a more expensive category. They do, however, represent a great investment opportunity for owner occupiers already fortunate enough to be on the so called ‘property ladder’. Not only will the new investment increase in value in line with the original investment but there is also an immediate tax free capital gain to be enjoyed. As rule of thumb, it’s generally thought that £20,000 of building work, providing it’s not totally unsuitable, should add more than £50,000 in property value.

What’s going on here? There are a number of economic and socio-political forces at play. First, we need to ask what is the source of this exceptional high return to owner occupiers. The answer is straightforward: it is a transfer from those who don’t own homes to those who do. Many in the fortunate latter group think it’s an entitlement justified by their hard work paying off their mortgage and they have a right to pass it on to their kids. The fact that these kids may themselves be unable to get on the “property ladder”, or, on the other hand, may already be much better off than those without homes is overlooked. Also overlooked is the risk that predatory care home operators lie in wait for owner occupiers with every intention of appropriating the bulk of their investment. There is also the consideration that banks do very nicely in providing mortgage finance. Banks are essential to modern capitalism and, as the government’s austerity programme demonstrates, nothing must stand in the way of their profits.

Another interesting question is what is the source of the capital gain when an extension is built. According to neo-classical economic theory – the type they teach in universities, award Nobel Prizes for and regurgitate on the BBC and in the capitalist press – market should respond to eliminate all such predictable gains. They call this ‘arbitrage theory’. Marxist economist, on the other hand, recognise that building workers, like every other worker in productive industries, sell their labour for less than the value it creates. It’s this surplus value that accounts for the average capital gain on building extensions. If building workers were to received the full value of the labour power they sold to owner occupiers, on average there would be no capital gain from building extensions. But then if all workers could do this, capitalism would grind to a halt nd we would be forced to begin constructing a socialist society in which, initially, operate on the principle of from each according to their means to each according to their work*.

The underlying issue here is that, according to neo-classical economic theory, value is created when a commodity (including a house) is sold, or merely revalued in a market. Value is created out of thin air in the form of a “consumer surplus” because the seller and buyer have different subjective valuations. Marxist economists, on the other hand, take a more objective view. They consider that value cannot, on average, be created by exchange or shifting market prices. Exchange is a zero sum game – the buyer’s gain is the seller’s loss and vice versa. These are two fundamentally different ways of looking at how markets work in capitalist societies. It’s a theme we hope to explore when the Communist University in South London is relaunched shortly. Watch this space for news of this development.

* Only under a fully developed communist society would we attain the position of to each according to their need

Report on Branch Meeting on 18 February 2016

Prompted by the finding in the ONS English Housing Survey 2013-2014, that house ownership in England had declined to 1989 levels, the Croydon Communist Party at its branch meeting yesterday (18 February) discussed the housing crisis. It concluded that home ownership would continue to decline, as would the provision of secure, rented accommodation. The Tory government’s Starter Home Initiative under which the private sector would be ‘encouraged’ to build 200,000 supposedly affordable homes (costing up to £450,000 in London up to £250,000 elsewhere) would only make matters worse. Not only were young workers now expected to live with their parents or rent for the rest of their lives (generation rent), they were to be left to the tender mercies of unregulated private landlords whose primary concern was property speculation.

In discussing solutions, there was support for regulating private landlords to ensure they offered secure tenures and fixed long term rents. The tax breaks they received should be curtailed. If these measures brought property prices tumbling down, including those of owner occupiers, so be it – provided home occupancy rights were protected rather than the interests of mortgage providers. This would require  curtailing the rights of mortgage providers to evict. Such a housing strategy would succeed provided it was accompanied by an extensive programme of building high quality social housing for rent, preferably democratically accountable council housing. Some of this might be acquired ready built from the private sector, but a large building programme would also be called for. This would generate jobs and boost incomes. It was suggested that high rise should have a significant role in such a programme, but it had to be amenity rich and well maintained. As the rush by the affluent to buy expensive high rise apartments in Central Croydon demonstrated, the problem with high rise in the past had not been the height, it had been the lack of amenities and maintenance and the misuse of such property for social segregation and dumping.

