12 solutions to the UK housing crisis

The opaquely funded hard-right think tank IEA has offered a £50,000 prize for an essay outlining a strategy for dealing with the housing crisis. I'm obviously not going to win it with this article given that they're stipulating that the proposal must be a right-wing market based strategy, which is lunacy given that the housing crisis has actually been caused by decades of right-wing market based housing policy. 

As far as I'm concerned a right-wing market based solution to a problem caused by right-wing "leave it to market forces" ideology meets Einstein's definition of insanity; doing the same things over and again, but expecting different results.

So I won't be winning the IEA prize, but the challenge did get me thinking about strategies to deal with the housing problem. Here are 12:

Stop the social housing fire sale

The first, and most obvious step is petting an end to the disastrous fire sale of social housing at way below market value under the Right to Buy scheme. 

The fact that 40% of Right to Buy former social housing properties have ended up in the hands of private landlords is compelling evidence that this scheme was never actually motivated by a desire to increase home ownership at all, but by an ideologically driven desire to ruin social housing provision.

I do believe that social housing tenants should continue to have the option of buying their property, but only at full market value, and only if all of the money from the sale is reinvested in building/repairing social housing for the benefit of future generations.

Build social housing

In the wake of the 2007-08 bankers' insolvency crisis the Bank of England magicked up over £400 billion in Quantitative Easing, which they used to prop up the value of assets mainly held by the super-rich.

If the state can invent new money to protect the wealth of the super-rich, then it should also be able to create money in order to benefit wider society through infrastructure projects.

One such infrastructure project could be a fund for the construction of hundreds of thousands of new social housing units, which would not only benefit the tenants, but wider society too.

The construction of the houses would create jobs and demand within the economy, the tenants would pay rent creating a revenue stream for the government, and being freed from sky-high rents in the private rental sector would provide the social housing tenants with extra disposable income to spend, save, or invest in productive economic activities like starting small businesses.

Monetary reform
 

Source: Economics Help

One of the main reasons house prices have spiralled out of control is that the amount of money directed into the housing sector is dictated by profit-seeking private banks, not by any logical process.

As long as the private banks keep creating ever more money to pump into the housing sector, it's obvious that house prices will continue to inflate further and further beyond the reach of ordinary people, until there's another financial sector collapse, another set of bailouts, and the whole property price inflation frenzy starts up again.

If the amount of money directed into the housing sector is controlled so that it more-or-less matches wage growth, then house price inflation would no longer keep rising so ridiculously. 

Prioritise lending 

One of the most obscene things about the UK housing market is that it's usually way simpler to obtain a mortgage in order to rent the property out (buy-to-let) than it is to get a mortgage as an owner-occupier.

This is absolutely backwards. The easiest mortgages to obtain should be for people who intend to use the property as a home, and those who intend to use the property as a profit-seeking endeavour should be discouraged by significantly higher rates.

This could be achieved through government intervention with a tax on for-profit mortgage lending, the proceeds of which could be put into a fund to reduce rates for owner-occupier mortgages, and especially first time buyers.

Additional taxes on buy-to-let profiteers would also create a disincentive to them buying up all the affordable property in their area order to live off other people's backs.

Scrap Council Tax

Just think about it. You couldn't really get a more illogical form of local taxation than a tax based on a hastily conducted house valuation process that happened in 1991.

Council Tax either needs to be scrapped and replaced with a more logical form of property taxation, or at the very minimum reformed and updated based on current property valuations.

Land Value Tax

One alternative to Council Tax would be the adoption of Land Value Tax, which taxes all land based on its value.

One of the main benefits of Land Value Tax is that it gives idle land monopolists a huge incentive to put their land to productive use by selling it, renting it, or actually doing something productive with it themselves.

Here's a link to a full article on the subject.

Clamp down on slumlords

One of the worst aspects of the UK housing market is the virtually unregulated environment in which unscrupulous slumlords are left to operate.

In 2016 the Tory party voted down an amendment to their Housing Act that would have created a legal requirement to ensure that all private rental properties are "fit for human habitation".

