Friday 26 August 2011

UK property bubble, the case for market readjustment

As an economic recovery strategy austerity is not working. Defenders of the "orthodox neoliberal" response to the ongoing economic crisis often demand to know what the alternatives are to their favoured cut-now think later strategies. In this series I'm going to explore what some of these economic alternatives could be.

John Prescott's Pathfinder scheme led to the destruction of 100,000 of the
UK's most affordable houses. In many cases nothing has been built to replace them.
The British economic and political elites have a long track record of doing absolutely everything in their power to keep property prices at artificially inflated levels and prevent house prices falling back to sustainable levels. Their tactics include continued sales of social housing stock without replacement, deliberate destruction of swathes of affordable Victorian housing, running down the housebuilding sector in order to increase demand, refusing to regulate the something-for-nothing slumlord sector and printing loads of extra money (quantitative easing) while holding interest rates artificially low.

There are many reasons the political and economic elite have fuelled house price inflation. New Labour politicians benefited from a huge glow of smugness from middle England, as they saw their property values multiply with no effort or investment thanks to Gordon Browns house price bubble. The Tories are desperate to create the illusion that property values are not falling. The banks have benefited from decades of ever increasing lending, building up vast accumulations of mortgage collateral and the creation of millions of debt slaves.

If managed competently house price readjustment would only ruin speculators (financial, land and property) and the horrible buy-to-let parasites that did so much to create house price inflation and the 2008 economic crash in the first place.

Steps that should be taken to bring the UK housing market back down to sustainable levels:
  1. Build more social housing and ensure that the majority of new built private developments are affordable homes. There is no excuse for allowing developers to build whatever they like, thanks to permissive planning policies many of our cities are blighted with empty, (never even occupied) luxury city centre flats and apartments when the real social demand is for affordable family homes.
  2. End right to buy without reinvestment. Under current rules social housing can be sold off to the tenant but local authorities are prevented fro reinvesting the money in the construction of new social housing. This policy has massively depleated social housing stock to a point where there are now 1.7 million families on the waiting list for social housing.
  3. Stop pissing about with artificially low interest rates and money printing scams (quantitative easing). these measures are clearly only being used to prop up the banks and prevent a wave of foreclosures on negative equity properties which would bring down inflated property prices and leave many banks in even more over-leveraged positions.
  4. Force banks to sell all foreclosed properties within a given timescale to prevent the hoarding of empty property in order to increase demand and inflate the remaining market (tactics used on an industrial scale by Spanish banks after the 2008 Spanish housing market collapse).
  5. Give mortgage assistance only for "family home" properties. Anyone that gets trapped in negative equity through hoarding several buy-to-let properties will be getting exactly what they deserve, people that borrowed to buy a single home near the top of the market should be given assistance so that they can avoid negative equity and bankruptcy.
  6. Remove VAT charges from redevelopment costs, a tax on renovation is a tax on sustainability.
  7. Introduce an empty property tax to discourage property hoarding, a land value tax to prevent the speculative hoarding of building land and double rates of council tax for 2nd/3rd/4th homes, which would be paid into local council social housing funds.
  8. End Prescott's legacy of disgustingly wasteful Pathfinder schemes. The demolition of thousands of affordable quality (mostly Victorian) homes and the destruction of the communities that occupy them in order to drive up property values in adjacent areas and provide tracts of land for speculators to sit on is nothing short of sociological and environmental vandalism.
  9. Bring in proper regulation for the parasitic buy-to-let sector, measures should include the restoration of security of tenure for good tenants (abolished by Thatcher in 1988), local investigation and inspection teams with the power to confiscate properties that are dangerous and have been allowed to fall into disrepair, price banding of properties, protection from rent inflation, etc.
  10. Apply strict lending conditions to the banks in order to force  them to lend (the bailout money we gave them) to single home working families, not to property speculators and buy-to-let parasites.
These measures would cause a fire sale of buy-to-let and hoarded properties and return the British housing market to "the good old days" when a house was a home, not a bloody commodity.


Marmot said...

As someone who lives in London and works as an architect, and who is constantly confronted by evidence of practicable small-scale home-building opportunities which are ignored, I would stress the scope for small-scale home development on a vast scale. Encouraging small-scale development which is expensive compared to large-scale development has many advantages.

Small scale development - one or two flats extending an existing property - puts development where it's needed: in existing residential areas, particularly ones where there's demand.

It enables higher spec homes to be introduced forcing the developer to address the energy performance of the existing spaces as well as the new.

Lastly I would suggest the local authority sells complete planning consents for acceptable schemes which promote small scale development.

Thomas G. Clark said...

Hi Marmot, thanks for your comment.

I largely agree with your idea that small scale developments should be encouraged.

One key factor in promoting reuse, extension and renovation would be the elimination of VAT charges for meterials used on redevelopment of existing buildings when the "tear it all down and build cheap new rubbish" brigade get the VAT tax break.

Samll scale developments don't tend to interest the gigantic commercial housebuilders, so incentivising these kinds of projects would provide a strong and welcome boost to small to medium sized building companies.