What Regulators Are For

Last week the Financial Conduct Authority proposed as its contribution to solving the housing crisis to “look at the products and markets that are developing to ensure they work for consumers.” This week it was the turn of the Bank of England’s Financial Stability Committee to address the housing crisis. They were, however, no more concerned about the housing needs of working families than were the Financial Conduct Authority. Their concern was with “wider financial stability” which they saw threatened by bank lending to the buy-to-let market. “Wider financial stability” is banker-speak for avoiding another banking crisis. Fuelled by Quantitative Easing, the policy whereby the government prints money and gives it to the banks in the hope that they will lend it to UK industry, the banks chose, instead, to increase lending for buy-to-let by 40% since the 2007-8 banking crash and bailout. This increase has been a major factor in escalating house prices. The Financial Stability Committee is right to be concerned that another banking crisis could be triggered by a collapse in the buy-to-let market, but just like the Financial Conduct Authority, they are focussing on the wrong needs: those of banks and financial services providers, not the unmet needs of working families.

Needless to say, the Financial Stability Committee refrained from suggesting that the government should regulate or restrict bank lending even though it is effectively with our money. The role of a regulator in a market economy is to bestow legitimacy on markets and the accumulation of capital. Protection of ‘consumers’ is very much a secondary consideration and protection of workers completely out of the question. Appointed by ministers but supposedly at arm’s length from the government of the day, their true independence is as fictitious as that of the judiciary and the police. We should not be surprised when they represent the interests of the 1%, not the 99%.

Crisis – what crisis?

The call this week by Lynda Blackwell, Head of Mortgages at the Financial Conduct Authority, for older people to downsize their homes in order to alleviate the housing crisis demonstrates just how out of touch the ruling class have become. Her employer quickly distanced itself from her lame attempt to blame the housing crisis on ‘last time buyers’ refusing to shuffle off to the care home quickly enough but it was unable itself to come up with anything better to solve the housing crisis than to “look at the products and markets that are developing to ensure they work for consumers.” This regulator’s gobbledygook translates as ‘Crisis – what crisis?’ I doubt, however, whether we have heard the last of Ms Blackwell’s analysis. After all, it is already being applied as the bedroom tax in the fast diminishing social housing sector. Ineffective as that policy has proved in solving the housing crisis, it does help the ruling class (or the 1% if you prefer) to stir up inter-generational strife and thereby draw attention away from the real cause of the housing crisis.

It is certainly true that the generation born immediately after the end of the Second World War have been exceedingly fortunate. Benefitting from free education and full employment, they were offered secure social housing to rent or could buy their homes with cheap, tax deductible loans from building societies. The next generation were deprived of access to such cheap finance – the government having abolished the tax relief on mortgages and allowed the banks to gobble up the building societies (the few that remain being forced to adopt the same profit driven strategies). Many in the next generation were, however, also able to build up significant equity in their homes, but this was more the result of escalating house prices than any sustainable policy. For the current generation of young people other than those born into the privileged 1%, conditions are much harsher. While some will benefit (eventually) from inheritance inflated by the sale of their parents’ homes, this benefit is eroded by too many siblings and step-siblings, increases in life expectancy and exorbitant care home costs. In the longer term this benefit too will melt away. For young people today, facing a ratio of national house prices to male average full-time earnings of 5 and average house prices in London of 33 times the annual full time earnings of £7 an hour, the first rung of the so called housing ladder is completely out of reach.

From the perspective of the 1%, this doesn’t matter. Housing is simply a valuable and valued part of their capital. Provided the rest of us can afford to rent in the private sector, however inadequate and insecure this may be, topped up where necessary with subventions to landlords to house those who cannot afford the ‘market’ rent, what’s the problem? These are secure investments, underpinned as they are by interest rates manipulated by an unaccountable Bank of England. Provided the rich on the way to the opera can still step over the homeless or, failing that, have them washed away with Mayor Boris Johnson’s water cannon, who cares?

One way to analyse the mess we are in is to compare it with how things would be done in a socialist society – one on the way to building communism where society is rich enough to meet everyone’s needs and class antagonisms and exploitation has melted away. In a socialist society, housing would be assessed by its usefulness, not as an investment to owners seeking a profit. An adequate stock of housing would be a social priority and provided by collective effort. Security of occupation would be ensured; and democratic control would be exercised by those living in a local community, whether it be a tower block or local neighbourhood. The continuity of local communities and familial ties would be prioritised.

What could be achieved under the existing social and economic structures? A massive programme of council house building, financed, as Jeremy Corbyn has proposed, by a peoples’ quantitative easing would be a start. Tough regulation of the private rented sector and more security of tenure for tenants would help. A ban on foreign ownership of London housing would help. Perhaps most important of all, attention should be given not to “looking at the products and markets that are developing to ensure they work for consumers” as the FCA fatuously proposed but to removing the props that underpin sky high prices in UK property and ensuring that when prices come down we are not asked once again to bail out the banks who were responsible for these prices in the first place.

If this cannot be achieved under capitalism, there is always the alternative solution.