You would have thought that a minimum legal standard to ensure that private landlords are prevented from renting out properties that are unfit for human habitation would be a decent starting point in tackling the scourge of unscrupulous profiteering slumlords, but no. The Tories voted against it, and it's hardly surprising that 71 of the Tory MPs who voted this measure down are private landlords themselves.

Security of tenure

One of the worst aspects of the private rental market is the lack of security of tenure. The fact that landlords can hoof tenants out after six months creates a perverse incentive to get rid of decent tenants in order to hike the rent and get a new set of tenants in. The landlord gets the benefit of a bi-annual rent hike, and the estate agents get the benefit of two sets of rip-off agency fees every year.

The losers are obviously the tenants who end up on an involuntary cycle of house moving, rent hikes, and rip off agency fees.

One solution to this grotesque profiteering would be to introduce new rules to reward good tenants with security of tenure. If tenants have stayed up-to-date with their rent, and kept the property in decent condition after six months, the landlord should be legally required to significantly extend the notice period on their next contract, so that good tenants never face the prospect of being forced out of their homes at just one month's notice.

Rent controls

The prospect of rent controls gets right-wing free market fanatics wetting their pants with fear. They know that the shockingly unregulated UK rental market is an excellent source of unearned income, and rent controls would significantly impede their profiteering.

The benefit of rent controls is that they prevent private landlords from socially cleansing certain areas by hiking rents way beyond the reach of ordinary people.

If people in wealthy areas want their bins collected, their supermarket shelves stacked, their hair cut, their car washed, or their house cleaned, then it's grotesque to expect those workers to spend hours commuting in from miles outside the area just to do the low-paid work.

As the state builds more social housing, one of the most efficient ways of preventing social cleansing is to introduce local rent controls.

Tax empty properties

There are hundreds of thousands of empty properties across the UK. Research published in January 2018 found that there are at least 11,000 properties that have stood empty for over ten years!

This is absolutely scandalous at a time of rising homelessness, soaring private rents, and millions of working people priced out of the housing market.

One obvious solution is to impose a tax on empty properties, giving the owners a clear financial incentive to either rent them out or sell them off.

Housing stock upgrades

One of the simplest solutions to the housing problem would be a national investment in housing upgrades. There's absolutely no excuse for modern houses to have no roof insulation. heating properties with inadequate insulation is a ludicrous waste of energy and resources.

One of the simplest ways to encourage investment in housing upgrades would be to introduce new minimum standards for private rental properties. If the housing isn't adequately insulated, the landlord is barred from renting it out (and if they leave it empty, they face paying the empty property tax).

Another way of improving housing stock is subsidised schemes to fit insulation and solar panels. Unfortunately the Tory government has been busy ideologically vandalising these kind of housing upgrade schemes because they don't comply with their crackpot "just leave it to market forces" ideology.

Ban tax-dodgers

One of the most obvious solutions of all is to ban tax-dodging shell companies based in tax havens from buying British property. If you're not a British citizen or resident, or an entity registered in Britain, then you're not allowed to buy British property.

Anyone who thinks it's not a real problem that tax-haven shell companies are able to buy up British property really needs to take a look at the Private Eye registry of offshore ownership to get a handle on the shocking scale of the problem.

Just think about all of that dodgy money sloshing around the UK property market, and how much of an effect it's had in adding to property price inflation.

And just think about all the tax that's not been paid, in the UK or wherever the money originated,

There's absolutely no justification for allowing tax-haven based entities to continue buying up such huge swathes of Britain.

 Another Angry Voice  is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.

OR

QE for the bankers failed, time for something else

 

 

After the 2007-08 global financial sector insolvency crisis the Bank of England began creating money via a process called quantitative easing (QE) in an attempt to prop up the UK economy. This 'new money' was distributed to the private banks that caused the financial sector meltdown in the first place. If the purpose of this exercise was to stimulate an economic recovery it was an abject failure (the UK suffered the slowest post-crisis recovery in economic history), but if the process was intended to further enrich the wealthiest people in society it was a roaring success.

How QE for the bankers failed

It's absolutely clear that the original £375 billion tranche of quantitative easing cash from the Bank of England benefited the wealthy minority. This isn't just my opinion, the Bank of England openly admitted that at least 40% of the benefit of their quantitative easing programmes went to the wealthiest 5% of households.

Anyone who understands basic macroeconomics will know why the accumulation of the majority of 'new money' by the wealthiest minority is a poor economic outcome. The super-rich are very much more likely to hoard any additional wealth they receive than the poor and ordinary. Ordinary people are much more likely to create economic demand by going out and spending it.

 

If monetary policy results in a ten figure windfall for the super-rich minority then the majority of it is likely to end up re-inflating the property market, re-inflating the stock market or getting stuffed in secretive offshore tax-havens.

If further enriching the wealthiest minority and re-establishing the economic conditions that existed before the 2007-08 meltdown were the objective then QE for the bankers was highly successful. If the objective was to stimulate any kind of economic recovery QE for the bankers was an  absolutely appalling waste of £375 billion.

 

Alternative forms of QE

 

If the benefits of 'new money' are distributed in different ways then the economic benefits could be much better. There are two main ways in which quantitative easing can be used differently in order to avoid the situation where the majority of the 'new money' ends up inflating unsustainable asset bubbles or stuffed into tax-havens.

 
Direct Quantitative Easing

 

Instead of creating 'new money' and distributing it to the private banks to do whatever they like with it, Direct QE cuts out the middle man and directs the 'new money' towards economically beneficial projects.

There are plenty ways a government intent on creating prosperity could use Direct QE cash to stimulate the economy and make the UK an attractive place to do business. High speed broadband for every home and business in the UK, improvements to our dilapidated public transport infrastructure, investment in the education system, science and R&D, pro-active health policies to keep the UK workforce in better condition, investment in renewable energy projects and energy-saving technologies ...

 

This quote from the respected economics professor Robert Skidelsky makes the case for Direct QE.

"The only way to ensure that 'new money' is put into circulation is to have the government spend it. The government would borrow the money directly from the central bank and use it to build houses, renew transport systems, invest in energy-saving technologies, and so forth. Sadly, any such monetary financing of public deficits is for the moment taboo. It is contrary to European Union regulations – and is opposed by all who regard post-crash governments' fiscal difficulties as an opportunity to shrink the role of the state." [source]

Skidelsky is making the case that if the central bank is going to magic money out of nowhere via quantitative easing, it would be better given to the government to invest in infrastructure projects and services (creating jobs and economic demand in the process).

 

'Helicopter money'

 

The other form of QE that would likely be far better for the economy than simply handing out 'new money' to the bankers who caused the economic crisis in the first place is nicknamed 'helicopter money'.

The idea of 'helicopter money' QE is that the central bank should distribute an equal share of the 'new money' that they create to each citizen. For example, if the Bank of England creates £65 billion in quantitative easing money, then each citizen in the UK should get a citizen's dividend of around £1,000 each.

Some people might try to argue that giving an equal share of 'new money' to every person is some kind of communist lunacy, however a citizen's divedend form of QE is actually quite a free market policy in comparison to QE for the bankers (handing control over the distribution of 'new money' to an elite group of establishment insiders). In fact the nickname 'helicopter money' was popularised by the right-wing ideologue Milton Friedman.

Reforming EU policy

 

As Skidelsky pointed out in the quote above the current policy of the EU blocks the European Central Bank or the central banks of other member states (like the Bank of England) from using Direct QE to fund infrastructure projects and stimulate economic demand. As far as the EU is concerned it's only acceptable to create 'new money' if it is distributed to the banks so that it can be used to benefit the wealthy minority at the expense of everyone else.

The solution to this problem would be for the UK government to demand that EU law be changed to allow quantitative easing money to be used in ways that benefit the whole economy, rather than exclusively benefiting the wealthiest minority. However the obvious problem is that the UK government is a Tory one with no interest in doing anything but serving the interests of the wealthiest minority, (serving the interests of their wealthy backers is the central ideology of the Tory party). It's obviously an utterly ludicrous fantasy to imagine a Conservative government lobbying the EU for them to overturn a monetary policy that exclusively benefits the rich at the expense of wider society and the economy as a whole.

Tory slash-the-state fanaticism

 

Another point that Skidelsky raised in the above quote is the way that many (including the Tory government) "regard post-crash governments' fiscal difficulties as an opportunity to shrink the role of the state". It's refreshing to see an economist admit that this is what the Tories are up to.

There's no way that the Tories would ever adopt a policy of Direct QE because using the state to administer an economic recovery where the private sector banks had manifestly failed would be a massive refutation of their core ideology that (despite all of the evidence to the contrary) the private sector is always more efficient than the state.

It's astonishing that such a huge number of people fell for the Tory austerity con. Even when they first started with their absurd "we must cut our way to growth" propaganda campaign it was obviously complete gibberish, but after six years of it, it's now absolutely clear that the austerity narrative is nothing more than a smokescreen to cover up the same old Tory policies of distributing as many state assets as possible to the private sector and the transference of wealth from the majority to the wealthiest minority.

As long as the UK is governed by a bunch of ideologically driven right-wing fanatics we'll be stuck with their economically toxic austerity dogma and the idea of the UK government administering a direct stimulus led recovery will remain a complete fantasy.

Corbynomics

 

The mainstream press have done such a consistent job of attacking and belttling Jeremy Corbyn that very few people actually understand what his economic policies are. For every column inch written about Corbyn's plans for the economy there's doubtless been hundreds of inches of absolute drivel written about how he's scruffy, too old, too left-wing, didn't sing the national anthem, didn't bow deeply enough at the Cenotaph ...

One of the most absurd and oft-repeated criticism is that Corbyn would take us back to the 1970s when what he is actually proposing is the use of Direct QE to fund infrastructure projects, which is clearly a modern progressive policy, albeit one that is based on a wealth of evidence from economic history rather than pure ideology like Tory austerity.

The Skidelsky quote above is actually a glowing commendation of Labour Party economic policy and a blatant swipe at Tory ideological austerity. Of course right-wing austerity fetishists will resort to the age old tactic of trying to smear their critics as lunatics, however with Skidelsky it's a bit of a problem given that he's is a former House of Lords Treasury spokesman for the Tory party! It's  obviously a little bit difficult for Tory tribalists to smear someone as just a "loony leftie" when they're a respected economics professor and former Tory party treasury spokesperson.

Blairite Shills

One of the most dispiriting things of all when Jeremy Corbyn announced his Direct QE policy was the way that a number of Blairites in the Labour Party joined in with the Tory chorus of disapproval, even going as far as calling Direct QE "economically illiterate".

Some of the worst offenders were Yvette Cooper (wife of Ed Balls, the architect of Labour's disastrous 2015 austerity-lite election campaign) and Chris Leslie (Ed Balls replacement as shadow chancellor).

It was utterly bizarre to see so-called Labour Party politicians furiously attacking Direct QE (a policy of stimulating the economy by improving infrastructure and creating jobs) and defending the failed policy of QE for the bankers (a strategy that resulted in a massive bonanza for the super-rich minority and pretty much nothing good for anyone else).

It just goes to show how much work Jeremy Corbyn has got to do to turn the Labour Party into a genuinely progressive party when so many Labour MPs so clearly favour the interests of the extremely rich over traditional Labour values like social justice, jobs and prosperity for all.

Conclusion

On the positive side it's great to see Skidelsky talking a bit of economic sense. After six years of economically toxic austerity gibberish it's about time more economists stood up and proposed alternatives like Direct QE.

If the Bank of England is going to use quantitative easing to create more 'new money' then it will need influential economists like Skidelsky arguing against a repetition of the failed QE for the bankers experiment.

On the negative side the UK political establishment looks to be stuck with a bunch of ideologically driven right-wing fanatics for the forseeable future, and as long as economic policy is dictated by hard-right economic ideology, the concept of the UK benefiting from any kind investment led recovery is a complete pipe dream.

 Another Angry Voice  is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.

OR

How the Green party is miles ahead of the game on monetary policy

For several years the group Positive Money has been running a public education drive to explain the way that money is created out of nothing by private banks, and then rented out to the public in interest bearing loans and mortgages, and why this kind of rentier system leads inevitably to irresolvable debt crises and vast speculative bubbles (here's a short video).

At first the establishment treated Positive Money dismissively, as if they were some kind of dangerous tinfoil hat wearing conspiracy peddlers, and tried to talk around the truth by harping on about things like capital requirements.

The Green party recognised the truth in what Positive Money have been highlighting, and in September 2013 they passed a motion to reform the monetary system by taking the power to create money away from the private banks and placing it in public hands.

This landmark motion didn't attract much attention at the time, this is hardly surprising since the mainstream economic press were hardly likely to pay much attention to what the Green party were up to. They should have been much more concerned with the fact that the Reinhart-Rogoff paper they had all lauded as concrete evidence that austerity was necessary was based on a hopelessly botched Excel spreadsheet that any proper science would have picked up in the process of peer review, and by the admission by the IMF that fiscal multipliers (government returns on investment) have been much, much higher since the global financial sector insolvency crisis (between 90p and £1.70 return per pound of investment, rather than the 50p return that austerity fetishists like George Osborne had assumed in their wildly over-optimistic economic projections).

Of the very little coverage about the Green party motion to reform the monetary system, the tone was negative. I actually agree with some of the criticism, because in my view their proposed solution isn't ideal, however to have recognised the problem and proposed a solution is far better than the political establishment (the Lib-Lab-Cons), which has carried on without any recognition of this glaring flaw in the way in which 97% of the money in the economy is created.

For the next six months Positive Money kept up their campaign to spread public awareness of the way money is created out of nothing by private banks and rented out to the public via interest bearing loans and mortgages, the political establishment continued to ignore the issue, and everyone pretty much forgot about the Greens.

Everything changed in March 2014 when the Bank of England released a document entitled Money Creation in the Modern Economy which admitted that "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money" and goes on to explain that banks actually loan out money whether or not they have enough in deposits in their reserves and then borrow the shortfall from the central bank to top up their reserves; thus showing that the Bank of England has accepted that Positive Money were absolutely right. This is probably the closest thing to a revolutionary paper released by the Bank of England in living memory, and has brought the subject of monetary policy to the fore.

This admission from the Bank of England shows that the Green party were well ahead of the game when they voted to reform monetary policy six months beforehand, and that the four other parties are way behind the game, with their heads stuck firmly in the outdated neoliberal textbooks that created the financial sector insolvency crisis in the first place.

That none of the other four parties have shown any interest in reforming the way money is created, in order to prevent the inflation of more speculative property bubbles (like the London bubble) is an illustration that they don't have any solutions. This is because they don't actually seem capable of recognising what the problem actually is, let alone offering anything resembling a solution.

The fact that the Labour party and the Liberal Democrats are offering no new solutions on monetary policy is bad enough (UKIP have been far too busy with their immigration fearmongering campaigns to look at the problem either) but the behaviour of George Osborne and the Tories has been frankly ludicrous. Not only is Osborne incapable of seeing the problem, he's busy pumping taxpayers' cash into the housing market (via Help to Buy and other such schemes) in order to further inflate the speculative property bubble caused by excessive and uncontrolled private sector money creation.

I don't think the Green party have got it exactly right on monetary policy, but they're way ahead of the Lib-Dems, Labour and UKIP by virtue of having actually recognised the problem, and they're double the distance ahead of George Osborne and the Tories because the Tories have actually introduced a load of policies which exacerbate the problem by using taxpayers' cash to pump up the market with false credit. This creation of false credit is their cack-handed solution to help people that have been priced out of the market due to the speculative bubble that has been fuelled by private sector money creation. Not only have they failed to see the root cause of the problem, but the solution they've devised simply makes the mess even worse.

To put this situation into a nice simple narrative, the Green party started running the race over six months ago (their running style isn't perfect, but they're moving along quite nicely and will hopefully really hit their stride soon), Labour and the Liberal Democrats are milling around at the start line unaware that the race has actually started, UKIP are off in the crowd somewhere hunting out immigrants, Muslims and homosexuals to intimidate, and George Osborne, like the clueless towel-folder that he is, has set off running in completely the wrong direction, going backwards around the track.

 Another Angry Voice  is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.

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